The French economist Thomas Piketty argued last year in a surprising best-seller, "Capital in
the Twenty-First Century," that rising wealth inequality was a natural result of free-market policies,
a direct challenge to the conventional view that economic inequalities shrink over time. The controversial
implication drawn by Mr. Piketty is that governments should raise taxes on the wealthy.
Notable quotes:
"... His speeches can blend biblical fury with apocalyptic doom. Pope Francis does not just criticize the excesses of global capitalism. He compares them to the "dung of the devil." He does not simply argue that systemic "greed for money" is a bad thing. He calls it a "subtle dictatorship" that "condemns and enslaves men and women." ..."
"... The Argentine pope seemed to be asking for a social revolution. "This is not theology as usual; this is him shouting from the mountaintop," said Stephen F. Schneck, the director of the Institute for Policy Research and Catholic studies at Catholic University of America in Washington. ..."
"... Left-wing populism is surging in countries immersed in economic turmoil, such as Spain, and, most notably, Greece . But even in the United States, where the economy has rebounded, widespread concern about inequality and corporate power are propelling the rise of liberals like Senator Bernie Sanders of Vermont and Senator Elizabeth Warren of Massachusetts, who, in turn, have pushed the Democratic Party presidential front-runner, Hillary Rodham Clinton, to the left. ..."
"... Even some free-market champions are now reassessing the shortcomings of unfettered capitalism. George Soros, who made billions in the markets, and then spent a good part of it promoting the spread of free markets in Eastern Europe, now argues that the pendulum has swung too far the other way. ..."
"... Many Catholic scholars would argue that Francis is merely continuing a line of Catholic social teaching that has existed for more than a century and was embraced even by his two conservative predecessors, John Paul II and Benedict XVI. Pope Leo XIII first called for economic justice on behalf of workers in 1891, with his encyclical "Rerum Novarum" - or, "On Condition of Labor." ..."
"... Francis has such a strong sense of urgency "because he has been on the front lines with real people, not just numbers and abstract ideas," Mr. Schneck said. "That real-life experience of working with the most marginalized in Argentina has been the source of his inspiration as pontiff." ..."
"... In Bolivia, Francis praised cooperatives and other localized organizations that he said provide productive economies for the poor. "How different this is than the situation that results when those left behind by the formal market are exploited like slaves!" he said on Wednesday night. ..."
"... It is this Old Testament-like rhetoric that some finding jarring, perhaps especially so in the United States, where Francis will visit in September. His environmental encyclical, "Laudato Si'," released last month, drew loud criticism from some American conservatives and from others who found his language deeply pessimistic. His right-leaning critics also argued that he was overreaching and straying dangerously beyond religion - while condemning capitalism with too broad a brush. ..."
"... The French economist Thomas Piketty argued last year in a surprising best-seller, "Capital in the Twenty-First Century," that rising wealth inequality was a natural result of free-market policies, a direct challenge to the conventional view that economic inequalities shrink over time. The controversial implication drawn by Mr. Piketty is that governments should raise taxes on the wealthy. ..."
"... "Working for a just distribution of the fruits of the earth and human labor is not mere philanthropy," he said on Wednesday. "It is a moral obligation. For Christians, the responsibility is even greater: It is a commandment." ..."
"... "I'm a believer in capitalism but it comes in as many flavors as pie, and we have a choice about the kind of capitalist system that we have," said Mr. Hanauer, now an outspoken proponent of redistributive government ..."
"... "What can be done by those students, those young people, those activists, those missionaries who come to my neighborhood with the hearts full of hopes and dreams but without any real solution for my problems?" he asked. "A lot! They can do a lot. ..."
ASUNCIÓN, Paraguay - His speeches can blend biblical fury with apocalyptic doom. Pope Francis
does not just criticize the excesses of global capitalism. He compares them to the "dung of the devil."
He does not simply argue that systemic "greed for money" is a bad thing. He calls it a "subtle dictatorship"
that "condemns and enslaves men and women."
Having returned to his native Latin America, Francis has renewed his left-leaning critiques on
the inequalities of capitalism, describing it as an underlying cause of global injustice, and a prime
cause of climate change. Francis escalated that line last week when he made a
historic apology for the crimes of the Roman Catholic Church during the period of Spanish colonialism
- even as he called for a global movement against a "new colonialism" rooted in an inequitable economic
order.
The Argentine pope seemed to be asking for a social revolution. "This is not theology as usual; this is him shouting from the mountaintop," said Stephen F. Schneck,
the director of the Institute for Policy Research and Catholic studies at Catholic University of
America in Washington.
The last pope who so boldly placed himself at the center of the global moment was John Paul II,
who during the 1980s pushed the church to confront what many saw as the challenge of that era, communism.
John Paul II's anti-Communist messaging dovetailed with the agenda of political conservatives eager
for a tougher line against the Soviets and, in turn, aligned part of the church hierarchy with the
political right.
Francis has defined the economic challenge of this era as the failure of global capitalism to
create fairness, equity and dignified livelihoods for the poor - a social and religious agenda that
coincides with a resurgence of the leftist thinking marginalized in the days of John Paul II. Francis'
increasingly sharp critique comes as much of humanity has never been so wealthy or well fed - yet
rising inequality and repeated financial crises have unsettled voters, policy makers and economists.
Left-wing populism is surging in countries immersed in economic turmoil, such as Spain, and,
most notably, Greece. But even in the United States, where the economy has rebounded, widespread
concern about inequality and corporate power are propelling the
rise of liberals like Senator Bernie Sanders of Vermont and Senator Elizabeth Warren of Massachusetts,
who, in turn, have pushed the Democratic Party presidential front-runner, Hillary Rodham Clinton,
to the left.
Even some free-market champions are now reassessing the shortcomings of unfettered capitalism.
George Soros, who made billions in the markets, and then spent a good part of it promoting the spread
of free markets in Eastern Europe, now argues that the pendulum has swung too far the other way.
"I think the pope is singing to the music that's already in the air," said Robert A. Johnson,
executive director of the Institute for New Economic Thinking, which was financed with $50 million
from Mr. Soros. "And that's a good thing. That's what artists do, and I think the pope is sensitive
to the lack of legitimacy of the system."
Many Catholic scholars would argue that Francis is merely continuing a line of Catholic social
teaching that has existed for more than a century and was embraced even by his two conservative predecessors,
John Paul II and Benedict XVI. Pope Leo XIII first called for economic justice on behalf of workers
in 1891, with his encyclical "Rerum Novarum" - or, "On Condition of Labor."
Mr. Schneck, of Catholic University, said it was as if Francis were saying, "We've been talking
about these things for more than one hundred years, and nobody is listening."
Francis has such a strong sense of urgency "because he has been on the front lines with real people,
not just numbers and abstract ideas," Mr. Schneck said. "That real-life experience of working with
the most marginalized in Argentina has been the source of his inspiration as pontiff."
Francis made his speech on Wednesday night, in Santa Cruz, Bolivia, before nearly 2,000 social
advocates, farmers, trash workers and neighborhood activists. Even as he meets regularly with heads
of state, Francis has often said that change must come from the grass roots, whether from poor people
or the community organizers who work with them. To Francis, the poor have earned knowledge that is
useful and redeeming, even as a "throwaway culture" tosses them aside. He sees them as being at the
front edge of economic and environmental crises around the world.
In Bolivia, Francis praised cooperatives and other localized organizations that he said provide
productive economies for the poor. "How different this is than the situation that results when those
left behind by the formal market are exploited like slaves!" he said on Wednesday night.
It is this Old Testament-like rhetoric that some finding jarring, perhaps especially so in the
United States, where Francis will visit in September. His environmental encyclical, "Laudato Si',"
released last month, drew loud criticism from some American conservatives and from others who found
his language deeply pessimistic. His right-leaning critics also argued that he was overreaching and
straying dangerously beyond religion - while condemning capitalism with too broad a brush.
"I wish Francis would focus on positives, on how a free-market economy guided by an ethical framework,
and the rule of law, can be a part of the solution for the poor - rather than just jumping from the
reality of people's misery to the analysis that a market economy is the problem," said the Rev. Robert
A. Sirico, president of the Acton Institute for the Study of Religion and Liberty, which advocates
free-market economics.
Francis' sharpest critics have accused him of being a Marxist or a Latin American Communist, even
as he opposed communism during his time in Argentina. His tour last week of Latin America began in
Ecuador and Bolivia, two countries with far-left governments. President Evo Morales of Bolivia, who
wore a Che Guevara patch on his jacket during Francis' speech, claimed the pope as a kindred spirit
- even as Francis seemed startled and caught off guard when Mr. Morales gave him a wooden crucifix
shaped like a hammer and sickle as a gift.
Francis' primary agenda last week was to begin renewing Catholicism in Latin America and reposition
it as the church of the poor. His apology for the church's complicity in the colonialist era received
an immediate roar from the crowd. In various parts of Latin America, the association between the
church and economic power elites remains intact. In Chile, a socially conservative country, some
members of the country's corporate elite are also members of Opus Dei, the traditionalist Catholic
organization founded in Spain in 1928.
Inevitably, Francis' critique can be read as a broadside against Pax Americana, the period of
capitalism regulated by global institutions created largely by the United States. But even pillars
of that system are shifting. The World Bank, which long promoted economic growth as an end in itself,
is now increasingly focused on the distribution of gains, after the Arab Spring revolts in some countries
that the bank had held up as models. The latest generation of international trade agreements includes
efforts to increase protections for workers and the environment.
The French economist Thomas Piketty argued last year in a surprising best-seller, "Capital
in the Twenty-First Century," that rising wealth inequality was a natural result of free-market policies,
a direct challenge to the conventional view that economic inequalities shrink over time. The controversial
implication drawn by Mr. Piketty is that governments should raise taxes on the wealthy.
Mr. Piketty roiled the debate among mainstream economists, yet Francis' critique is more unnerving
to some because he is not reframing inequality and poverty around a new economic theory but instead
defining it in moral terms. "Working for a just distribution of the fruits of the earth and human
labor is not mere philanthropy," he said on Wednesday. "It is a moral obligation. For Christians,
the responsibility is even greater: It is a commandment."
Nick Hanauer, a Seattle venture capitalist, said that he saw Francis as making a nuanced point
about capitalism, embodied by his coinage of a "social mortgage" on accumulated wealth - a debt to
the society that made its accumulation possible. Mr. Hanauer said that economic elites should embrace
the need for reforms both for moral and pragmatic reasons. "I'm a believer in capitalism but
it comes in as many flavors as pie, and we have a choice about the kind of capitalist system that
we have," said Mr. Hanauer, now an outspoken proponent of redistributive government policies
like a higher minimum wage.
Yet what remains unclear is whether Francis has a clear vision for a systemic alternative to the
status quo that he and others criticize. "All these critiques point toward the incoherence of the
simple idea of free market economics, but they don't prescribe a remedy," said Mr. Johnson, of the
Institute for New Economic Thinking.
Francis acknowledged as much, conceding on Wednesday that he had no new "recipe" to quickly change
the world. Instead, he spoke about a "process of change" undertaken at the grass-roots level.
"What can be done by those students, those young people, those activists, those missionaries
who come to my neighborhood with the hearts full of hopes and dreams but without any real solution
for my problems?" he asked. "A lot! They can do a lot. "You, the lowly, the exploited, the poor
and underprivileged, can do, and are doing, a lot. I would even say that the future of humanity is
in great measure in your own hands."
"... Oligarchs compete and alternate with one another over controlling and defining who votes and doesn't vote. They decide who secures plutocratic financing and mass media propaganda within a tiny corporate sector. 'Voter choice' refers to deciding which preselected candidates are acceptable for carrying out an agenda of imperial conquests, deepening class inequalities and securing legal impunity for the oligarchs, their political representatives and state, police and military officials. ..."
"... The politicians who participate in the restrictive and minoritarian electoral system, with its predetermined oligarchic results, celebrate 'elections' as a democratic process because a plurality of voters, as subordinate subjects, are incorporated. ..."
"... The striking differences in the rate of abstention in France, Puerto Rico and the UK reflect the levels of class dissatisfaction and rejection of electoral politics. ..."
"... Corbyn's foreign policy promised to end the UK's involvement in imperial wars and to withdraw troops from the Middle East. He also re-confirmed his long opposition to Israel's colonial land-grabbing and oppression of the Palestinian people, as a principled way to reduce terrorist attacks at home. ..."
"... In other words, Corbyn recognized that introducing real class-based politics would increase voter participation. This was especially true among young voters in the 18-25 year age group, who were among the UK citizens most harmed by the loss of stable factory jobs, the doubling of university fees and the cuts in national health services. ..."
"... In contrast, the French legislative elections saw the highest rate of voter abstention since the founding of the 5 th Republic. These high rates reflect broad popular opposition to ultra-neo-liberal President Francois Macron and the absence of real opposition parties engaged in class struggle. ..."
"... The established parties and the media work in tandem to confine elections to a choreographed contest among competing elites divorced from direct participation by the working classes. This effectively excludes the citizens who have been most harmed by the ruling class' austerity programs implemented by successive rightist and Social Democratic parties ..."
"... The vast majority of citizens in the wage and salaried class do not trust the political elites. They see electoral campaigns as empty exercises, financed by and for plutocrats. ..."
"... Most citizens recognize (and despise) the mass media as elite propaganda megaphones fabricating 'popular' images to promote anti-working class politicians, while demonizing political activists engaged in class-based struggles. ..."
"... Modern "Democracy" is a system for privatizing power and socializing responsibility. The elites get the power, the masses have to take responsibility for the consequences. because, of course, it's a 'democracy.' ..."
The most striking feature of recent elections is not ' who won or who lost' , nor is it
the personalities, parties and programs. The dominant characteristic of the elections is the widespread
repudiation of the electoral system, political campaigns, parties and candidates.
Across the world, majorities and pluralities of citizens of voting age refuse to even register
to vote (unless obligated by law), refuse to turn out to vote (voter abstention), or vote against
all the candidates (boycott by empty ballot and ballot spoilage).
If we add the many citizen activists who are too young to vote, citizens denied voting rights
because of past criminal (often minor) convictions, impoverished citizens and minorities denied voting
rights through manipulation and gerrymandering, we find that the actual 'voting public' shrivel to
a small minority.
As a result, present day elections have been reduced to a theatrical competition among the elite
for the votes of a minority. This situation describes an oligarchy – not a healthy democracy.
Oligarchic Competition
Oligarchs compete and alternate with one another over controlling and defining who votes and
doesn't vote. They decide who secures plutocratic financing and mass media propaganda within a tiny
corporate sector. 'Voter choice' refers to deciding which preselected candidates are acceptable for
carrying out an agenda of imperial conquests, deepening class inequalities and securing legal impunity
for the oligarchs, their political representatives and state, police and military officials.
Oligarchic politicians depend on the systematic plundering Treasury to facilitate and protect
billion dollar/billion euro stock market swindles and the illegal accumulation of trillions of dollars
and Euros via tax evasion (capital flight) and money laundering.
The results of elections and the faces of the candidates may change but the fundamental economic
and military apparatus remains the same to serve an ever tightening oligarchic rule.
The elite regimes change, but the permanence of state apparatus designed to serve the elite becomes
ever more obvious to the citizens.
Why the Oligarchy Celebrates " Democracy "
The politicians who participate in the restrictive and minoritarian electoral system, with
its predetermined oligarchic results, celebrate 'elections' as a democratic process because a plurality
of voters, as subordinate subjects, are incorporated.
Academics, journalists and experts argue that a system in which elite competition defines citizen
choice has become the only way to protect 'democracy' from the irrational 'populist' rhetoric appealing
to a mass of citizens vulnerable to authoritarianism (the so-called ' deplorables' ). The
low voter turn-out in recent elections reduces the threat posed by such undesirable voters.
A serious objective analysis of present-day electoral politics demonstrates that when the masses
do vote for their class interests – the results deepen and extend social democracy. When most voters,
non-voters and excluded citizens choose to abstain or boycott elections they have sound reasons for
repudiating plutocratic-controlled oligarchic choices.
We will proceed to examine the recent June 2017 voter turnout in the elections in France, the
United Kingdom and Puerto Rico. We will then look at the intrinsic irrationality of citizens voting
for elite politicos as opposed to the solid good sense of the popular classes rejection of elite
elections and their turn to extra-parliamentary action.
Puerto Rico's Referendum
The major TV networks (NBC, ABC and CBS) and the prestigious print media ( New York Times,
Washington Post, Financial Times and Washington Post ) hailed the ' overwhelming victory'
of the recent pro-annexationist vote in Puerto Rico. They cited the 98% vote in favor of becoming
a US state!
The media ignored the fact that a mere 28% of Puerto Ricans participated in the elections to vote
for a total US takeover. Over 77% of the eligible voters abstained or boycotted the referendum.
In other words, over three quarters of the Puerto Rican people rejected the sham ' political
elite election '. Instead, the majority voted with their feet in the streets through direct action.
France's Micro-Bonaparte
In the same way, the mass media celebrated what they dubbed a ' tidal wave ' of electoral
support for French President Emmanuel Macron and his new party, 'the Republic in March'. Despite
the enormous media propaganda push for Macron, a clear majority of the electorate (58%) abstained
or spoiled their ballots, therefore rejecting all parties and candidates, and the entire French electoral
system. This hardly constitutes a 'tidal wave' of citizen support in a democracy.
During the first round of the parliamentary election, President Macron's candidates received 27%
of the vote, barely exceeding the combined vote of the left socialist and nationalist populist parties,
which had secured 25% of the vote. In the second round, Macron's party received less then 20% of
the eligible vote.
In other words, the anti-Macron rejectionists represented over three quarters of the French electorate.
After these elections a significant proportion of the French people – especially among the working
class –will likely choose extra-parliamentary direct action, as the most democratic expression of
representative politics.
The United Kingdom: Class Struggle and the Election Results
The June 2017 parliamentary elections in the UK resulted in a minority Conservative regime forced
to form an alliance with the fringe Democratic Unionist Party (DUP), a far-right para-military Protestant
party from Northern Ireland. The Conservatives received 48% of registered voters to 40% who voted
for the Labor Party. However, 15 million citizens, or one-third of the total electorate abstained
or spoiled their ballots. The Conservative regime's plurality represented 32% of the electorate.
Despite a virulent anti-Labor campaign in the oligarch-controlled mass media, the combined Labor
vote and abstaining citizens clearly formed a majority of the population, which will be excluded
from any role the post-election oligarchic regime despite the increase in the turnout (in comparison
to previous elections).
Elections: Oligarchs in Office, Workers in the Street
The striking differences in the rate of abstention in France, Puerto Rico and the UK reflect
the levels of class dissatisfaction and rejection of electoral politics.
The UK elections provided the electorate with something resembling a class alternative in the
candidacy of Jeremy Corbyn. The Labor Party under Corbyn presented a progressive social democratic
program promising substantial and necessary increases in social welfare spending (health, education
and housing) to be funded by higher progressive taxes on the upper and upper middle class.
Corbyn's foreign policy promised to end the UK's involvement in imperial wars and to withdraw
troops from the Middle East. He also re-confirmed his long opposition to Israel's colonial land-grabbing
and oppression of the Palestinian people, as a principled way to reduce terrorist attacks at home.
In other words, Corbyn recognized that introducing real class-based politics would increase
voter participation. This was especially true among young voters in the 18-25 year age group, who
were among the UK citizens most harmed by the loss of stable factory jobs, the doubling of university
fees and the cuts in national health services.
In contrast, the French legislative elections saw the highest rate of voter abstention since
the founding of the 5 th Republic. These high rates reflect broad popular opposition to
ultra-neo-liberal President Francois Macron and the absence of real opposition parties engaged in
class struggle.
The lowest voter turn-out (28%) occurred in Puerto Rico. This reflects growing mass opposition
to the corrupt political elite, the economic depression and the colonial and semi-colonial offerings
of the two-major parties. The absence of political movements and parties tied to class struggle led
to greater reliance on direct action and voter abstention.
Clearly class politics is the major factor determining voter turnout. The absence of class struggle
increases the power of the elite mass media, which promotes the highly divisive identity politics
and demonizes left parties. All of these increase both abstention and the vote for rightwing politicians,
like Macron.
The mass media grossly inflated the significance of the right's election victories of the while
ignoring the huge wave of citizens rejecting the entire electoral process. In the case of the UK,
the appearance of class politics through Jeremy Corbyn increased voter turnout for the Labor Party.
However, Labor has a history of first making left promises and ending up with right turns. Any future
Labor betrayal will increase voter abstention.
The established parties and the media work in tandem to confine elections to a choreographed
contest among competing elites divorced from direct participation by the working classes. This effectively
excludes the citizens who have been most harmed by the ruling class' austerity programs implemented
by successive rightist and Social Democratic parties.
The decision of many citizens not to vote is based on taking a very rational and informed view
of the ruling political elites who have slashed their living standards often by forcing workers to
compete with immigrants for low paying, unstable jobs. It is deeply rational for citizens to refuse
to vote within a rigged system, which only worsens their living conditions through its attacks on
the public sector, social welfare and labor codes while cutting taxes on capital.
Conclusion
The vast majority of citizens in the wage and salaried class do not trust the political elites.
They see electoral campaigns as empty exercises, financed by and for plutocrats.
Most citizens recognize (and despise) the mass media as elite propaganda megaphones fabricating
'popular' images to promote anti-working class politicians, while demonizing political activists
engaged in class-based struggles.
Nevertheless, elite elections will not produce an effective consolidation of rightwing rule. Voter
abstention will not lead to abstention from direct action when the citizens recognize their class
interests are in grave jeopardy.
The Macron regime's parliamentary majority will turn into an impotent minority as soon as he tries
carry out his elite promise to slash the jobs of hundreds of thousands of French public sector workers,
smash France's progressive labor codes and the industry-wide collective bargaining system and pursue
new colonial wars.
Puerto Rico's profound economic depression and social crisis will not be resolved through a referendum
with only 28% of the voter participation. Large-scale demonstrations will preclude US annexation
and deepen mass demands for class-based alternatives to colonial rule.
Conservative rule in the UK is divided by inter-elite rivalries both at home and abroad. '
Brexit' , the first step in the break-up of the EU, opens opportunities for deeper class struggle.
The social-economic promises made by Jeremy Corbyn and his left-wing of the Labor Party energized
working class voters, but if it does not fundamentally challenge capital, it will revert to being
a marginal force.
The weakness and rivalries within the British ruling class will not be resolved in Parliament
or by any new elections.
The demise of the UK, the provocation of a Conservative-DUP alliance and the end of the EU (BREXIT)
raises the chance for successful mass extra-parliamentary struggles against the authoritarian neo-liberal
attacks on workers' civil rights and class interests.
Elite elections and their outcomes in Europe and elsewhere are laying the groundwork for a revival
and radicalization of the class struggle.
In the final analysis class rule is not decided via elite elections among oligarchs and their
mass media propaganda. Once dismissed as a 'vestige of the past', the revival of class struggle is
clearly on the horizon.
A much needed analysis by Mr. Petras. Here in Brazil it is becoming increasingly apparent that
extra-electoral manifestations are the only path left for the destitute classes. The only name
to which the Left seems able to garner votes is the eternal Luiz da Silva, who has pandered to
Capital all through his political career, and will possibly become inelectable anyway, by upcoming
criminal convictions.
"In the final analysis class rule is not decided via elite elections among oligarchs and their
mass media propaganda. Once dismissed as a 'vestige of the past', the revival of class struggle
is clearly on the horizon."
Globalism is the new Feudalism. In the U.S. the serfs still think they are "middle class".
Only the working class can help the working class. This truism is being re-learned.
We see in any country with a district voting system how democracy does not function: USA, GB
and France.
The Dutch equal representation system is far superior, the present difficulties of forming a government
reflect the deep divisions in Dutch society.
These deep divisions should be clear anywhere, now that the struggle between globalisation and
nationalism is in full swing.
The vast majority citizens (sic) in the wage and salaried class do not trust the
political elites. They see electoral campaigns as empty exercises, financed by and for plutocrats.
And they'd be correct.
What amazes me is how many "professional" people still smugly retain faith in an obviously
rigged and parasitic system even as their independence is relentlessly eroded. Also, most of them,
even the non-TV watchers, seem to slurp the usual propaganda about who the enemies supposedly
are.
Self reflection obviously ain't their shtick. Maybe there's comfort in denial and mythology.
The DUP would be very quick to insist that they are not para-militaries. As would their Tweedledee,
Sinn Féin (invariably referred to as 'Sinn-Féin-I-R-A' by the Unionist factions; not even banter).
It is undeniable that in the past they have had links to UVF/UDA, both straight-up rightwing
paramilitary thug outfits formed to mirror and combat the Provisionals and latterly the Continuity
IRA and self-styled "Real IRA" nationalist/socialist thugs. And presumably do so to this day.
"Everybody knows" that each political group is pretty much furtively hand-in-glove with their
respective heavy mobs, and who's in which one. It's a wee tiny place, the Six Counties.
Corbyn has definitely struck a rich vein of popularity (if not populism) among the "don't vote
it just encourages them" tendency, and a healthy majority of wealthy and not so wealthy young
Brits. Listen to the Glasto crowd. He gets this everywhere now in public (and maybe at home, IDK).
Remarkable transformation for somebody who only few years ago was a dull grey teadrinker from
Camden Council, with a half-century-old cardigan and a Catweazle beard.
Even The Demon Blair could never raise this sort of adulation.
I want to like the article, but Petras gives three examples, all of which are bad examples
for different reasons.
In the case of Puerto Rico, opposition parties campaigned, not for people to vote and to vote
against the government position, but to abstain altogether. This is a long standing political
tactic of opposition parties and other examples can be found. Its not used that often because
its usually a better tactic to just try to get people to get out and vote against the government.
However, it can work if there is a minimum turnout requirement for the election to be valid, which
is often the case in referenda and seems to be here. But this is evident of people rejecting the
government position, not the entire system. Voters obviously responded to the pro-Commonwealth
status campaign. By the way, usually referenda on things like independence, or in this case statehood,
get unusually high turnout, it was the opposite this time because of the opposition tactic.
On the other hand, in the 2017 French elections there really was a high amount of non-organized
or dis-organized abstention on the part of pissed off voters. The problem with Petras account
is that this was in fact widely covered in French media and by French political analysts, with
commentary along the lines of "these people must be really pissed off not to vote!".
In the recent UK elections turnout was both quite high and increased, so I have no idea wtf
Petras is talking about here.
If the examples used weren't so ridiculously bad the article could be OK I guess.
High abstention rates occur when big chunks of the electorate suspect that the elections are
rigged, usually by means of vote counting fraud, but effective or legal restrictions on who can
run or who can vote can do the job. The rigging might even take the form of discarding ballots,
which is the most common form in the US, which means turnout would be recorded as low even if
people tried to vote!
Keep in mind that with universal suffrage, it seems consistently that about a quarter of the
electorate has no interest in participating in electoral politics whatever the situation. If forced
to vote by law, they will spoil their ballots, vote for parties that campaign to end the democratic
system, or not vote anyway and suffer whatever legal penalties are imposed. Reasonably healthy
democracies can get to turnouts of around 70% fairly consistently. Anything less should be taken
as evidence of widespread electoral fraud.
Modern "Democracy" is a system for privatizing power and socializing responsibility. The
elites get the power, the masses have to take responsibility for the consequences. because, of
course, it's a 'democracy.'
Bottom line: political systems are to a great extent irrelevant. Putting your faith in any
system: monarchy, socialism, representative democracy, parliamentary democracy, checks and balances,
etc., is a mistake. There is (almost) no system that cannot be made to muddle through if the elites
have some consideration for the society as a whole. And there is absolutely no system that cannot
be easily corrupted if the elites care only about themselves.
In nearly the whole of S America elections just reflect the struggle between two or more
groups of rich people for power.
The same could be said for the revolution of 1776, and it continues in the US today.
I said, "No, there is a great difference. Taft is amiable imbecility. Wilson is willful
and malicious imbecility and I prefer Taft."
Roosevelt then said : "Pettigrew, you know the two old parties are just alike. They are both
controlled by the same influences, and I am going to organize a new party " a new political
party " in this country based upon progressive principles.
"Roosevelt then said : "Pettigrew, you know the two old parties are just alike. They are both
controlled by the same influences "
- R. F. Pettigrew, "Imperial Washington," The story of American Public life from 1870 to
1920 (1922), p 234
I recommend not voting because it is not ethical to send a non-corrupt person to Washington.
The United States is too powerful.
Good recommendation and for a good reason.
I'd say that it's unethical to send anyone to Washington since there is too much wealth and
power concentrated in the hands of too few, ethical or not.
In fact, the record shows that few men are worthy to wield much power at all and a system such
as we have is almost guaranteed to produce hideous, irresponsible monsters if not downright sadistic
ones (like Hillary, for instance).
Instead of talking about draining the swamp, we should have flushed the toilet long go. Now
we have to live with the stench.
The primary reason why lots of working class people don't vote is because they dislike the
liberal policy combinations offered by the elite-controlled political parties. Most working class
people are socially conservative and economically moderate, while most wealthy, educated people
are socially and economically liberal, so mainstream political parties only offer liberal policy
packages.
Modern representative democracy was designed in the late 19th Century to allow for some democratic
representation for the middle class while protecting the bourgeois elites from the rule of the
mob. That may have been a reasonable concern at the time, but it now means tyranny of the liberal
elites.
The solution is to reduce the power of political parties, either by making political parties
more accountable to their grass roots supporters or getting rid of political parties and directly
electing government ministers.
@eD A well informed comment without the kind of Marxist or other blinkers on that Petras wears.
But I question the last sentence. Electoral fraud could work to add votes as well as destroy or
lose them and vigilance is needed anyway. Are there highly numerate and worldly wise psephologists
with adequate research funding who are acting plausibly to keep a check on the way the bureaucratic
guardians of our electoral processes do their job? (All sorts of factors could make a big difference
in the proportion who vote. Is it part of the culture one was broůght up in to believe that one
had a duty to do one's modest best to participate? Are there a lot of elections at sometimes inconvenient
times within a short space of time? Is there a genuine problem deciding between the only candidates
who might win on either grand moral or national policy grounds or even simple self interest? Is
it assumed only one candidate can possibly win the seat? That last is one of the few arguments
for proportional representatiion because a dutiful voter who has a preference for one party will
make his infinitesimal contribution by voting).
Even Australia with its 80 to 90+ per cent turnouts to vote in sometimes complicated elections
with mixed Alternative Vote/Preferential and proportional representation for the different houses
of parliament (and not much "informal" voting as protest) exhibits the growing weaknesses of democracies.
That is, as I propose to write in another comment, the corruption of respect for the oligarchs
(whether traditional upper and upper middle classes or labour bosses), the replacement of the
class that went into politics as a duty by professiinal calculating careerists – plus opportunistic
extremists – and the growth of a sense of entitlement which ptobably adds up by now to 150 per
cent of all that is or can be. Thanks to China's huge appetite for Australian resources and products
Australian democracy can stagger on with scope even for absurd fantasies e.g. about Australia's
proper level of masochism in rejecting coal for energy when it can make absolutely no difference
to Australia – except to make it poorer.
@unpc downunder Your version of history differs from mine. 1832 and even 1867 in the UK still
built in some protection from the unpropertied lower orders (and 100 per cent from women – publicly
anyway) but Australian colonial suffrage was typically the alarming manhood suffrage with only
property qualification for some upper house elections as a break on the masses' savage expropriatory
instincts – not too much to be feared amongst ambitious colonial strivers in fact. The general
assumption that everyone with an IQ of 100 and a degree in Fashionable Jargon-ridden Muddled Thinking
is as worth listening to as anyone from the tradional educated bougeois or landed elite has inevitably
put politics into the hands of the ruthless, often arriviste careerists.
Please think again about your last par. which I suggest is a prescription for (even worse)
disaster. The idea of getting rid of political parties (how?) is as unrealistic as having the
bored populace vote directly for membership of the executive government who, in parliamentary
systems at least, have to command legislative majorities to be effective. And why do you think
responsiveness to those few who join political parties is likely to benefit the wider public when
you consider what has been wrought in the UK Labour Party by election of the leader by a flood
of new young members wlling to pay Ł3 to join!! I believe the Tories have also moved in that idiotic
direction. Imagine even the comparatively simple business of making motor cars being headed by
a CEO who had campaigned for votes amingst all workers who had been employed for more than 4 weeks
with promises of squeezing shareholders and doubling wages.
@jilles dykstra Your observation seems to depend for its truth on people (and you?) seeing
politics and national life as a zero sum game with no chance of increase in wealth or other good
things of life. That seems to be a logical attitude only in countries which sre still Malthusian
like say Niger with its TFF of 7! Is that a tealistic assessment of 2017 South America, or most
of it?
@jilles dykstra We see in any country with a district voting system how democracy does not
function: USA, GB and France.
The Dutch equal representation system is far superior, the present difficulties of forming a government
reflect the deep divisions in Dutch society.
These deep divisions should be clear anywhere, now that the struggle between globalisation and
nationalism is in full swing. I had in mind your comment when writing part of my last par in #17
which I won't repeat.
But allow me to expŕess astonishment at the idea that a truly sovereign nation benefits from
an electoral system which so represents irreconcilable differences in society that a government
cannot be formed. The Netherlands comfortable position as a minor feature of the EU makes it perhaps
less of a problem than, at least potentially, it is for Israel. Whenever Israel handles anything
really stupidly it is a good bet that it is during wrangling over putting together a majority
government.
Another problem with PR well illustrated by Israel that you don't mention is that citizens
have no local member who has to show that he cares about his constituents' concerns and actually
gets to know about them. That, for the average citizen has to be a really important matter. In
Australia we have just seen a pretty dodgy Chinese government aligned businessman/ donor to the
New South Wales Labor Party rewarded with nomination to a winnable place in the PR election of
the Senate. There is no way he would be put forward to win votes in a local electorate of thousands
of voters rather than millions.
We have just witnessed one of the most significant steps toward a one world
economic system that we have ever seen. Negotiations for the Trans-Pacific Partnership
have been completed, and if approved it will create the largest trading bloc
on the planet. But this is not just a trade agreement. In this treaty, Barack
Obama has thrown in all sorts of things that he never would have been able to
get through Congress otherwise. And once this treaty is approved, it will be
exceedingly difficult to ever make changes to it. So essentially what is happening
is that the Obama agenda is being permanently locked in for 40 percent of the
global economy.
The United States, Canada, Japan, Mexico, Australia, Brunei,
Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam all intend to sign
on to this insidious plan. Collectively, these nations have a total population
of about 800 million people and a combined GDP of approximately 28 trillion
dollars.
In hailing the agreement, Obama said, "Congress and the American people
will have months to read every word" before he signs the deal that he described
as a win for all sides.
"If we can get this agreement to my desk, then we can help our businesses
sell more Made in America goods and services around the world, and we can
help more American workers compete and win," Obama said.
Sadly, just like with every other "free trade" agreement that the U.S. has
entered into since World War II, the exact opposite is what will actually happen.
Our trade deficit will get even larger, and we will see even more jobs and even
more businesses go overseas.
But the mainstream media will never tell you this. Instead, they are just
falling all over themselves as they heap praise on this new trade pact. Just
check out a couple of the headlines that we saw on Monday…
Overseas it is a different story. Many journalists over there fully recognize
that this treaty greatly benefits many of the big corporations that played a
key role in drafting it. For example, the following comes
from a newspaper in Thailand…
You will hear much about the importance of the TPP for "free trade".
The reality is that this is an agreement to manage its members' trade
and investment relations - and to do so on behalf of each country's most
powerful business lobbies.
Packaged as a gift to the American people that will renew industry and
make us more competitive, the Trans-Pacific Partnership is a Trojan horse.
It's a coup by multinational corporations who want global subservience to
their agenda. Buyer beware. Citizens beware.
The gigantic corporations that dominate our economy don't care about the
little guy. If they can save a few cents on the manufacturing of an item by
moving production to Timbuktu they will do it.
Over the past couple of decades, the United States has lost tens of thousands
of manufacturing facilities and millions of good paying jobs due to these "free
trade agreements". As we merge our economy with the economies of nations where
it is legal to pay slave labor wages, it is inevitable that corporations will
shift jobs to places where labor is much cheaper. Our economic infrastructure
is being absolutely eviscerated in the process, and very few of our politicians
seem to care.
Once upon a time, the city of Detroit was the greatest manufacturing city
on the planet and it had the highest per capita income in the entire nation.
But today it is a rotting, decaying hellhole that the rest of the world laughs
at. What has happened to the city of Detroit is happening to the entire nation
as a whole, but our politicians just keep pushing us even farther down the road
to oblivion.
Just consider what has happened since NAFTA was implemented. In the year
before NAFTA was approved, the United States actually had a trade surplus
with Mexico and our trade deficit with Canada was only 29.6 billion dollars.
But now things are very different. In one recent year, the U.S. had a combined
trade deficit with Mexico and Canada of
177 billion dollars.
And these trade deficits are not just numbers. They represent real jobs that
are being lost. It has been estimated that the U.S. economy loses
approximately 9,000 jobs for every 1 billion dollars of goods that are imported
from overseas, and one professor has estimated that cutting our trade deficit
in half would create
5 million more jobs in the United States.
Just yesterday, I wrote about how there are
102.6 million working age Americans that do not have a job right now. Once
upon a time, if you were honest, dependable and hard working it was easy to
get a good paying job in this country. But now things are completely different.
Why aren't more people alarmed by numbers like this?
And of course the Trans-Pacific Partnership is not just about "free trade".
In one of my
previous articles, I explained that Obama is using this as an opportunity
to permanently impose much of his agenda on a large portion of the globe…
It is basically a gigantic end run around Congress.
Thanks to leaks, we have learned that so many of the things that Obama has
deeply wanted for years are in this treaty. If adopted, this treaty
will fundamentally change our laws regarding Internet freedom, healthcare,
copyright and patent protection, food safety, environmental standards, civil
liberties and so much more. This treaty includes many of the rules
that alarmed Internet activists so much
when SOPA was being debated, it would essentially ban all "Buy American"
laws, it would give Wall Street banks much more freedom to trade risky
derivatives and it would force even more domestic manufacturing offshore.
The Republicans in Congress foolishly gave Obama
fast track negotiating authority, and so Congress will not be able to change
this treaty in any way. They will only have the opportunity for an up or down
vote.
I would love to see Congress reject this deal, but we all know that is extremely
unlikely to happen. When big votes like this come up, immense pressure is put
on key politicians. Yes, there are a few members of Congress that still have
backbones, but most of them are absolutely spineless. When push comes to shove,
the globalist agenda always seems to advance.
Meanwhile, the mainstream media will be telling the American people about
all of the wonderful things that this new treaty will do for them. You would
think that after how badly past "free trade" treaties have turned out that we
would learn something, but somehow that never seems to happen.
The agenda of the globalists is moving forward, and very few Americans seem
to care.
First of all, because NAFTA means jobs. American jobs, and good-paying
American jobs. If I didn't believe that, I wouldn't support this agreement.
Freddie
Many of those NeoCon Bibi lovers and Jonathan Pollard conservatives love
TPP and H1B Ted Cruz. Ted is also a Goldman Sachs boy.
Squids_In
That giant sucking sound just got gianter.
MrTouchdown
Probably, but here's a thought:
It might be a blowing sound of all things USA deflating down (in USD
terms) to what they are actually worth when compared to the rest of the
world. For example, a GM assembly line worker will make what an assembly
line worker in Vietnam makes.
This will, of course, panic Old Yellen, who will promptly fill her diaper
and begin subsidizing wages with Quantitative Pleasing (QP1).
Buckaroo Banzai
If this gets through congress, the Republican Party better not bother
asking for my vote ever again.
Chupacabra-322
Vote? You seem to think "voting" will actually influence actions / Globalists
plans which have been decades in the making amoungst thse Criminal Pure
Evil Lucerferian Psychopaths hell bent on Total Complete Full Spectrum World
Domination.
Yea, keep voting. I'll be out hunting down these Evil doers like the
dogs that they are.
Buckaroo Banzai
I have no illusions regarding the efficacy of voting. It is indeed a
waste of time.
What I said was, they better not dare even ASK for my vote.
Ignatius
Doesn't matter. Diebold is so good at counting that you don't even need
to show up at the polls anymore. It's like a miracle of modern technology.
Peter Pan
Did the article say 40%?
I imagine they meant 40% of whatever is left after we all go to hell
in a hand basket.
Great day for the multinationals and in particular the pharmaceutical
companies.
"... While cheaper fuel is a boost to consumer spending power in much of the developed world, it is also a disinflationary force that reinforces bets on loose monetary policy in Europe, Japan and China, even as the Federal Reserve proceeds with glacial tightening. ..."
While cheaper fuel is a boost to consumer spending power in much of the developed world,
it is also a disinflationary force that reinforces bets on loose monetary policy in Europe, Japan
and China, even as the Federal Reserve proceeds with glacial tightening.
Oil prices are ending the year how they began - under pressure.
...Already, investment is
estimated to have dropped by 20% in 2015, and that is just the beginning.
This unfolding collapse of oil and gas investments, of course, will ricochet through the
capital goods and heavy construction sectors with gale force. Eventually, annual investment
may decline by $250 to $400 billion before balance is restored, meaning that what were windfall profits
and surging wages and bonuses in these sectors just a year or two back will evaporate in the years
ahead.
... ... ...
... as the credit bubble begins to shrink it means that profits, incomes, balance sheets
and credit-worthiness are all shrinking, too. So is the related GDP.
But now the days of heady accumulation of "sovereign wealth" in Saudi Arabia, Norway, Kazakhstan
and dozens of commodity producers in between is over and done. What is happening is that these funds
are entering a cycle of liquidation which is unprecedented in financial history.
Indeed, the data for Saudi Arabia, Qatar, Kuwait, the UAE and other members of the Gulf Cooperation
Council (GCC) is stunning. During the global credit boom they amassed sovereign wealth funds totaling
$2.3 trillion. But with deficits now estimated at 13% of GDP and rising, the level of asset liquidation
is soaring.
Thus, if crude oil prices recover to $56 per barrel next year, the GCC states will need to liquidate
$208 billion of investments.
... ... ...
In a word, the unnatural Big Fat Bid of the sovereign wealth funds is going All Offers as oil
and commodity producers struggle to fund their budgets.
... ... ...
Jack Burton
ENERGY Sector "what were windfall profits and surging wages and bonuses in these sectors just
a year or two back will evaporate in the years ahead."
This is already crushing Canada and North Dakota, whose actual oil field cut backs are only now
beginning as they tried to produce their way out of the debt crisis. But the hedges have run out,
prices seem glued to the basement and NOW the time has come to eliminate the expeditures. That
mean people losing jobs all up and down the line.
Stockman is brilliant here, as always.
I was watching "The Big Short" last night too. Excellent film. Very historic and everyone should
watch it.
"... the ideal markets that would produce Pareto Optimal allocations don't actually exist ..."
"... moving from actually existing non-ideal markets to ideal markets WOULD NOT BE Pareto Optimal even if it was possible to do so, which it isn't. ..."
"... In short, Pareto Optimality is a just so story that has absolutely no bearing on the real world other than as an ideological justification for tons of bullshit. ..."
"... The next step in graduate students' indoctrination is to teach them that although Pareto Optimal reallocations are implausible, you can get around that with a "principle of compensation." The principle, too is based on a same yardstick fallacy. But never mind the Pareto Optimality smokescreen and the compensation smokescreen have constrained economists to think in terms of doing what is best for the wealthiest. Funny how that happens. ..."
"Graduate students of economics learn, early in their careers, that markets allocations are Pareto
Optimal."
What they don't learn is that
1. the ideal markets that would produce Pareto Optimal allocations don't actually exist
and
2. moving from actually existing non-ideal markets to ideal markets WOULD NOT BE Pareto Optimal
even if it was possible to do so, which it isn't.
In short, Pareto Optimality is a just so story that has absolutely no bearing on the real
world other than as an ideological justification for tons of bullshit.
The next step in graduate students' indoctrination is to teach them that although Pareto Optimal
reallocations are implausible, you can get around that with a "principle of compensation." The
principle, too is based on a same yardstick fallacy. But never mind the Pareto Optimality smokescreen
and the compensation smokescreen have constrained economists to think in terms of doing what is
best for the wealthiest. Funny how that happens.
The next step in graduate students' indoctrination is to teach them that although Pareto
Optimal reallocations are implausible, you can get around that with a "principle of compensation."
The principle, too is based on a same yardstick fallacy. But never mind the Pareto Optimality
smokescreen and the compensation smokescreen have constrained economists to think in terms
of doing what is best for the wealthiest....
Richest in U.S. Shape Private Tax System to Save Billions
By NOAM SCHEIBER and PATRICIA COHEN
The very wealthiest families are able to quietly shape tax policy that will allow them
to shield millions, if not billions, of their income using maneuvers available only to several
thousand Americans.
Supposing I understand the essay, Roger Farmer is just writing the logical justification
to Herbert Spencer's (never Charles Darwin's) "survival of the fittest" rationale that Spencer
made wildly popular after Darwin published "On the Origin of Species."
Spencer was the successful ultimate justifier of British "sun-never-setting-on-the-Empire"
capitalism. Spencer sold a biological justification, Farmer is selling a logical justification
of Empire.
No, I think Farmer is dissing Pareto Optimality and using "sunspots" as sarcasm. He seems
to do it in a way that opens up space for countless side arguments that leave Pareto
Optimality unscathed.
The bottom line is that NO ONE would have ever paid any attention to the not just
"weak" but nonsensical concept if it didn't serve the function of justifying and ultimately
glorifying great inequalities of wealth and income.
;
I understand the argument and I am entirely right:
Roger Farmer is just writing the
logical justification to Herbert Spencer's (never Charles Darwin's) "survival of the
fittest" rationale that Spencer made wildly popular after Darwin published "On the Origin
of Species."
Spencer was the successful ultimate justifier of British "sun-never-setting-on-the-Empire"
capitalism. Spencer sold a biological justification, Farmer is selling a logical justification
of Empire capitalism.
I needed to be sure the argument was as empty morally as I supposed initially, but I
supposed correctly. The Roger Farmer essay is an amoral logical justification of imperial
capitalism. Plato's "Republic" conceived amorally. ;
Farmer is dissing Pareto Optimality and using "sunspots" as sarcasm. He seems to do it
in a way that opens up space for countless side arguments that leave Pareto Optimality
unscathed.
The bottom line is that NO ONE would have ever paid any attention to the
not just "weak" but nonsensical concept if it didn't serve the function of justifying
and ultimately glorifying great inequalities of wealth and income.
[ Agreed completely, but this argument runs with mine. ]
Farmer is dissing Pareto Optimality and using "sunspots" as sarcasm. He seems to do it
in a way that opens up space for countless side arguments that leave Pareto Optimality
unscathed....
[ The issue is that Roger Farmer leaves Pareto Optimality unscathed,
and this is an essential point. The essay is beyond the morality of now, but there is
no beyond. ]
"... the ideal markets that would produce Pareto Optimal allocations dont actually exist ..."
"... moving from actually existing non-ideal markets to ideal markets WOULD NOT BE Pareto Optimal even if it was possible to do so, which it isnt. ..."
"... In short, Pareto Optiimality is a just so story that has absolutely no bearing on the real world other than as an ideological justification for tons of bullshit. ..."
"... The next step in graduate students indoctrination is to teach them that although Pareto Optimal reallocations are implausible, you can get around that with a principle of compensation. The principle, too is based on a same yardstick fallacy. But never mind the Pareto Optimality smokescreen and the compensation smokescreen have constrained economists to think in terms of doing what is best for the wealthiest. Funny how that happens. ..."
"Graduate students of economics learn, early in their careers, that markets allocations are Pareto
Optimal."
What they don't learn is that
1. the ideal markets that would produce Pareto Optimal allocations don't actually exist
and
2. moving from actually existing non-ideal markets to ideal markets WOULD NOT BE Pareto Optimal
even if it was possible to do so, which it isn't.
In short, Pareto Optimality is a just so story that has absolutely no bearing on the real
world other than as an ideological justification for tons of bullshit.
The next step in graduate students' indoctrination is to teach them that although Pareto Optimal
reallocations are implausible, you can get around that with a "principle of compensation." The
principle, too is based on a same yardstick fallacy. But never mind the Pareto Optimality smokescreen
and the compensation smokescreen have constrained economists to think in terms of doing what is
best for the wealthiest. Funny how that happens.
The next step in graduate students' indoctrination is to teach them that although Pareto
Optimal reallocations are implausible, you can get around that with a "principle of compensation."
The principle, too is based on a same yardstick fallacy. But never mind the Pareto Optimality
smokescreen and the compensation smokescreen have constrained economists to think in terms
of doing what is best for the wealthiest....
Richest in U.S. Shape Private Tax System to Save Billions
By NOAM SCHEIBER and PATRICIA COHEN
The very wealthiest families are able to quietly shape tax policy that will allow them
to shield millions, if not billions, of their income using maneuvers available only to several
thousand Americans.
Supposing I understand the essay, Roger Farmer is just writing the logical justification
to Herbert Spencer's (never Charles Darwin's) "survival of the fittest" rationale that Spencer
made wildly popular after Darwin published "On the Origin of Species."
Spencer was the successful ultimate justifier of British "sun-never-setting-on-the-Empire"
capitalism. Spencer sold a biological justification, Farmer is selling a logical justification
of Empire.
No, I think Farmer is dissing Pareto Optimality and using "sunspots" as sarcasm. He seems
to do it in a way that opens up space for countless side arguments that leave Pareto
Optimality unscathed.
The bottom line is that NO ONE would have ever paid any attention to the not just
"weak" but nonsensical concept if it didn't serve the function of justifying and ultimately
glorifying great inequalities of wealth and income.
;
I understand the argument and I am entirely right:
Roger Farmer is just writing the
logical justification to Herbert Spencer's (never Charles Darwin's) "survival of the
fittest" rationale that Spencer made wildly popular after Darwin published "On the Origin
of Species."
Spencer was the successful ultimate justifier of British "sun-never-setting-on-the-Empire"
capitalism. Spencer sold a biological justification, Farmer is selling a logical justification
of Empire capitalism.
I needed to be sure the argument was as empty morally as I supposed initially, but I
supposed correctly. The Roger Farmer essay is an amoral logical justification of imperial
capitalism. Plato's "Republic" conceived amorally. ;
Farmer is dissing Pareto Optimality and using "sunspots" as sarcasm. He seems to do it
in a way that opens up space for countless side arguments that leave Pareto Optimality
unscathed.
The bottom line is that NO ONE would have ever paid any attention to the
not just "weak" but nonsensical concept if it didn't serve the function of justifying
and ultimately glorifying great inequalities of wealth and income.
[ Agreed completely, but this argument runs with mine. ]
Farmer is dissing Pareto Optimality and using "sunspots" as sarcasm. He seems to do it
in a way that opens up space for countless side arguments that leave Pareto Optimality
unscathed....
[ The issue is that Roger Farmer leaves Pareto Optimality unscathed,
and this is an essential point. The essay is beyond the morality of now, but there is
no beyond. ]
"... Emerging market companies with debt in dollars and revenue in sinking local currencies could struggle as the Fed begins what is expected to be a series of interest rate increases. ..."
Added to that, growth in global trade has slowed considerably and a decline in raw material prices
was posing problems for economies reliant on commodities, while many countries still had weak financial
sectors as the financial risks increase in emerging markets, she said.
"All of that means global growth will be disappointing and uneven in 2016," Lagarde said, noting
that mid-term prospects had also weakened as low productivity, ageing populations and the effects
of the global financial crisis dampened growth. In October, the IMF forecast that the world economy
would grow by 3.6% in 2016.
... ... ....
Emerging market companies with debt in dollars and revenue in sinking local currencies could
struggle as the Fed begins what is expected to be a series of interest rate increases.
Lagarde warned that rising US interest rates and a stronger dollar could lead to companies defaulting
on their payments and that this could "infect" banks and states.
"... The obvious candidate for this dark force [correlation between (rising) inequality and (low) growth] is crony capitalism. When a country succumbs to cronyism, friends of the rulers are able to appropriate large amounts of wealth for themselves -- for example, by being awarded government-protected monopolies over certain markets, as in Russia after the fall of communism. That will obviously lead to inequality of income and wealth. It will also make the economy inefficient, since money is flowing to unproductive cronies. Cronyism may also reduce growth by allowing the wealthy to exert greater influence on political policy, creating inefficient subsidies for themselves and unfair penalties for their rivals. ..."
"... The real problem is that money does not go to where it should go, as we see for example in the United States. The money does not flow into the real economy, because the transmission mechanism is broken. That is why we have a bubble in the financial system. The answer is not to tighten monetary policy, but to reform monetary policy so as to ensure that the money gets to the right place... ..."
"... As Stiglitz notes, the transmission mechanisms are broken. Economists trickle down monetary policy might work in theory, but not in practice, as we have seen for the last seven years, when low rates dont trickle down and were wasted instead on asset speculation by the 1%. ..."
"... Reform of the Fed, and the end of cronyism are essential to making sure that the stimulus of low rates gets to Main Street, to ordinary people, and not primarily to asset speculators. ..."
"... The recent decision by the Fed to raise interest rates is the latest example of the rigged economic system. Big bankers and their supporters in Congress have been telling us for years that runaway inflation is just around the corner. They have been dead wrong each time. Raising interest rates now is a disaster for small business owners who need loans to hire more workers and Americans who need more jobs and higher wages. As a rule, the Fed should not raise interest rates until unemployment is lower than 4 percent. Raising rates must be done only as a last resort - not to fight phantom inflation. ..."
"... And in one sentence Summers illustrates exactly why we dodged a bullet in not appointing Summers to be Fed Chair. Preserving the power of the Fed is not the most important policy. Changing the Fed composition so that it is more consumer friendly and not dominated by Wall Street interests is the most important policy change needed. ..."
"... the Balkanized character of US banking regulation is indefensible and would be ended. The worst regulatory idea of the 20th century-the dual banking system-persists into the 21st. The idea is that we have two systems one regulated by the States and the Fed and the other regulated by the OCC so banks have choice. With ambitious regulators eager to expand their reach, the inevitable result is a race to the bottom. ..."
"... Summers is also calling for higher capital requirements. Excellent stuff! ..."
This is the beginning of a long response from Larry Summers to an op-ed by Bernie Sanders:
The Fed and Financial Reform
– Reflections on Sen. Sanders op-Ed
: Bernie Sanders had an
op Ed in the New York Times
on Fed reform last week that provides an opportunity to reflect
on the Fed and financial reform more generally. I think that Sanders is right in his central
point that financial policy is overly influenced by financial interests to its detriment and
that it is essential that this be repaired.
At the same time, reform requires careful reflection if it is not to be counterproductive.
And it is important in approaching issues of reform not to give ammunition to right wing critics
of the Fed who would deny it the capacity to engage in the kind of crisis responses that have
judged in their totality been successful in responding to the financial crisis.
The most important policy priority with respect to the Fed is protecting it from stone age
monetary ideas like a return to the gold standard, or turning policymaking over to a formula,
or removing the dual mandate commanding the Fed to worry about unemployment as well as inflation.
...
JohnH said...
Disagree!!! There is more to this than just interest rates. There is the matter of how the policy
gets implemented--who gets low rates. Currently the low rates serve mostly the 1%, who profit
enormously from them. Case in point: Mort Zuckerberg's 1% mortgage!
"The obvious candidate for
this dark force [correlation between (rising) inequality and (low) growth] is crony capitalism.
When a country succumbs to cronyism, friends of the rulers are able to appropriate large amounts
of wealth for themselves -- for example, by being awarded government-protected monopolies over
certain markets, as in Russia after the fall of communism. That will obviously lead to inequality
of income and wealth. It will also make the economy inefficient, since money is flowing to unproductive
cronies. Cronyism may also reduce growth by allowing the wealthy to exert greater influence on
political policy, creating inefficient subsidies for themselves and unfair penalties for their
rivals."
As we know (although most here steadfastly ignore it) the Fed is rife with crony capitalism.
As Bernie pointed out, 4 of the regional governors are from Goldman Sachs. Other examples are
abundant. Quite simply, the system is rigged to benefit the few, minimizing any potential trickle
down.
If a broad economic recovery is the goal, ending cronyism at the Fed is likely to be far more
effective that low interest rates channeled only to the 1%.
JohnH said in reply to JohnH...
Stiglitz:
The real problem is that money does not go to where it should go, as we see for example
in the United States. The money does not flow into the real economy, because the transmission
mechanism is broken. That is why we have a bubble in the financial system. The answer is not to
tighten monetary policy, but to reform monetary policy so as to ensure that the money gets to
the right place...
Small and medium enterprises cannot borrow money at zero interest rates -
not even a private person, I wish I could do that (laughs). I'm more worried about the loan interest
rates, which are still too high. Access for small and medium enterprises to credit is too expensive.
That's why it is so important that the transmission mechanism work..."
http://www.cash.ch/news/alle/stiglitz-billiggeld-lost-kein-problem-3393853-448
And let's not forget consumer credit rates, which barely dropped during the Great Recession
and are still well above 10%. Even mortgage lending, which primarily benefits the affluent, have
been stagnant for years despite historically low rates.
As Stiglitz notes, the transmission mechanisms are broken. Economists' trickle down monetary
policy might work in theory, but not in practice, as we have seen for the last seven years, when
low rates don't trickle down and were wasted instead on asset speculation by the 1%.
Reform of the Fed, and the end of cronyism are essential to making sure that the stimulus of
low rates gets to Main Street, to ordinary people, and not primarily to asset speculators.
Peter K. said in reply to JohnH...
Bernie Sanders:
"The recent decision by the Fed to raise interest rates is the latest example of the rigged
economic system. Big bankers and their supporters in Congress have been telling us for years
that runaway inflation is just around the corner. They have been dead wrong each time. Raising
interest rates now is a disaster for small business owners who need loans to hire more workers
and Americans who need more jobs and higher wages. As a rule, the Fed should not raise interest
rates until unemployment is lower than 4 percent. Raising rates must be done only as a last
resort - not to fight phantom inflation.
"
The financial system reform legislation in 2017 will also need to include these matters:
1.
Licensure fees and higher and more differential income taxation rates based on the type of financial
trading ratios the entities have (in order to direct more emphasis to real-economy lending and
away from speculative and leveraged positions used in the financial asset trading marketplaces,
so hedge funds probably would face the highest rates in income taxation). For a certain period
after enactment these added taxes would be payable by the banks using their excess reserves, which
will simply be eliminated until the reserve accounts return to the historically normal period
when excess reserves were very small (there would no longer be a need for IOER, as the excess
would be eliminated by operation of the taxation statutes). Attaching added ways & means statutes
to all the financial service entities also serves to 'cover' some more of huge financial risk
held by society and produced by them while the success of this huge sector actually contributes
to the financing of self-government - which is also an indirect way to attach high Net Worth being
used).
2. New statutory provisions need to reach any and all entities in the financial community regardless
of definitions based on the functions they serve or provide (or the way they are named - so yes,
the prior separation for deposit-management banking from investing activities can still happen,
but this only helps to define which of the differential provisions apply, not help the entity
escape them). Perhaps as a result Bank Holding Companies and other large entities won't use a
complex network of hundreds of subsidiaries as these would not then serve as a way to avoid taxation,
regulatory standards on what are prudent expectations, or supervision; or be used simply to obfuscate
-- so investors and regulators can't see the truth of matters.
3. The newly named central bank needs to hold the discretion to buy Treasury bonds directly
from the Treasury. This would discipline these fundamental asset-trading marketplaces and the
huge primary dealer group of entities, and weaken the fox-and-hen-house influence on public finance.
4. New accounting approaches for the central bank would clarify what happens should the Congress
direct redemption amounts or asset sales for the public's purposes. A good portion of the current
FRB's book of owned assets can be redeemed or sold without affecting the 'power' of the central
bank, and the proceeds used then, for example, to lower payroll taxes via a direct transfer to
the social security trust fund's set of accounts).
Senator Sanders, good stuff. Bring out the vote, let us get others in Congress with whom you
can work.
BillB said...
Summers: "The most important policy priority with respect to the Fed is protecting it from stone
age monetary ideas like a return to the gold standard, or turning policymaking over to a formula,
or removing the dual mandate commanding the Fed to worry about unemployment as well as inflation."
And in one sentence Summers illustrates exactly why we dodged a bullet in not appointing Summers
to be Fed Chair. Preserving the power of the Fed is not the most important policy. Changing the
Fed composition so that it is more consumer friendly and not dominated by Wall Street interests
is the most important policy change needed.
Summers argument is the same we always hear from so-called "centrists." "You hippies should
shut up because you are helping the opposition."
You hear the same sort of argument with respect to Black Lives Matter.
pgl said in reply to pgl...
On financial regulation - Summers is spot on here:
"the Balkanized character of US banking regulation is indefensible and would be ended. The
worst regulatory idea of the 20th century-the dual banking system-persists into the 21st. The
idea is that we have two systems one regulated by the States and the Fed and the other regulated
by the OCC so banks have choice. With ambitious regulators eager to expand their reach, the
inevitable result is a race to the bottom."
It is called regulatory capture.
Summers is also calling for higher capital requirements. Excellent stuff!
Summers's remarks and articles were followed by an explosion of debate concerning "secular stagnation"-a term commonly
associated with Alvin Hansen's work from the 1930s to '50s, and frequently employed in Monthly Review to explain developments
in the advanced economies from the 1970s to the early 2000s.2
Secular stagnation can be defined as the tendency to long-term (or secular) stagnation in the private accumulation process of the
capitalist economy, manifested in rising unemployment and excess capacity and a slowdown in overall economic growth. It is often
referred to simply as "stagnation." There are numerous theories of secular stagnation but most mainstream theories hearken back to
Hansen, who was Keynes's leading early follower in the United States, and who derived the idea from various suggestions in Keynes's
General Theory of Employment, Interest and Money (1936).
Responses to Summers have been all over the map, reflecting both the fact that the capitalist economy has been slowing down, and
the role in denying it by many of those seeking to legitimate the system. Stanford economist John B. Taylor contributed a stalwart
denial of secular stagnation in the Wall Street Journal. In contrast, Paul Krugman, who is closely aligned with Summers,
endorsed secular stagnation on several occasions in the New York Times. Other notable economists such as Brad DeLong and
Michael Spence soon weighed in with their own views.3
Three prominent economists have new books directly addressing the phenomena of secular stagnation.4
It has now been formally modelled by Brown University economists Gauti Eggertsson and Neil Mehrotra, while Thomas Piketty's high-profile
book bases its theoretical argument and policy recommendations on stagnation tendencies of capitalism. This explosion of interest
in the Summers/Krugman version of stagnation has also resulted in a collection of articles and debate, edited by Coen Teulings and
Richard Baldwin, entitled Secular Stagnation: Facts, Causes and Cures.5
Seven years after "The Great Financial Crisis" of 2007–2008, the recovery remains sluggish. It can be argued that the length and
depth of the Great Financial Crisis is a rather ordinary cyclical crisis. However, the monetary and fiscal measures to combat it
were extraordinary. This has resulted in a widespread sense that there will not be a return to "normal." Summers/Krugman's resurrection
within the mainstream of Hansen's concept of secular stagnation is an attempt to explain how extraordinary policy measures following
the 2007–2008 crisis merely led to the stabilization of a lethargic, if not comatose, economy.
But what do these economists mean by secular stagnation? If stagnation is a reality, does their conception of it make current
policy tools obsolete? And what is the relationship between the Summers/Krugman notion of secular stagnation and the monopoly-finance
capital theory?
... ... ...
In "secular stagnation," the term "secular" is intended to differentiate between the normal business cycle and long-term, chronic
stagnation. A long-term slowdown in the economy over decades can be seen as superimposed on the regular business cycle, reflecting
the trend rather than the cycle.
In the general language of economics, secular stagnation, or simply stagnation, thus implies that the long-run potential economic
growth has fallen, constituting the first pillar of MISS. This has been most forcefully argued for by Robert Gordon, as well as Garry
Kasparov and Peter Thiel.6
Their argument is that the cumulative growth effect of current (and future) technological changes will be far weaker than in the
past. Moreover, demographic changes place limits on the development of "human capital." The focus is on technology, which orthodox
economics generally sees as a factor external to the economy and on the supply-side (i.e., in relation to cost). Gordon's position
is thus different than that of moderate Keynesians like Summers and Krugman, who focus on demand-side contradictions of the system.
In Gordon's supply-side, technocratic view, there are forces at work that will limit the growth in productive input and the efficiency
of these inputs. This pillar of MISS emphasizes that it is constraints on the aggregate supply-side of the economy that have diminished
absolutely the long-run potential growth.
The second pillar of MISS, also a supply-side view, goes back at least to Joseph Schumpeter. To explain the massive slump of 1937,
Schumpeter maintained there had emerged a growing anti-business climate. Moreover, he contended that the rise of the modern corporation
had displaced the role of the entrepreneur; the anti-business spirit had a repressive effect on entrepreneurs' confidence and optimism.7
Today, this second pillar of MISS has been resurrected suggestively by John B. Taylor, who argues the poor recovery is best "explained
by policy uncertainty" and "increased regulation" that is unfavorable to business. Likewise, Baker, Bloom, and Davis have forcefully
argued that political uncertainty can hold back private investment and economic growth.8
Summers and Krugman, as Keynesians, emphasize a third MISS pillar, derived from Keynes's famous liquidity trap theory, which contends
that the "full-employment real interest rate" has declined in recent years. Indeed, both Summers and Krugman demonstrate that real
interest rates have declined over recent decades, therefore moving from an exogenous explanation (as in pillars one and two) to a
more endogenous explanation of secular stagnation.9
The ultimate problem here is lack of investment demand, such that, in order for net investment to occur at all, interest rates have
to be driven to near zero or below. Their strong argument is that there are now times when negative real interest rates are needed
to equate saving and investment with full employment.
However, "interest rates are not fully flexible in modern economies"-in other words, market-determined interest rate adjustments
chronically fail to achieve full employment. Summers contends there are financial forces that prohibit the real interest rate from
becoming negative; hence, full employment cannot be realized.10
Some theorists contend that there has been demographic structural shifts increasing the supply of saving, thus decreasing interest
rates. These shifts include an increase in life expectancy, a decrease in retirement age, and a decline in the growth rate of population.
Others, including Summers, point out that stagnation in capital formation (or accumulation) can be attributed to a decrease in
the demand for loanable funds for investment. One mainstream explanation offered for this is that today's new technologies and companies,
such as Google, Microsoft, Amazon, and Facebook, require far less capital investment. Another hypothesis is that there has been an
important decrease in the demand for loanable funds, although they argue this is due to a preference for safe assets. These factors
can function together to keep the real interest rate very low. The policy implication of secular low interest rates is that monetary
policy is more difficult to implement effectually; during a recession, it is weakened and can even become ineffectual.
Edward Glaeser, focusing on "secular joblessness," places severe doubt on the first pillar of MISS, but then makes a very important
additional argument. Glaeser rejects the notion that there has been a slowdown in technological innovation; innovation is simply
"unrelenting." Likewise, he is far less concerned with secular low real interest rates, which may be far more cyclical. "Therefore,"
contends Glaeser, "stagnation is likely to be temporary."
Nonetheless, Glaeser underscores secular joblessness, and thus the dysfunction of U.S. labor markets constitutes a fourth pillar
of MISS: "The dysfunction in the labour market is real and serious, and seems unlikely to be solved by any obvious economic trend."
Somehow, then, the problem is due to a misfit of skills or "human capital" on the side of workers, who thus need retraining. "The
massive secular trend in joblessness is a terrible social problem for the US, and one that the country must try to address" with
targeted policy.11
Glaeser's argument for the dysfunction of U.S. labor markets is based on recession-generated shocks to employment, specifically of
less-skilled U.S. workers. After 1970, when workers lost their job, the damage to human capital became permanent. In short, when
human capital depreciates due to unemployment, overall abilities and "talent" are "lost" permanently. This may be because the skills
required in today's economy need to be constantly practiced to be retained. Thus, there is a ratchet-like effect in joblessness caused
by recessions, whereby recession-linked joblessness is not fully reversed during recoveries-and all this is related to skills (the
human capital of the workers), and not to capital itself. According to Glaeser, the ratchet-like effect of recession-linked joblessness
is further exacerbated by the U.S. social-safety net, which has "made joblessness less painful and increased the incentives to stay
out of work."12
Glaeser contends that, if his secular joblessness argument is correct, the macroeconomic fiscal interventions argued for by Summers
and Krugman are off-base.13
Instead, the safety net should be redesigned in order to encourage rather than discourage people from working. Additionally, incentives
to work need to be radically improved through targeted investments in education and workforce training.14
Such views within the mainstream debate, emphasizing exogenous factors, are generally promoted by freshwater (conservative) rather
than saltwater (liberal) economists. Thus, they tend to emphasize supply-side or cost factors.
The fifth pillar of MISS contends that output and productivity growth are stagnant due to a failure to invest in infrastructure,
education, and training. Nearly all versions of MISS subscribe to some version of this, although there are both conservative and
liberal variations. Barry Eichengreen underscores this pillar and condemns recent U.S. fiscal developments that have "cut to the
bone" federal government spending devoted to infrastructure, education, and training.
The fifth pillar of MISS necessarily reflects an imbalance between public and private investment spending. Many theorists maintain
that the imbalance between public and private investment spending, hence secular stagnation, "is not inevitable." For example, Eichengreen
contends if "the US experiences secular stagnation, the condition will be self-inflicted. It will reflect the country's failure to
address its infrastructure, education and training needs. It will reflect its failure to…support aggregate demand in an effort to
bring the long-term unemployed back into the labour market."15
The sixth pillar of MISS argues that the "debt overhang" from the overleveraging of financial firms and households, as well as
private and public indebtedness, are a serious drag on the economy. This position has been argued for most forcefully by several
colleagues of Summers at Harvard, most notably Carmen Reinhart and Kenneth Rogoff.16
Atif Mian and Amir Sufi also argue that household indebtedness was the primary culprit causing the economic collapse of 2007–2008.
Their policy recommendation is that the risk to mortgage borrowers must be reduced to avoid future calamities.17
As noted, the defenders of MISS do not necessarily support a compatibility between the above six pillars: those favored by conservatives
are supply-side and exogenous in emphasis, while liberals tend towards demand-side and endogenous ones. Instead, most often these
pillars are developed as competing theories to explain the warrant of some aspect of secular stagnation, and/or to defend particular
policy positions while criticizing alternative policy positions. However, the concern here is not whether there is the possibility
for a synthesis of mainstream views. Rather, the emphasis is on how partial and separate such explanations are, both individually
and in combination.
Hans G. Despain teaches political economy at Nichols College, where he is the chair of the Department of Economics.
"... WW I happened after 20 yrs during which the the superpower Britain had been blatantly replacing their dwindling economic influence by demonstrations of military powers. Now which nation today is siphoning off by ever more military means the products and raw materials of others, while not even caring a bit about welfare for the majority of their own citizens? ..."
"... But it's so much easier to make propaganda against Mr Putin's public appearances than seriously address the point that this guy is genuinely popular at home precisely because he refuses his country to be a sellout to USA's 1O %. ..."
If the big borrower nations like GB and USA were honest, it would be electoral suicide because
all they could promise is massive reduction in living standards back to a level we can afford
And that will happen either by progressive erosion or catastrophic bubble burst and economiccollapse.
But It is so much easier Lefty fashion to promise jam today for everyone, and invent bogus
bogeymen to pay for it all, or pretend you can borrow or print to prosperity. Anyone north of
a five year old can see through such nonsense from the day they trade mars bars for marbles,
Buy gold, or farmland.
lingyai -> SrdeAth 27 Dec 2015 14:25
that's what the US has all those military bases around the world for.. can't have the world
reserve currency being threatened...
KillerMarmot -> Lafcadio1944 27 Dec 2015 14:25
Neoliberalism is going to provide prosperity when clear-eyed analysis shows Neoliberalism
to be little more than subjugation to oligarch rule and the most egregious inequity the world
has ever known.
Actually the world is more prosperous than it has ever been. Over the last few decades, billions
of people have been lifted out of abject poverty into something resembling a modern lifestyle.
Infant mortality has been falling steadily. Life expectancy has been raising steadily. It is resounding
triumph, but one that is little recognized,
Marjallche -> gilesjuk 27 Dec 2015 13:02
Yes I actually think it is, as dependencies breed fear of being exploited, breeds distrust
as to whether the other side does or does not threaten with blackmail etc. I got the idea from
Keynes, who saw stability in self-reliance of nations and instability in population import, which
threw the balance in favour of big capital.
Marjallche -> JudiHoskyn885 27 Dec 2015 12:57
WW I happened after 20 yrs during which the the superpower Britain had been blatantly replacing
their dwindling economic influence by demonstrations of military powers. Now which nation today
is siphoning off by ever more military means the products and raw materials of others, while not
even caring a bit about welfare for the majority of their own citizens?
But it's so much easier to make propaganda against Mr Putin's public appearances
than seriously address the point that this guy is genuinely popular at home precisely because
he refuses his country to be a sellout to USA's 1O %. Another pre WWI parallel. PS it seems
to be a very anglo-saxon notion that the upper 10% belong to a better and preferable breed of
humans. The rest being granted the "freedom" to crawl in the dirt and die in the name of "freedom"
for the preservation of their "democratic" 1%ers privilege.
Iconoclastick 27 Dec 2015 12:54
It was bad in 2012, it's got far worse.
as the chart below shows, if there is anything the global financial system needs, is for the
rating agencies, bond vigilantes, and lastly, general public itself, to realize that the UK's
consolidated debt (non-financial, financial, government and household) to GDP is... just under
1000%. That's right: the UK debt, when one adds to its more tenable sovereign debt tranche all
the other debt carried on UK books (and thus making the transfer of private debt to the public
balance sheet impossible), is nearly ten times greater than the country's GDP. To call that "game
over" is an insult to game overs everywhere.
All political parties follow the will of the banking families and corporate elites. The economy
is in it's intended state, gearing up for the third world war, the formation of world government
and the eventual digitalization of currency world wide.
To state that cameron has any control is naive. To say corbyn can be effective to oppose it
is naive. We need to eliminate our current elite and start a new paradigm to have any sense of
freedom again.
MancuMan -> eveofchange 27 Dec 2015 12:50
Aye, a few million people got murdered by the Communists but apart from that and the lack of
joy in life for the survivors it all went very well indeed and we should give it another go.
ldopas -> eveofchange 27 Dec 2015 12:37
I see you have been studying the socialist comics again.
Evidence tells us, evidence, that capitalism has problems. Lots of them. But it does work for
the most part, and the model of capitalism also when there is a disruption mostly recovers like
a cut in the skin that heals. Socialism wherever tried ALWAYS has produced poor if not catastrophic
results, and once a downward spiral is established there is nothing to stop it, no mechanism in
place to heal it like capitalism.
So my money, pun intended, is with capitalism.
Look if you are fed up of our capitalist first world services, infrastructure and healthcare
there are still a few deluded places where some sort of socialism exists; Cuba for example where
everyone is equal in poverty and their infrastructure is non existent, perhaps N Korea?
Ask yourself this. when a country that is poor and gets the chance for democracy, why do they
always go more capitalistic?
eveofchange -> jonsnow92 27 Dec 2015 12:25
I have told you what would happen if capitalism continues.
I opposed Stalin and his ilk, and his corruption of socialism. But under even he, Russia escaped
the economic collapse of the thirties, and was invaded by a country that had been ravaged by capitalism's
collapse . Russia even emerged stronger.
The nationalised economy worked perfectly, and defeated capitalist Germany (although Hitler
himself,introduced aspects of socialism--as did the UK and US). But without a workers and working
class democracy, nationalisation will not work for any length of time .
jonsnow92 -> eveofchange 27 Dec 2015 12:17
unless consciously overthrown by a working class takeover for socialism, would still
carry on. What do you want?
It didn't work in USSR did it? The working class took over and it didn't end up in milk and
honey on the streets. Same for East Germany - apart from the genius of Trabant not much else going
on until the people started voting with their feet jumping walls and going to capitalism. And
I didn't mention Albania, Cuba, North Korea and other great success stories from socialism.
BTW - in socialist countries you couldn't have a strike as the working class was in power and
as Stalin said: "why would the working class strike if they are in power?"
eveofchange 27 Dec 2015 12:02
The problem is capitalism, as Marx correctly pointed out and analysed. One "solution" always
leads to a worse problem---and it cannot be resolved,or solved Eventually there is either a major
war, between desperate capitalist states fighting over shrinking markets, or there is a gigantic
crash.--or both.This literally wipes out productive capacity, and thus the problem of "overproduction"
is temporarily "solved". The same cycle is then repeated, to it's inevitable conclusion--again.
Millions, throughout the world, even in the UK, are made destitute by this, or even die--but capitalism,
unless consciously overthrown by a working class takeover for socialism, would still carry on.
What do you want?
> newsfreak 27 Dec 2015 13:33
The ambiguity of economic and financial forecasters tend to reach proverbial limits. They make
a living out of ambiguity and what later end up being frustrated expectations: "2016 will be a
year of living dangerously for the global economy" yet "there will be no explosion in 2016, but
a fuse will be lit." How dangerous is a lit fuse? The whole financial world system is a sham based
on printing currencies with no backing standard. At some point there will be a wake up call, a
reality check, and a devastating free fall.
ID7829806 27 Dec 2015 11:58
Economic forecasting is a mug's game.
But a lot of people get paid a lot of money to do it. Forecasting is of course, at best, an
inexact and purely speculative effort (I nearly wrote 'an inexact science', but there is nothing
scientific about it, at all).
Those who have the confidence/cheek/arrogance to predict, tend to stick close to the average
of an (emerging) consensus, if there is one. Commentators keep looking around and over their shoulders
- no one wants to look silly - and so feed-on and affirm each other. Few stick their necks out
- but then, if they do, they are likely unknown or a maverick, and does anyone therefore notice,
or care?
A broken clock is right twice a day, but who wants to predict that the clock will fall off
the wall (unless they have inside knowledge)?
Larry, you may be right. Or you may be wrong. 2016 is an Election Year in the US, which suggests
'nothing to see here' for the next 12 months. But then again, it didn't stop the last crash happening.
But the feeling in your water could be right, precisely because we are in unknown and unprecedented
territory. The historic economic 'rule-book' hasn't so much been torn-up in recent years, rather
- quietly - put back on the shelve, and self-consciously ignored.
These are unprecedented times. So: who knows what might happen? An unprecedented economic implosion
round about 2017 is possible. Or not. But on a balance of probabilities: something without precedent
is likely to happen (for good or ill): and none of us will have predicted it.
Dan_de_Macy 27 Dec 2015 11:58
Prediction:
Going South: Why Britain will have a Third World Economy by 2014 Paperback – 14 Jun 2012
"... Wolf concludes that America cannot do without some form of a welfare state, specifically improved training, education, and universal health care. ..."
"... Our problem is that we are asking for concessions that are beyond the acceptable limit for elites in any historical epoch. We're asking the powerful and the rich to give up their money and power for the greater good of all mankind. This is not likely to happen unless a powerful enough segment of the elite comes to the inescapable conclusion that they're literally dead meat if they don't and therefore opts for survival over position. ..."
"... Welfare etc are social services that can only be funded through the world-wide looting operation of the American empire ..."
An excellent
column by Martin Wolf in the Financial Times, where he is the lead economics editor. Starting
with principles put forward by Ben Bernanke in his recent speech on income inequality, Wolf
concludes that America cannot do without some form of a welfare state, specifically improved
training, education, and universal health care.
James Levy, December 26, 2015 at 4:32 pm
I have no idea if Marx was right, in the long run, or wrong–the verdict is still out on the
long-term viability of industrial capitalism, which is less than 250 years old and creaking
mightily as I write this. It may be that when Rosa Luxemburg said that the choice was between
Socialism and Barbarism, she underestimated how likely barbarism was. What I do know is that
capitalism today isn't just too ugly to tolerate, it is downright murderous. Its imperatives
are driving the despoliation of the planet. It's love of profit over all else is cutting
corners and creating externalities that are lethal. But it has made a few percent of the
global population comfortable and powerful, and they are holding onto that comfort and that
power come hell or high water (and, ironically, if things continue apace both are on the
menu).
Our problem is that we are asking for concessions that are beyond the acceptable limit
for elites in any historical epoch. We're asking the powerful and the rich to give up their
money and power for the greater good of all mankind. This is not likely to happen unless a
powerful enough segment of the elite comes to the inescapable conclusion that they're
literally dead meat if they don't and therefore opts for survival over position. I am not
enthusiastic that this will happen before it is way too late to save more than a fraction of
the current world population, and send those people back to the lifestyles and thought
patterns of 30 Year's War Europe.
digi_owl
Its a generational thing. Right after WW2, many of the elite had just
that epiphany that unless they have the common people behind them, they are
toast. But now they are dead or dying, and their grandkids are basically
once more thinking that they can go it alone. This because they have not had
the required experiences that help develop the wisdom.
What Marx saw long ago, we can see today, and without relegating ourselves
to his analysis, come to our own conclusions. Contradictions, summed up well by
Lincoln as a house divided against itself cannot stand is just as true today.
Millions of guns to protect the citizenry from tyranny have only resulted in a
1/4 million murders and 5 times as many shootings since Jan 1, 2000, some
placing people in wheel chairs and other crippling gunshot afflictions, and
more and more institutionalized state oppression, economic exploitation and
miserable lives propped up in an alcoholic haze until the liver or brain gives
out. We have more food than we know what to do with so we throw away almost as
much as we eat. And we have eaten ourselves into morbid obesity, diabetes and
heart disease. The contradictions abound from the kitchen table to the kitchen
cabinet of the White House where there seems to be nothing passed so freely as
bad advice.
The Welfare State arose from the sacrifices of the population in giving
their sweat, blood and tears to defend their nation during war, to be rewarded
for their sacrifices, rewards which were demands for power sharing and more in
the paycheck, more benefits and more time to enjoy the life spent in a more
prosperous world. It seems to me that Obamacare is not simply in death spiral
all of its own making, but even more so, because it is the best attempt
capitalism can produce in an America that is the most capitalist of societies
down to the marrow its bones. Little competition from the Church or the social
relations between nobles and subjects set for in the laws that were
disestablished to free markets for commodification and money making. Money
making enterprises structured the laws from slavery, to the voting franchise
with little from the state to cushion any of the hardships of life in America.
Health care is the largest industry we have. It is approaching 20% of the
GNP. I remember the great national freak out in the late 1970s when congress
realized it was approaching 10%. Nothing seems to be stopping the costs from
spiraling upward and onward. No risk of deflation here where nothing is spared
to save a life, operate on some poor little afflicted child, or buy a piece of
equipment the size of an office building that shoots a proton beam at cancer,
one cancer cell at a time.
When Obama Care becomes a clear burden to even the democrats who can point
to it now as some sort of accomplishment, and it is an accomplishment for the
people who finally get to see a doctor, get into a hospital, get that operation
or diagnosis that saves their lives, when even those accomplishments number in
the millions, it will be part of a health care industry for which $Trillions of
dollars can no longer be justified or even funded. As that financial collapse
approaches, it would be better for politicians to declare the defeat of a
program better rolled into one universal single payer system currently
operating as Medicare, than try to reform, shore up or the old tried and true
public lie, get rid of its waste and corruption.
Declare victory with Medicare as the solution and put everyone into it. The
only paper work left should be each person's medical history with diagnosis and
healing as the happy ending to the story.
There is a fundamental error in perception in the Western world that is so
pervasive that people can't even see it. As a most basic component of a healthy
society people need to be able to survive at a local community level without
outside support. Only after that is taken care of should people concern
themselves with luxuries, inter-community and international relations.
Welfare–not to mention other government services–can appear to have positive
impacts if one only looks at their effects in isolation, however I think there
is a devastating and pernicious impact on people's ability to form community
bonds and have local resilience with things like welfare.
Also, let's also not forget that Americans consume far more of the earth's
precious resources than any other group in the world. Welfare etc are social
services that can only be funded through the world-wide looting operation of
the American empire. Do these recipients of empire benefits have a moral right
to share in the loot of empire? Perhaps instead of domestic welfare it would be
more ethical for the American empire to provide social benefits for the
indigenous peoples who are forced from their lands to work like slaves for the
empire's benefit. Although admittedly if the American empire used it's loot for
the benefit of the foreign peoples whose lives it destroyed then there'd
probably be nothing left to spread around to the military, or to pacify and
police the domestic population. So I suppose that's not a serious
proposal.
Welfare etc are social services that can only be funded through the
world-wide looting operation of the American empire
This is obviously not true. Unless every social democratic country in the
world is considered as a piece of the American empire. And even then, I
would argue that we can easily afford a generous welfare state with a small
shift in priorities away from (globally destabilizing) defense spending to
social productive spending on human development.
Obvious to who? America lavishes so much money on its military not
only because of corruption, but also because it has the world reserve
currency and is a guarantor of the safety of international shipping.
These facts are inextricably linked to the America's status as the world
hegemon. The empire provides order and structure, and enforces the
extraction of resources from the periphery to the center. The bread and
circuses are inextricably linked to the empire's military activities and
trying to tease them apart will only lead to collapse of the entire
system sooner than it will otherwise happen.
"Social Democratic"–now that's an interesting phrase. Did you know
that Syria is a democracy, and was an extremely prosperous and
well-education nation prior to 2011?
Here's a telling paragraph from the Wikipedia article about Syria:
Hafez al-Assad died on 10 June 2000. His son, Bashar al-Assad,
was elected President in an election in which he ran unopposed.[68]
His election saw the birth of the Damascus Spring and hopes of
reform, but by autumn 2001 the authorities had suppressed the
movement, imprisoning some of its leading intellectuals.[84]
Instead, reforms have been limited to some market reforms.
"... When children don't get good educations, the production of knowledge falls into private control. Power gets consolidated. The official theoretical frameworks that benefit the most powerful get locked in. ..."
"... Not only were the politicians worried about votes but also the welfare state was a way to head off a left wing revolution. ..."
"... the change began in 1976 with the election of Rockefeller-funded Jimmy Carter, who immediately launched an austerity program. Support for Keynesian economics was further eroded by the 70's stagflation which we now know was caused by Mid East oil but at the time the "left" were like deer in the headlights, with no clue what to do. ..."
"... The final nail in the coffin was the fall of the Berlin Wall and the collapse of the USSR, discrediting communism. After that, "there was no alternative" to corporate capitalism. Or more accurately, the left was slow to formulate an alternative and to this day is still struggling with an alternative as we have observed with Syriza. It's not enough to oppose austerity, you have to have a constructive plan to fix things. ..."
LP: You indicate that this approach to budgeting was invented as a way of making the New Deal
acceptable to the business community. How did that work? Over time, who has benefitted from it? Who
has lost?
OC: Back in the 1940s, workers were fighting for their rights, class struggle was heating up,
and soldiers would soon be returning from the fronts. At that point, a new business organization,
the Committee for Economic Development (CED), came together. Led by Beardsley Ruml and other influential
business figures, the CED played a crucial role in developing a conservative approach to Keynesian
economics that helped make policies that would help put all Americans to work acceptable to the business
community.
The idea was that more consumers would translate into more profits - which is good for business.
After all, the economic experts and budget technicians said so, not just the politicians. And the
business leaders were told that economic growth and price stability would go along with this, which
they liked.
But things changed progressively over the 1970s and early 1980s. Firms went global. They became
financialized. The balance of power between workers and owners started to shift more towards the
owners, the capitalists. People were told they needed to sacrifice, to accept cuts to social spending
and fewer rights and benefits on the job - all in the name of economic science and capitalism. The
CAB was turned into a tool for preventing excessive spending - or justifying selected cuts.
Middle class folks were afraid that inflation would erode their savings, so they were more keen
to approve draconian measures to cut wages and reduce public budgets. People on the lower rungs of
the economic ladder felt the pain first. But eventually the middle class fell on the wrong side of
the fence, too. Most of them became relatively poorer.
I suppose this shows the limits of democracy when information, knowledge, and ultimately power
are unequally distributed.
LP: You're really talking about birth of austerity and the way lies about public spending and
budgets have been sold to the public. Why is austerity such a powerful idea and why do politicians
still win elections promoting it?
OC: Austerity is so powerful today because it feeds off of itself. It makes people uncertain about
their lives, their debts, and their jobs. They become afraid. It's a strong disciplinary mechanism.
People stop joining forces and the political status quo gets locked down.
Even the name of this tool, the "cyclically adjusted budget," carries an aura of respect. It diverts
our attention. We don't question it. It creates a barrier between the individual and the political
realm: it undermines democratic participation itself. This obscure theory validates, with its authority,
a big economic mistake that sounds like common sense but is actually snake oil - the notion that
the federal government budget is like a household budget. Actually, it isn't. Your household doesn't
collect taxes. It doesn't print money. It works very differently, yet the nonsense that it should
behave exactly like a household budget gets repeated by politicians and policymakers who really just
want to squeeze ordinary people.
LP: How does all this play out in the U.S. and in Europe?
OC: The European Union requires its members to comply with something called a cyclically adjusted
budget constraint. Each country has to review its economic and fiscal plans with the European Commission
and prove that those are compatible with the Pact. It's a ceiling on a country's deficit, but it's
also much more than that.
Thanks to the estimate, the governments of Italy or Spain, for example, are supposed to force
the economy toward some ideal economic condition, the definition of which is obviously quite controversial
and has so far rewarded those countries that have implemented labor market deregulation, cut pensions,
and even changed the way elections happen. Again, it's a control mechanism.
In the U.S. this scenario plays out, too, although less strictly. Talk about the budget often
relies on the same shifty and politically-shaded statistical tools to support one argument or the
other. Usually we hear arguments that suggest we have to cut social programs and workers' rights
and benefits or face economic doom. Tune in to the presidential debates and you'll hear this played
out - and it isn't strictly limited to one party.
LP: How do we stop powerful players from co-opting economics and budgets for their own purposes?
OC: Our education system is increasingly unequal and deprived of public resources. This is true
in the U.S. but also in Europe, where the crisis accelerated a process that was already underway.
When children don't get good educations, the production of knowledge falls into private control.
Power gets consolidated. The official theoretical frameworks that benefit the most powerful get locked
in.
In the economic field, we need to engage different points of view and keep challenging dominant
narratives and frameworks. One day, human curiosity will save us from intellectual prostitution.
craazyboy, December 25, 2015 at 10:10 am
Most people don't eat, go to college, use healthcare, rent or buy housing on the east or west
coast, or purchase military equipment (except perhaps small time stuff like assault rifles), so
the BLS greatly underweights(or hedonics prices, or just pulls rent data outta their butts) these
things in the inflation data they create. The Fed then goes into a tizzy if the data comes in
a few tenths of a percent below 2%, even if the data spent years above 2%, and floods the country
in liquidity so our job creators – banks and large corporations – will hire us and give us raises,
and once they finish doing that, the BLS will signal that inflation is 2% and the Fed will then
know all our problems are solved. It just takes time.
See the book "Treasure Island" for how things are going on the revenue side. But more tax breaks
for large corporations and the wealthy are needed so we don't force them to do any illegal tax
avoidance stuff and they will then happily pay whatever they think their fair should be. Might
be zero. They will then have money to buy stuff too, which is a big plus as well, when you think
about it.
So clearly, you can see why deficit spending almost seems inevitable.
Then the next problem is we still have unemployment, and something needs to be done about that.
For instance, lots of room for more government contracts for social purposes. Take Obamacare.
Place a single source contract, now estimated between $1 and $2 billion, with a Canadian systems
company that employs independent contractor Indian programmers. Eventually, we have Obamacare!
We can do this if we just get serious about this and say "No More Austerity In America!"
likbez, December 27, 2015 at 9:31 pm
Emperor Severus is famously said to have given the advice to his sons: "Be harmonious, enrich
the soldiers, and scorn all other men"
Brooklin Bridge
Can education provide the solution?
I suspect that the educational bias occurs at all levels in the sense that much the same misinformation
is provided regardless of neighborhood but progressively wrapped in more elegant pedagogical flim-flam-ery
for the owner class. Basically, the bias changes, but not the message, as one goes from poor (austerity
– this is your lot in life) to wealthy (austerity – you were born to make the tough decisions,
it's in your genes – and you'll just have to accept the rewards, man up to your destiny and toss
em a quarter on Sundays). The upper class does get a far better education, but the bias is or
becomes unconscious over time.
Basically, aristocracy is a nasty brutish cycle that keeps upping the ante of consequences.
washunate, December 26, 2015 at 8:09 am
Yves, INET and NEP and others have been lecturing that topic for years. How many trillions
of dollars do we have to deficit spend before the failure of things to improve indicts the hypothesis
itself?
Maybe what matters is not the amount of the spending, but rather, the distribution.
And what is so bad about deflation? The attachment of moral judgment to inflation and deflation
is rather bizarre outside of establishment monetary economics. The basic monetary problem confronting
the bottom 80% or so of American households is inflation, not deflation.
Dan Lynch, December 25, 2015 at 11:27 am
I don't buy the article's historical narrative.
Conservatives have ALWAYS opposed spending on social programs and ALWAYS used the deficit as an
excuse (unless the deficit was due to war or tax cuts for the rich). This was true during the
New Deal; FDR himself was a deficit hawk.
Nonetheless for years the public supported social programs and no politician dared to cut them.
Not only were the politicians worried about votes but also the welfare state was a way to
head off a left wing revolution.
What changed? I would say the change began in 1976 with the election of Rockefeller-funded
Jimmy Carter, who immediately launched an austerity program. Support for Keynesian economics was
further eroded by the 70's stagflation which we now know was caused by Mid East oil but at the
time the "left" were like deer in the headlights, with no clue what to do.
The final nail in the coffin was the fall of the Berlin Wall and the collapse of the USSR,
discrediting communism. After that, "there was no alternative" to corporate capitalism. Or more
accurately, the left was slow to formulate an alternative and to this day is still struggling
with an alternative as we have observed with Syriza. It's not enough to oppose austerity, you
have to have a constructive plan to fix things.
Vatch, December 25, 2015 at 12:40 pm
History teaches us that peacetime austerity can be horribly disastrous. Some examples:
British austerity during the 19th century included the Great Irish Famine of 1845-1849: The Irish
population was about 8 million people in 1841, and the death toll of the famine was at least a
million. This is a huge percentage loss of life. Due to the combination of deaths with emigration
and births that did not occur, the 1851 population of 6.5 million was estimated to be about 2.5
million lower than expected. Since food was exported during the famine, this was definitely an
extreme case of austerity.
Soviet austerity during the 1930s: Millions died, and food was exported during the famine period
of 1931-1933. Austerity is often associate with conservatives, so I guess conservative austerity
enthusiasts must be pleased with the performance of the eminent conservative Josef Stalin.
Chinese austerity during the Great Leap Forward of 1958-1962: Tens of millions died - perhaps
as many as 45 million. The same irony about conservatives and Stalin is true about conservatives
and Mao, but on a far greater scale.
This is a pretty remarkable piece of rambling drivel. To the extent coherent points can be
taken away from this, it appears there are at least two major flaws:
1) There is absolutely no link between public opinion and CAB. Germany chooses to have national
healthcare, passenger rail, and renewable energy. The US chooses to have national security, predatory
medicine, and car-dependent sprawl.
2) There is absolutely no link between austerity and concentration of wealth and power. France
has a much more equal distribution of wealth than the US. Yet the US has run enormous deficits
while France is supposedly constrained by the techno mumbo jumbo nonsense of the EU.
The notion that 'austerity' is sold to the public is just a blatant falsehood. Americans don't
support the budget priorities in Washington. It's a collective action problem, not a public opinion
problem.
In reading the following NYT article about the Greek Crisis, with an emphasis on pensions and
pensioners, I recalled Professor Hamilton's post on the US Social Security system. To borrow Warren
Buffet's phrase about finding out who is skinny dipping when the tide goes out, I wonder if the
tide has just receded faster for Greece than for the US, in terms of over promised and under-funded
Social Security and pension plans, especially in regard to vastly underfunded state and local
government pension plans. And of course, federal government owns both the asset and the liability
for the Social Security Trust Fund
Greece's social security system was troubled even before the crisis, already divided into
more than 130 funds and offering a crazy quilt of early-retirement options that were a monument
to past political patronage.
In 2012, the pension funds, which were obliged under Greek law to own government bonds*,
were hit by a huge debt write-down as those bonds plummeted in value. As a result they lost
about 10 billion euros, or $11.1 billion - roughly 60 percent of their reserves.
Greece's creditors, seeking to make the Greek labor market more competitive, insisted that
the government reduce the amount companies and workers must contribute toward pensions. And
they insisted that Greece reduce its minimum wage so that those who do contribute have smaller
outlays.
At the same time, the pension system was becoming an even bigger component of the social
safety net, absorbing thousands. People like Ms. Meliou retired early, either because of the
sale of state-owned companies, because they feared their salaries would be cut and thus their
pensions would be smaller, or simply because their businesses failed. Few are living comfortably,
and many support unemployed children.
"... Hey, if the plutocrats won't raise wages then they will need to raise the payroll tax cap on Social Security. They should have thought of that before starting so many wars. The Bonus Army will not be denied. ..."
"... Raise it my foot, they need to eliminate it. The cap has always been more welfare for the rich. ..."
"... Why not eliminate the income cap ($118k) entirely and start taxing capital gains and dividends for Social Security too? Members of Congress pay this tax on 65% of the salaries ($174k), while 95% of all wage earners pay this tax on 100% of their earnings. ..."
An Aging Society Is No Problem When Wages Rise: Eduardo Porter
discusses the question of whether retirees will have sufficient
income in twenty or thirty years. He points out that if no
additional revenue is raised, Social Security will not be able to
pay full scheduled benefits after 2034.
While this is true, it is important to note that this would have
also been true in the 1940, 1950s, 1960s, and 1970s. If projections
were made for Social Security that assumed no increase in the
payroll tax in the future, there would have been a severe shortfall
in the trust fund making it unable to pay full scheduled benefits.
We have now gone 25 years with no increase in the payroll tax, by
far the longest such period since the program was created. With
life expectancy continually increasing, it is inevitable that a
fixed tax rate will eventually prove inadequate if the retirement
age is not raised. (The age for full benefits has already been
raised from 65 to 66 and will rise further to 67 by 2022, but no
further increases are scheduled.)
The past increases in the Social Security tax have generally not
imposed a large burden on workers because real wages rose. The
Social Security trustees project average wages to rise by more than
50 percent over the next three decades. If most workers share in
this wage growth, then the two or three percentage point tax
increase that might be needed to keep the program fully funded
would be a small fraction of the wage growth workers see over this
period. Of course, if income gains continue to be redistributed
upward, then any increase in the Social Security tax will be a
large burden.
For this reason, Social Security should be seen first and foremost
as part of the story of wage inequality. If workers get their share
of the benefits of productivity growth then supporting a larger
population of retirees will not be a problem. On the other hand, if
the wealthy manage to prevent workers from benefiting from growth
during their working lives, they will also likely prevent them from
having a secure retirement.
RC AKA Darryl, Ron said...
Hey, if the plutocrats won't raise wages then they will need
to raise the payroll tax cap on Social Security. They should have
thought of that before starting so many wars. The Bonus Army will
not be denied.
DrDick -> Darryl, Ron...
"they will need to raise the payroll tax cap on Social Security"
Raise it my foot, they need to eliminate it. The cap has always
been more welfare for the rich.
Bud Meyers -> DrDick...
Why not eliminate the income cap ($118k) entirely and start
taxing capital gains and dividends for Social Security too? Members
of Congress pay this tax on 65% of the salaries ($174k), while 95%
of all wage earners pay this tax on 100% of their earnings.
mulp
"We have now gone 25 years with no increase in the payroll tax,
by far the longest such period since the program was created. With
life expectancy continually increasing, it is inevitable that a
fixed tax rate will eventually prove inadequate if the retirement
age is not raised."
Illogical!
If wages of younger workers were maintaining the same gains over
their previous generation peers, and in fact, gained even more due
to reduced supply of workers relative to steady demand for labor as
the large boomer cohort leaves the labor force to the smaller
subsequent generation.
Instead, conservative free lunch economicntheory, itself grossly
illogical, has led to cuts in wages as a matter of policy based on
the idea that workers are not consumers, so gdp can grow faster if
workers are paid less, leading to a larger supply of consumers with
pockets of money being created by the tinker bell of wealth.
While changing demographics might require higher payroll taxes, say
younger generations having more kids than the boomer generation and
being stay at home parents than boomers were, in reality, the
younger generations are moving further along the trend line of
working more, just like the boomers.
Incomes are falling leading to reduced gdp growth because that is
driven by labor incomes which are labor costs, and lower gdp means
lower wage income means lower tax revenue with a fixed tax rate.
Social Security has structural problems simply because
conservatives have sold Americans a bill of goods, promising
something for nothing.
TANSTAAFL
As a leading edge boomer, I've had the best of both good and bad
policy. Great big government benefits when young to give me a great
start in life, followed by bad policy tax hikes for me paid for by
screwing the generation of children I did not have, and now 68,
getting the great big government Social Security benefits Reagan
signed into law in 1983, doubly great because, my big government
start in life lasted to 2001 and made me very rich from simply
working and living like my parents who were shaped by the
depression. And Republicans can not cut my benefits because I'm
hidden in the biggest block of the Republican base who almost all
depend on Social Security.
Stephen Roach is worried that the Fed has set the world up for another financial market meltdown.
Lower for longer rates and the proliferation of unconventional monetary policy have created "a
breeding ground for asset bubbles, credit bubbles, and all-too frequent crises, so the Fed is really
a part of the problem of financial instability rather than trying to provide a sense of calm in an
otherwise unstable world," Roach
told Bloomberg
TV in an interview conducted a little over a week ago.
To be sure, Roach's sentiments have become par for the proverbial course. That is, it may have
taken everyone a while (as in five years or so) to come to the conclusion we reached long ago, namely
that central banks are setting the world up for a crisis that will make 2008 look like a walk in
the park, but most of the "very serious" people are now getting concerned. Take BofAML for instance,
who, in a note
we outlined on Wednesday, demonstrated the prevailing dynamic with the following useful graphic:
Perhaps Jeremy Grantham put it best: "..in the Greenspan/ Bernanke/Yellen Era, the Fed
historically did not stop its asset price pushing until fully- fledged bubbles had occurred,
as they did in U.S. growth stocks in 2000 and in U.S. housing in 2006."
Indeed. It's with that in mind that we bring you the following excerpts from a new piece by Roach
in which the former Morgan Stanley chief economist and Yale fellow recounts the evolution of the
Fed and how the FOMC ultimately became "beholden to the monster it had created".
By now, it's an all-too-familiar drill. After an extended period of extraordinary monetary accommodation,
the US Federal Reserve has begun the long march back to normalization.
A majority of financial market participants applaud this strategy. In fact, it is a dangerous
mistake. The Fed is borrowing a page from the script of its last normalization campaign – the incremental
rate hikes of 2004-2006 that followed the extraordinary accommodation of 2001-2003. Just as that
earlier gradualism set the stage for a devastating financial crisis and a horrific recession in 2008-2009,
there is mounting risk of yet another accident on what promises to be an even longer road to normalization.
The problem arises because the Fed, like other major central banks, has now become a creature
of financial markets rather than a steward of the real economy. This transformation has
been under way since the late 1980s, when monetary discipline broke the back of inflation and the
Fed was faced with new challenges.
The challenges of the post-inflation era came to a head during Alan Greenspan's 18-and-a-half-year
tenure as Fed Chair. The stock-market crash of October 19, 1987 – occurring only 69 days after Greenspan
had been sworn in – provided a hint of what was to come. In response to a one-day 23% plunge in US
equity prices, the Fed moved aggressively to support the brokerage system and purchase government
securities.
In retrospect, this was the template for what became known as the "Greenspan put" – massive
Fed liquidity injections aimed at stemming financial-market disruptions in the aftermath of a crisis.
As the markets were battered repeatedly in the years to follow – from the savings-and-loan crisis
(late 1980s) and the Gulf War (1990-1991) to the Asian Financial Crisis (1997-1998) and terrorist
attacks (September 11, 2001) – the Greenspan put became an essential element of the Fed's market-driven
tactics.
The Fed had, in effect, become beholden to the
monster it had created. The corollary was that it had also become steadfast in protecting the financial-market-based
underpinnings of the US economy.
Largely for that reason, and fearful of "Japan Syndrome" in the aftermath of the collapse of the
US equity bubble, the Fed remained overly accommodative during the 2003-2006 period. The federal
funds rate was held at a 46-year low of 1% through June 2004, before being raised 17 times in small
increments of 25 basis points per move over the two-year period from mid-2004 to mid-2006. Yet it
was precisely during this period of gradual normalization and prolonged accommodation that unbridled
risk-taking sowed the seeds of the Great Crisis that was soon to come.
Today's Fed inherits the deeply entrenched moral hazard of the Asset Economy.
The longer the Fed remains trapped in this mindset, the tougher its dilemma becomes – and the greater
the systemic risks in financial markets and the asset-dependent US economy.
Roach goes on to say that we're already seeing the beginnings of what may very well turn out to
be a dramatic unwind as high yield rolls over and the emerging world struggles to cope with a soaring
dollar (remember, even though EM has largely avoided "original sin" i.e. borrowing in dollars, at
the sovereign level, corporates are another story).
As an aside, those interested in a comprehensive account of what Roach covers in the article cited
above are encouraged to reach David Stockman's "The Great Deformation."
"... I'm still trying to think through the implications but they are certainly disquieting. Without trying to hard I'd summarize that "the masks are coming off." ..."
"... The question then is, what happens after "the masks come off?" ..."
"... Short-sighted western pundits will still be penning deadline copy headlined "How Putin lost Ukraine" while those with real vision will be putting the finishing touches on "How America Lost the Rest of the World" ..."
Hard to overstate the importance of this article. Thanks for spotting it.
There's a lot here
but this passage is kind of free-standing in its value by simply condensing how the IMF has contorted
itself:
"The IMF thus is breaking four rules:
Not lending to a country that has no visible means to
pay back the loan breaks the "No More Argentinas" rule adopted after the IMF's disastrous 2001
loan.
Not lending to countries that refuse in good faith to negotiate with their official creditors
goes against the IMF's role as the major tool of the global creditors' cartel.
And the IMF is
now lending to a borrower at war, indeed one that is destroying its export capacity and hence
its balance-of-payments ability to pay back the loan.
Finally, the IMF is lending to a country
that has little likelihood of refuse carrying out the IMF's notorious austerity "conditionalities"
on its population – without putting down democratic opposition in a totalitarian manner. Instead
of being treated as an outcast from the international financial system, Ukraine is being welcomed
and financed."
I'm still trying to think through the implications but they are certainly disquieting. Without
trying to hard I'd summarize that "the masks are coming off."
The question then is, what happens after "the masks come off?"
… war.
(Sometimes it's best just to blurt out what's worrying you.)
Short-sighted western pundits will still be penning deadline copy headlined "How Putin lost
Ukraine" while those with real vision will be putting the finishing touches on "How America Lost
the Rest of the World".
"... Enjoyed the movie, but in typical Hollywood fashion, the role of the Federal Reserve and government in pushing housing down to those unable to afford it was not even mentioned once. ..."
The Big Short opens nationwide today. But it happened to have one showing last night
at a theater near me. My youngest son and I hopped in the car and went to see it. I loved the book
by Michael Lewis. The cast assembled for the movie was top notch, but having the director of Anchorman
and Talledaga Nights handle a subject matter like high finance seemed odd.
The choice of Adam McKay
as director turned out to be brilliant. The question was how do you make a movie about the
housing market, mortgage backed securities, collateralized debt obligations, collateralized debt
swaps, and synthetic CDOs interesting for the average person. He succeeded beyond all expectations.
Interweaving pop culture icons, music, symbols of materialism, and unforgettable characters, McKay
has created a masterpiece about the greed, stupidity, hubris, and arrogance of Wall Street
bankers gone wild. He captures the idiocy and complete capture of the rating agencies (S&P,
Moodys). He reveals the ineptitude and dysfunction of the SEC, where the goal of these regulators
was to get a high paying job with banks they were supposed to regulate. He skewers the faux
financial journalists at the Wall Street Journal who didn't want to rock the boat with the truth
about the greatest fraud ever committed.
...Ultimately, it is a highly entertaining movie with the right moral overtone, despite non-stop
profanity that captures the true nature of Wall Street traders. This is a dangerous movie
for Wall Street, the government, and the establishment in general. They count on the complexity of
Wall Street to confuse the average person and make their eyes glaze over. That makes it easier for
them to keep committing fraud and harvesting the nation's wealth.
This movie cuts through the crap and reveals those in power to be corrupt, greedy weasels
who aren't really as smart as they want you to think they are. The finale of the movie is
sobering and infuriating. After unequivocally proving that Wall Street bankers, aided and abetted
by the Federal Reserve, Congress, the SEC, and the mainstream media, destroyed the global financial
system, put tens of millions out of work, got six million people tossed from their homes, and created
the worst crisis since the Great Depression, the filmmakers are left to provide the depressing conclusion.
No bankers went to jail. The Too Big To Fail banks were not broken up – they
were bailed out by the American taxpayers. They actually got bigger. Their profits have reached new
heights, while the average family has seen their income fall. Wall Street is paying out record bonuses,
while 46 million people are on food stamps. Wall Street and their lackeys at the Federal Reserve
call the shots in this country. They don't give a fuck about you. And they're doing it again.
Every American should see this movie and get fucking pissed off. The theater was deathly silent
at the end of the movie. The audience was stunned by the fact that the criminals on Wall Street got
away with the crime of the century, and they're still on the loose. I had a great discussion with
my 16 year old son on the way home. At least there is one millennial who understand how bad his generation
is getting screwed.
wee-weed up
I read the book last year... It is outstanding! Highest recommendation. If you have not read
this book, you cannot understand how today's market really works.
JRobby
This subject matter has to be put in a form that can be understood by the masses. Hopefully
the popular actors and this director is a step in that direction.
Main stream Hollywood as an informer? Hmmmmm? This adds to the current assumptions and rumors
of fractures among the elite groups.
We are reasonable people. If the banking elite is sacrificed and the other corporate oligarchs
come into a more socially acceptable line, we may be satisfied. However, the banking elite must
be sacrificed. There is no negotiation on that point.
Of course some will say I am over optimistic, they are throwing it in our faces to make $$$ and
it ends up a total police state so enjoy your "entertainment" for now.
Time goes on. Time will tell.
chunga
First you'd have to believe that politicians give a fuck about any damn thing but themselves.
REAL concern for minorities or communities LOL! Then you'd have to believe banks were forced to
do *anything* they don't want.
Then, you'd have to fall right to sleep and miss the part where all this crap was sold on Wall
Street while at the same time betting against all the "shitty deals" they made, then the whole
thing getting bailed out @ par. With par being at the absurd fraudulent property appraisals that
were made by the lenders or their agents. It's just nuts.
This was all planned, beginning with Greenspan. AIG's Greenberg KNEW their CDS paper was no damn
good, but didn't care because the also KNEW there would be a bailout. The only problem for him
was Paulson and Blankfein conspired to steal the bailout money...and they did!
That's why all this money went looking for people...it was all planned.
Hundreds of scandals have gone by since then, thoroughly unpunished, so I wonder why this movie
is coming out now. I looked into some of the cronies calling the shots at the GSE's back then
and saved it. A lot is outdated by now. Seems like a fairly bi-partisan effort.
FRANKLIN RAINES [D] – FNMA CEO (1999 – 2004) Raines accepted "early retirement"
from his CEO position while the SEC pretended to investigate accounting irregularities. Fannie's
own OHFHEO also accused him of abetting widespread accounting errors, including the shifting of
losses, so he and his fellow execs could "earn" large bonuses. The WSJ reported back in 2008 that
Raines was one of several cronies that received below market rates for mortgages from Countrywide.
Raines alone receive loans for over $3 million while CEO of FNMA. Raines' compensation for his
"work" at FNMA - $90 million.
RAINES GRADE – F
DANIEL MUDD [R] – FNMA CEO (2005 – 2008) Before becoming CEO of FNMA, Mudd
worked at the Office of the Secretary of Defense, was an advisor to Asia-Pacific Economic Corp.,
"served" on the board of the Council of Foreign Relations, "consulted" at the World Bank, and
held many positions at GE Capital including president and CEO. Mudd was dismissed as CEO of FNMA
when FHFA became conservator in 2008. In 2011 Mudd and other GSE execs were charged by SEC with
securities fraud. After his career at FNMA Mudd became CEO of a NYC hedge fund named "Fortress".
Fortress invested in purchasing tax liens on delinquent property taxes from local governments
under many benign corporate names such as "Pleasant Valley Capital" and "Travis Farm Investments".
Cozy. Mudd's compensation for his "work" at FNMA - $80 million.
MUDD GRADE – F
NEEL KASHKARI [R] – FNMA CEO (Tenure is murky) Kashkari was a former investment
banker for Goldman Sachs, was tapped by Hank "The Shank" Paulson to lend his skills over at TARP
HQ, and now rather ironically, continues God's work as a Managing Director at PIMCO. Kashkari's
compensation for his "work" at FNMA is also murky; I'll just assume it was too much.
KASHKARI GRADE - F
HERB ALLISON [D] – FNMA CEO (2008 – 2009) The esteemed Mr. Allison was quickly
whisked off to oversee the wildly successful TARP program. I didn't find much on his compensation
during his brief stint as FNMA CEO. Allison served in various positions at Merrill Lynch and became
a member of the board in 1997. He was a director of the NYSE from 2003 – 2005.
ALLISON GRADE – F
MICHAEL WILLIAMS [?] – FNMA CEO (2009 – Jan 1, 2012) Mr. Williams is a 20
year veteran at FNMA. While "serving" as FNMA CEO, Williams managed to scrape by on less than
$6 million in 2011 alone. This could and should be considered a hardship, given the complexities
involved in purloining ~ $60 billion of Fed bailout money.
WILLIAMS GRADE – F
FANNIE'S MAJOR DANCE PARTNER, FREDDIE MAC, HAS ALSO PERFORMED VERY POORLY.
Charles (my friends call me "Ed") Haldeman has announced his retirement plans but intends to
be a good sport and stay on with insolvent FHLMC until another crony can be found to fill his
wing-tips.
That might take a while. "Serving" as CEO of the ultimate backstops for the lion's share of
the MBS Ponzi is very stressful.
We'll have to accept former Freddie exec David Kellermann's testimony posthumously. Mr. Kellermann
was found hanging by the neck in the basement of his posh Vienna, VA home in the affluent suburb
of Washington. D.C. way back in April of 2009. It is presumed he had no help and local police
have stated there was no evidence of foul play.
Urban Redneck
GREED is non-partisan. And all sides agreed MOAR "home ownership" was desirable. The left
got its SJW colorblind automation, while the underwriters were able to increase volumes by
thousands of percent while reducing overall headcount. Securitization wasn't actually
"automated" since the fuckwits were using MS-Excel, but it was commoditized with Blackrock's
pricing model.
These were the days of the original algorithms of mass financial destruction, which were
primitive and largely FICO-centric, but everyone wanted to minimize the cost (of logic coding
and external data sources) so they coding decisioning based solely on information contained in
the mortgage application and the applicant's electronic credit report.
khakuda
Enjoyed the movie, but in typical Hollywood fashion, the role of the Federal Reserve
and government in pushing housing down to those unable to afford it was not even mentioned
once.
Keynesians
Wall Street is laughing at all the clowns who think this movie will "wake up America". It
would have never came out if it was any kind of danger to Wall Street, the FED, or the
establishment.
Agent P
Directed by Adam McKay (Anchorman, Step Brothers, The Other Guys....), so ... yeah I'm
going to go see it. Remember the end credits for The Other Guys? He hates Wall Street....
GoldenDonuts
Perhaps you should read the book. These are real characters from a non fiction book. They
may have changed a name or two but these are real people. I will lend you my copy if you can't
afford one.
conraddobler
Yeah I can't imagine a commercially successful movie out of this that would actually tell
the truth and make it to the screens.
What someone should do is write one of those fantastical novels where everything is a symbol
for something else and jazz it up, put some romance, danger, intrigue and of course big boobs
in it.
The real message ala the olden days usually had to be hidden to avoid the wrath of those it
was really aimed at.
"... The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculators expected returns. when this dynamic gets out of control, it is a bubble. ..."
"... That is exactly the point. Expected returns in stocks have nothing to do with earnings growth. http://www.frbsf.org/our-district/press/presidents-speeches/williams-speeches/2013/september/asset-price-bubbles-tomorrow-yesterday-never-today/ ..."
"... You think a rise in stock prices created by a fall in the cost of capital is a bubble. ..."
"... keeping the risk free rate at zero for 7 years is not a change in fundamentals. and if it is and it rises leading to a large fall in equity prices, you will be the first one crying uncle. so why put the economy through this? ..."
"... Rising stock prices allow corporations to raise debt, because the stock is put up as collateral. This makes funding easier, but it doesnt favor any particular purpose of the funding. It could be to buy back stock, for example. Said buy back can raise the stock price even more, which in turn can pay off the borrowing. Didnt cost a dime. ..."
"... It always seem to me that right wing economists credit businessmen with superhuman foresight and sophistication, except when it comes to the actions of the Fed and then something addles their brains and they become completely stupid. As I once put, it seems investors cant understand what the Fed is doing, even though they tell you. ..."
"... Thats it exactly. Markets are efficient, unless the government does anything, and then markets lose their minds and its the governments fault. ..."
"... Here is how they evaluate models: Good model; one that reaches the right good conclusions. Bad model; one that ends up saying stuff nobody should believe in. ..."
"... Obama could have at least made the investigations a high priority...but he let Holder, a Wall Street attorney, consign them to the lowest. ..."
"... Democrats filibuster-proof majority consisted of 58 Democrats and two independents who caucused with them. Only an inept President and Senate majority leader could have failed to take advantage of such a majority to implement significant parts of the party platform. ..."
"... Gullible folks like pgl and his coterie believe what these Democrats say and waste our time defending their neoliberal behavior. ..."
I wish Krugman would attack the view that is being propagated at the moment that low nominal interest
rates (it seems irrespective of the reason for them) foster bubbles. It doesn't make the slightest
bit of sense - leverage doesn't just magnify the gains, it magnifies the losses as well - what
really counts is expectations regardless of nominal interest rates.)
The distribution of the use of credit between pure financial speculation and productive investment
is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic
and technological prospects.
Great comment. I especially liked this point: "The distribution of the use of credit between pure
financial speculation and productive investment is not a function of" ....
Supervising regulators
need to look carefully at the ratio of credit used for financial trading compared to credit used
for what we've called real-economy matters. They should adjust the level of monitoring based on
this view while they also inform policy makers including those in the legislature.
There may be an opportunity in 2017 to revise the statutes so the public plainly says what
the rules of Commerce are in these financial 'inter-mediation' areas - society is better served
if more of such credit offerings go to investments in the real economy where inputs are real things
like employees, supplies, equipment/technologies. The public's law can effect this change.
david said in reply to JF...
except that a significant chunk of institutional investors have sticky nominal targets for return
thanks to the politics of return expectation setting (true for pension fund and endowments) --
low interest rates do encourage chasing phantoms or looking to extract some rents, for those subject
to that kind of pressure
Are there enough of those to dominate securities prices?
I don't see how there possibly could
be. For everyone trying to reach for yield there are a lot of people happy to arbitrage or otherwise
exploit those inefficiencies.
"The distribution of the use of credit between pure financial speculation and productive
investment is not a function of interest rates, but of things like bank culture, bank regulation
and macro-economic and technological prospects."
The relationship between low interest rates and bubbles has nothing to do with the above.
Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings
and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low.
Raising asset prices and the resultant higher net worth was supposed to lead to higher spending
today. But outsized returns also attracts speculation. what is so difficult to understand? John
Williams of SF Fed has shown how positive returns in asset markets raises the speculator's expected
returns. when this dynamic gets out of control, it is a bubble.
So you say. And yet, stock values today conform very well with the standard model Williams says
doesn't historically fit the data. While you are talking bubbles, the equity risk premium is parked
in the normal range.
so says Williams. dividend yields, earnings yields and risk premiums are not necessarily weighted
heavily in investors' formation of expected returns. past returns do, to a great extent. that
is what Williams shows.
Williams actually tries to model the rise in stock prices and defines any increase the model cannot
explain a bubble. Of course maybe his modeling is not entirely spot on and fundamentals can explain
the rise stock prices.
But this is not what you do as you see any asset price increase as a
bubble. Which is beyond stupid. Of course it would help if you ever bothered to do what Williams
attempted - use a basic model of financial economics. Then again my guess is that is beyond your
understanding of basic financial economics. So troll on!
You think a rise in stock prices created by a fall in the cost of capital is a bubble.
But no - it is a change in fundamentals.
keeping the risk free rate at zero for 7 years
is not a change in fundamentals. and if it is and it rises leading to a large fall in equity prices,
you will be the first one crying uncle. so why put the economy through this?
The first thing pgl did when stocks corrected this summer was to call for QE4...he panicked because
his portfolio was threatened...but claimed that he was only worried about workers!
Rising stock prices allow corporations to raise debt, because the stock is put up as collateral.
This makes funding easier, but it doesn't favor any particular purpose of the funding. It could
be to buy back stock, for example. Said buy back can raise the stock price even more, which in
turn can pay off the borrowing. Didn't cost a dime.
Let me be the fourth person to compliment that comment.
"leverage doesn't just magnify the gains,
it magnifies the losses as well - what really counts is expectations regardless of nominal interest
rates."
QFT!
The one hypothetical caveat (as BINY alluded to, knowingly or not) is that expectations often
get out of whack based on momentum trading. So hypothetically, lowering rates could possibly feed
that.
But guess what? Rates are already at zero. They can't go lower. It's not even a question of
lowering rates, but rather whether to keep them where they are. So a bubbles-from-monetary-fed-momentum
argument falls completely flat. We've been at zero for 7 years now!
It always seem to me that right wing economists credit businessmen with superhuman foresight
and sophistication, except when it comes to the actions of the Fed and then something addles their
brains and they become completely stupid. As I once put, it seems investors can't understand what
the Fed is doing, even though they tell you.
That's it exactly. Markets are efficient, unless the government does anything, and then markets
lose their minds and it's the government's fault.
And somehow the RW economists see no
problem with this model
DeDude said in reply to Sanjait...
Here is how they evaluate models: Good model; one that reaches the "right" good conclusions.
Bad model; one that ends up saying stuff nobody should believe in.
likbez said in reply to Sanjait...
"Markets are efficient, unless the government does anything"
This is a dangerous neoliberal dogma.
Total lie.
=== quote === The efficient market hypothesis (EMH) is a flavor of economic Lysenkoism which became popular for
the last 30 years in the USA. It is a pseudo scientific theory or, in more politically correct terms,
unrealistic idealization of market behavior. Like classic Lysenkoism in the past was supported by
Stalin's totalitarian state, it was supported by the power of neoliberal state, which is the state
captured by financial oligarchy (see Casino Capitalism and Quiet coup for more details).
Among the factors ignored by EMH is the positive feedback loop inherent in any system based on
factional reserve banking, the level of market players ignorance, unequal access to the real information
about the markets, the level of brainwashing performed on "lemmings" by controlled by elite MSM and
market manipulation by the largest players and the state.
Economics, it is said, is the study of scarcity. There is, however, one thing that certainly isn't
scarce, but which deserves the attention of economists - ignorance. ...Conventional economics analyses how individuals choose - maybe rationally, maybe not - from a
range of options. But this raises the question: how do they know what these options are? Many feasible
- even optimum - options might not occur to them. This fact has some important implications. ... Slightly simplifying, we can say that (financial) markets are mainly efficient in separation of fools
and their money... And efficient market hypothesis mostly bypasses important question about how the
inequity of resources which inevitably affects the outcomes of market participants. For example,
the level of education of market players is one aspect of the inequity of resources. Herd behavior
is another important, but overlooked in EMH factor.
And/or the markets are telling the Fed something, like they don't believe the Fed's forecasts about
growth and inflation and are betting otherwise, but the hawks at the Fed dismiss the markets and
say we need to raise rates now.
It's all very convenient reasoning about markets.
Vile Content said...
" constant repetition, especially in captive media, keeps this imaginary history in circulation no
matter how often it is shown to be false. " ~~pK~
Last night I was invited to a screening of "The Big Short," which I thought was terrific; who
knew that collateralized debt obligations and credit default swaps could be made into an edge-of-your-seat
narrative (with great acting)?
But there was one shortcut the narrative took, which was understandable and possibly necessary,
but still worth noting.
In the film, various eccentrics and oddballs make the discovery that subprime-backed securities
are garbage, which is pretty much what happened; but this is wrapped together with their realization
that there was a massive housing bubble, which is presented as equally contrary to anything anyone
respectable was saying. And that's not quite right.
It's true that Greenspan and others were busy denying the very possibility of a housing bubble.
And it's also true that anyone suggesting that such a bubble existed was attacked furiously - "You're
only saying that because you hate Bush!" Still, there were a number of economic analysts making the
case for a massive bubble. Here's Dean Baker in 2002. * Bill McBride (Calculated Risk) was on the
case early and very effectively. I keyed off Baker and McBride, arguing for a bubble in 2004 and
making my big statement about the analytics in 2005, ** that is, if anything a bit earlier than most
of the events in the film. I'm still fairly proud of that piece, by the way, because I think I got
it very right by emphasizing the importance of breaking apart regional trends.
So the bubble itself was something number crunchers could see without delving into the details
of mortgage-backed securities, traveling around Florida, or any of the other drama shown in the film.
In fact, I'd say that the housing bubble of the mid-2000s was the most obvious thing I've ever seen,
and that the refusal of so many people to acknowledge the possibility was a dramatic illustration
of motivated reasoning at work.
The financial superstructure built on the bubble was something else; I was clueless about that,
and didn't see the financial crisis coming at all.
More and more people are using the B-word about the housing market. A recent analysis * by Dean
Baker, of the Center for Economic Policy Research, makes a particularly compelling case for a housing
bubble. House prices have run well ahead of rents, suggesting that people are now buying houses for
speculation rather than merely for shelter. And the explanations one hears for those high prices
sound more and more like the rationalizations one heard for Nasdaq 5,000.
If we do have a housing bubble, and it bursts, we'll be looking a lot too Japanese for comfort....
This is the way the bubble ends: not with a pop, but with a hiss.
Housing prices move much more slowly than stock prices. There are no Black Mondays, when prices
fall 23 percent in a day. In fact, prices often keep rising for a while even after a housing boom
goes bust.
So the news that the U.S. housing bubble is over won't come in the form of plunging prices; it
will come in the form of falling sales and rising inventory, as sellers try to get prices that buyers
are no longer willing to pay. And the process may already have started.
Of course, some people still deny that there's a housing bubble. Let me explain how we know that
they're wrong.
One piece of evidence is the sense of frenzy about real estate, which irresistibly brings to mind
the stock frenzy of 1999. Even some of the players are the same. The authors of the 1999 best seller
"Dow 36,000" are now among the most vocal proponents of the view that there is no housing bubble.
Then there are the numbers. Many bubble deniers point to average prices for the country as a whole,
which look worrisome but not totally crazy. When it comes to housing, however, the United States
is really two countries, Flatland and the Zoned Zone.
In Flatland, which occupies the middle of the country, it's easy to build houses. When the demand
for houses rises, Flatland metropolitan areas, which don't really have traditional downtowns, just
sprawl some more. As a result, housing prices are basically determined by the cost of construction.
In Flatland, a housing bubble can't even get started.
But in the Zoned Zone, which lies along the coasts, a combination of high population density and
land-use restrictions - hence "zoned" - makes it hard to build new houses. So when people become
willing to spend more on houses, say because of a fall in mortgage rates, some houses get built,
but the prices of existing houses also go up. And if people think that prices will continue to rise,
they become willing to spend even more, driving prices still higher, and so on. In other words, the
Zoned Zone is prone to housing bubbles.
And Zoned Zone housing prices, which have risen much faster than the national average, clearly
point to a bubble....
EMichael said in reply to anne...
Yeah, the only thing he missed was the timing of the collapse.
The day he wrote this the Fed had
already raised rates 250% in one year, on the way to a total of 400% in the next 6 months.
Yet prices accelerated until the top was reached a year after the column.
Bubble, bubble, Toll's in trouble. This week, Toll Brothers, the nation's premier builder of McMansions,
announced that sales were way off, profits were down, and the company was walking away from already-purchased
options on land for future development.
Toll's announcement was one of many indications that the long-feared housing bust has arrived.
Home sales are down sharply; home prices, which rose 57 percent over the past five years (and much
more than that along the coasts), are now falling in much of the country. The inventory of unsold
existing homes is at a 13-year high; builders' confidence is at a 15-year low.
A year ago, Robert Toll, who runs Toll Brothers, was euphoric about the housing boom, declaring:
"We've got the supply, and the market has got the demand. So it's a match made in heaven." In a New
York Times profile of his company published last October, he dismissed worries about a possible bust.
"Why can't real estate just have a boom like every other industry?" he asked. "Why do we have to
have a bubble and then a pop?"
The current downturn, Mr. Toll now says, is unlike anything he's seen: sales are slumping despite
the absence of any "macroeconomic nasty condition" taking housing down along with the rest of the
economy. He suggests that unease about the direction of the country and the war in Iraq is undermining
confidence. All I have to say is: pop! ...
EMichael said in reply to anne...
"Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence of
any "macroeconomic nasty condition""
You gotta love builders and RE agents. It wasn't macro that caused it, it was default rates across
the board on supposedly safe investments that caused mortgage money supply to totally disappear.
One day people will understand that payments are the key to all finance.
JohnH said...
"and it is an outrage that basically nobody ended up being punished ."
Yes, indeed. And who do we have to blame for that? Obama and Holder, of course. They made the
investigation of mortgage securities fraud DOJ's lowest priority. Krugman's Democratic proclivities
prevent him from stating the obvious.
I' m sure that pgl and his band of merry Obamabots will try to spin this in Obama's favor...I.e.
Congress prevented him from implementing the law, even though Congress has nothing to do with it.
Fact is, Obama has intentionally been a lame duck ever since he took office. He was even clueless
on how to capitalize on a filibuster-proof majority in the midst of an economic crisis...which brings
us to Trump. Many are so desperate for leadership after Obama's hollow presidency that they'll even
support a racist demagogue to avoid another empty White House.
JohnH said in reply to anne...
Oh, please...Krugman could barely criticize Obama, even when Obama introduced an austerity budget
back in 2011.
The tendency of people like Krugman to overlook Democrats' bad behavior only encourages
more bad behavior. If Krugman really cared about the policies he champions, he would let the chips
fall wherever...and not let empty suits like Obama get away with austerity and failure to enforce
the law when Wall Street willfully violates it.
pgl said in reply to JohnH...
Did you forgot to read the post before firing off your usual hate filled fact free rant? Here - let
me help you out:
"some members of the new commission had a different goal. George Santayana famously
remarked that "those who cannot remember the past are condemned to repeat it." What he didn't point
out was that some people want to repeat the past - and that such people have an interest in making
sure that we don't remember what happened, or that we remember it wrong. Sure enough, some commission
members sought to block consideration of any historical account that might support efforts to rein
in runaway bankers."
It seems Krugman indeed bashed how the government sort of let this crooks off the hook. We know
you have an insane hatred for President Obama. But do you also hate your poor mom? Why else would
you continue to write such incredibly stupid things?
JohnH said in reply to pgl...
As I expected, rationalizations for Obama's refusal to enforce the law...since when does the buck
no longer stop at the White House? And what's with trying to defend people who refuse to do their
job and uphold the rule of law?
pgl said in reply to JohnH...
Krugman did not rationalize that. Neither have I.
Either you know you are lying or you flunked
preK reading.
JohnH said in reply to pgl...
Of course pgl rationalizs Obama's failures...he spent a lot of time denying that Obama introduced
and signed off on austerity...and that he proposed cutting Social Security. And now he can't admit
that Obama and Holder have refused to defend the rule of law by not prosecuting...or even seriously
investigating...Wall Street criminality.
RGC said in reply to William...
Prosecutions don't require congressional action.
Most of the New Deal was accomplished in 100 days.
Promotion by a president can galvanize action.
pgl said in reply to EMichael...
The lack of prosecutions was a bad thing. Of course any prosecutor would tell you putting rich people
in jail for anything is often difficult. Rich people get to hire expensive, talented, and otherwise
slimy defense attorneys. I have to laugh at the idea that JohnH thinks he could have pulled this
off. The slimy defense attorneys would have had his lunch before the judge's gavel could come down.
JohnH said in reply to pgl...
Obama could have at least made the investigations a high priority...but he let Holder, a Wall Street
attorney, consign them to the lowest.
pgl is intent on explaining away Obama's failure to enforce
the law...thereby encouraging more lawlessness.
JohnH said in reply to William...
Democrats' filibuster-proof majority consisted of 58 Democrats and two independents who caucused
with them. Only an inept President and Senate majority leader could have failed to take advantage
of such a majority to implement significant parts of the party platform. Even Lieberman had a good
record on many issues. Except for ACA, it turned out to be a do-nothing Congress, reflecting an abject
lack of leadership...which is why many are so desperate for leadership. Having lacked it for seven
years, many are willing to turn to anybody, even Trump, to provide it. Pathetic!
RGC said in reply to William...
No vitriol, just facts. And Obama had the example of FDR to follow - why didn't he follow it? I have
been deeply disappointed in Obama.
JohnH said in reply to pgl...
pgl conveniently forgets my choice words about Bill Clinton, Harry Reid and Nancy Pelosi. What I
object to is Democrats who position themselves to sound like FDR and then prosecute a neo-liberal
agenda.
Gullible folks like pgl and his coterie believe what these Democrats say and waste our
time defending their neoliberal behavior.
"... Summers is right that bubbles are usually accompanied by some kind of financial euphoria. ..."
"... There will be massive pushback because so many have wasted many years and resources building mathematically elegant but fatally flawed models that do not make accurate predictions on even represent the fundamentals of any economy. ..."
"It seems to me looking at a year when the stock market has gone down a bit, credit spreads
have widened substantially and the dollar has been very strong it is hard to say that now is
the time to fire a shot across the bow of financial euphoria. Looking especially at emerging
markets I would judge that under-confidence and excessive risk aversion are a greater threat
over the next several years than some kind of financial euphoria."
Summers is right that bubbles are usually accompanied by some kind of financial euphoria.
I disagree with your assessment. People (elite?) are talking about unusual solutions because fiscal
policy is being blocked politically.
MMT doesn't seem that different from Keynesianism, except proponents have very big chips on
their shoulders for some reason.
Right now the Keynesians are arguing that the Fed shouldn't raise rates. Are the MMTers arguing
any differently? Or are they merely giving us the blue prints for utopia. Blue prints don't help
much if the politics are against you.
Syaloch said in reply to Peter K....
Great question.
If I have two black boxes that always produce exactly the same outputs, does
it matter whether their internal mechanisms are different?
Dan Kervick said in reply to Syaloch...
"Or maybe they would be effective because people believe they ought to be effective."
Possibly. I think back in the 80's when monetarism was the super-sexy new view, there were
a lot of people who thought inflation was mainly a function of the monetary base, so if the Fed
made a big public stink about pumping up the monetary base, that could be counted on the boost
inflation expectations, at least in some quarters, and the high expectations would in turn help
to boost actual inflation. That doesn't seem to be the case any longer.
Dan Kervick said in reply to pgl...
The heyday of monetarism was the late 70's and early 80's. That's when Friedman's monetary theory
of inflation caught the public imagination, and it's the only time the Fed ever attempted (briefly)
to target the money supply.
Conservative spear-carrier Niall Ferguson knows how important monetarism
was to the neoliberal movement, and how big a deal it was during the Thatcher-Reagan era.
The heyday of monetarism was the late 70's and early 80's. That's when Friedman's monetary theory
of inflation caught the public imagination, and it's the only time the Fed ever attempted (briefly)
to target the money supply.
Conservative spear-carrier Niall Ferguson knows how important monetarism
was to the neoliberal movement, and how big a deal it was during the Thatcher-Reagan era.
"Given what we know about representative-agent models…there is not the slightest reason
for us to think that the conditions under which they should work are fulfilled. The claim that
representative-agent models provide microfundations succeeds only when we steadfastly avoid
the fact that representative-agent models are just as aggregative as old-fashioned Keynesian
macroeconometric models. They do not solve the problem of aggregation; rather they assume that
it can be ignored."
This the reason Macro needs to move into more data driven empirics.
There will be massive pushback because so many have wasted many years and resources building
mathematically elegant but fatally flawed models that do not make accurate predictions on even
represent the fundamentals of any economy.
The Advantages of Higher Inflation - The New York Times
From the article:
"A critical problem with aiming for higher inflation is how to get from here to there. The
Fed has spent enormous effort anchoring people's expectations to 2 percent. Even economists sympathetic
to a higher target are wary of what such a shift might do to its credibility.
"'A perfect world, where you could commit to 4 percent and everybody believed it, would be
great,' Mr. Mishkin told me. 'We are not in a perfect world. Moving much higher than 2 percent
raises the risk that expectations become unanchored.'
"So here is an alternative proposal. If the Fed is too cautious to risk unhinging inflationary
expectations, how about just delivering what it has promised? Among economists and investors,
the problem with the Fed's 2 percent target is that just about everybody believes it is really
a ceiling. That makes it even harder for inflation to rise to that level. The market expects the
Fed to act pre-emptively to ensure it never goes over that line - which is what it seems to be
doing now.
"If the Fed is not going to aim for higher inflation, the least it could do is re-anchor expectations
to the goal it established, allowing inflation to fluctuate above and below a 2 percent average.
That alone might help deal with the next economic crisis.
"'We haven't fully tested whether we can deal with this kind of crisis with a 2 percent inflation
target,' said David H. Romer of the University of California, Berkeley. 'Central banks have lots
of tools. If they say they are willing to keep using them until they get where they want, they
can eventually do it.'"
This highlights a confusing aspect of inflation targets. If the Fed simply announces a higher
inflation target without taking any other action, have they really done anything? What's more,
they not only need to announce the new target, they need to convince markets that they are willing
to do whatever it takes to hit that target -- it's all about credibility and re-anchoring expectations.
And while engaging in QE to push down longer-term rates might help make that statement more convincing,
it doesn't seem to be strictly necessary for the new target to be effective.
Thus inflation targets seem in at least some cases to operate purely through psychological
manipulation, as a sort of placebo effect: inflation rises not because the Fed has injected money
into the economy today or changed the cost of lending today, but rather because the Fed is able
to "trick" markets into believing it will rise in the future.
Peter K. said in reply to Syaloch...
And the reverse is true. The markets are skeptical that the Fed will hit its 2 percent ceiling
target any time soon.
Inflation expectations are becoming un-anchored on the downside but nobody cares because ....
oil.
Dan Kervick said in reply to Peter K....
I guess we'll all have to wait for Yellen's future memoirs to know the thinking that was going
on inside the Fed during 2015. But it's interesting that both Yellen and Stanley Fischer, both
formerly held in gigantic respect by the more prominent liberal economists, are now the targets
of ire for apparently not seeing eye-to-eye with their opinionated friends on the outside. Despite
the fact that BoG members have access to mountains of internal research and policy input that
people on the outside can only guess at, the default position of the outsiders is that the insiders
have been corrupted by power and fast-talking bankers or something.
Here's my conjecture about
what the Fed's thinking is: The Fed recognizes that keeping policy interest rates down at an unprecedentedly
low basement level for years on end sends this message to the global economy: the US economy is
a sick basket case. It needs the permanent life support of extraordinary monetary policy intervention
to be kept from flat-lining.
I think the people who actually work inside the Fed think that is total bunk, and that as they
gradually wean the financial sector off of the monetary ventilator, nothing bad is going to happen
at all. The patient is going to get up, walk around and breathe normally. And when that happens,
it will say, "Wow, maybe I should have tried that earlier!" Business confidence will spurt; people
will think, "Hey, I guess we're not in that gloomy post-2008 depression any more!", and the country
will get on with its business more cheerfully.
The Fed has had a devil of a time getting back to normal, because despite its best intentions
it has inadvertently re-defined a condition of zero rates and excess reserves bleeding from bankers's
ears as the new normal, and created an out-of-control public fixation on monetary policy intervention.
Fed communications strategies aimed at guiding the market have turned back on them in a reflexive
and self-defeating cycle. They got themselves into a terrible pattern for a while where every
time there was good economic news, the markets would respond negatively because they interpreted
the good news as evidence that the Fed would "taper" - which they regarded as bad news! And if
there was bad news, the markets would respond favorably because they saw the bad news as evidence
that the fed would "remain aggressive" - which is good news! Obviously that's a pretty pathological
cycle to be in: it's a mechanism fro economic self-stultification. Indicating a move toward normalization
too suddenly in 2013 caused the irrational "taper tantrum", so they have had to go more slowly
this time around with the hand-holding and by building a longer "guidance" runway.
Their chief need now is to push back against the monetary maniacs and hyperventilators who
keep trying to convince impressionable business people and consumers that the Fed has somehow
been "keeping the economy" afloat, and that when interest rates go up - from 1/4 to 1/2 of a percent!
- we're all going to drown. If you have enough ambulance chasers convincing people they are sick
and damaged, they will act sick and damaged.
"... I get the feeling that if doing a film review of The Force Awakens , most economists would be rooting for the Empire to win - after all the empire will bring free trade within its borders, like the EU. ..."
"... In market fundamentalist world, markets dont fail. They can only be failed. Though its still not clear how they think a little bit of government incentive for loans to low income borrowers caused the entire financial sector to lose its mind wrt CDOs. ..."
"... The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects. ..."
"... ....Supervising regulators need to look carefully at the ratio of credit used for financial trading compared to credit used for what weve called real-economy matters. They should adjust the level of monitoring based on this view while they also inform policy makers including those in the legislature. ..."
"... except that a significant chunk of institutional investors have sticky nominal targets for return thanks to the politics of return expectation setting (true for pension fund and endowments) -- low interest rates do encourage chasing phantoms or looking to extract some rents, for those subject to that kind of pressure ..."
"... The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculators expected returns. when this dynamic gets out of control, it is a bubble. ..."
"... Yes, indeed. And who do we have to blame for that? Obama and Holder, of course. They made the investigation of mortgage securities fraud DOJs lowest priority. Krugmans Democratic proclivities prevent him from stating the obvious. ..."
"... Fact is, Obama has intentionally been a lame duck ever since he took office. He was even clueless on how to capitalize on a filibuster-proof majority in the midst of an economic crisis...which brings us to Trump. Many are so desperate for leadership after Obamas hollow presidency that theyll even support a racist demagogue to avoid another empty White House. ..."
"... Yes you are correct. From 2001 into 2008 when all of the liar and ninja loans were being made, not one government official stepped forward to investigate the possibility of fraud, the predatory lending, the misrepresentation of loans taking place, the loans with teaser rates which later ballooned, the packing of loans with deceptive fees, the illegal kick backs, etc. Not one. To make matters worst, the administration from 2001-2008 aligned itself with the banks along with the maestro hisself Greenspan. ..."
"... When state AGs took on the burden of investigating the flagrant violations, the administration moves to block them saying they had no jurisdiction to do so. It did this through the OCC issuing rules preventing the states from prosecuting the banks. Besides blocking any investigation, the OCC failed in its mission to audit the banks for which it was by law to do. ..."
But some members of the new commission
had a different goal. ... Peter Wallison of the American Enterprise Institute,
wrote to a fellow Republican on the commission ... it was important that what they said
"not undermine the ability of the new House G.O.P. to modify or repeal Dodd-Frank"...; the
party line, literally, required telling stories that would help Wall Street do it all over
again.
Which brings me to a new movie the enemies of financial regulation really, really don't
want you to see.
"The Big Short" ... does
a terrific job of making Wall Street skulduggery entertaining, of exploiting the inherent black
humor of how it went down. ... But you don't want me to play film critic; you want to know
whether the movie got the underlying ... story right. And the answer is yes, in all the ways
that matter. ...
The ...housing ... bubble ... was inflated largely via opaque financial schemes that in
many cases amounted to outright fraud - and it is an outrage that basically nobody ended up
being punished ... aside from innocent bystanders, namely the millions of workers who lost
their jobs and the millions of families that lost their homes.
While the movie gets the essentials of the financial crisis right, the true story ... is
deeply inconvenient to some very rich and powerful people. They and their intellectual hired
guns have therefore spent years disseminating an alternative view ... that places all the blame
... on ... too much government, especially government-sponsored agencies supposedly pushing
too many loans on the poor.
Never mind that the supposed evidence for this view has been
thoroughly debunked..., constant repetition, especially in captive media, keeps this imaginary
history in circulation no matter how often it is shown to be false.
Sure enough, "The Big Short" has already been the subject of
vitriolicattacks
in Murdoch-controlled newspapers...
The ... people who made "The Big Short" should consider the attacks a kind of compliment:
The attackers obviously worry that the film is entertaining enough that it will expose a large
audience to the truth. Let's hope that their fears are justified.
btg said in reply to pgl...
I get the feeling that if doing a film review of "The Force Awakens", most economists would
be rooting for the Empire to win - after all the empire will bring free trade within its borders,
like the EU. Krugman would not, however.
Sanjait said...
In market fundamentalist world, markets don't fail. They can only be failed. Though it's still
not clear how they think a little bit of government incentive for loans to low income borrowers
caused the entire financial sector to lose its mind wrt CDOs.
Are markets efficient or not? I
feel like the fundiesndont really have a coherent explanation for what happened, other than insisting
the government somehow did it.
reason said...
I wish Krugman would attack the view that is being propagated at the moment that low nominal
interest rates (it seems irrespective of the reason for them) foster bubbles. It doesn't make
the slightest bit of sense - leverage doesn't just magnify the gains, it magnifies the losses
as well - what really counts is expectations regardless of nominal interest rates.)
The distribution of the use of credit between pure financial speculation and productive
investment is not a function of interest rates, but of things like bank culture, bank regulation
and macro-economic and technological prospects.
It always seem to me that right wing economists credit businessmen with superhuman
foresight and sophistication, except when it comes to the actions of the Fed and then
something addles their brains and they become completely stupid. As I once put, it seems
investors can't understand what the Fed is doing, even though they tell you.
Good model; one that reaches the "right" good conclusions. Bad model; one that ends up
saying stuff nobody should believe in.
likbez said in reply to Sanjait...
"Markets are efficient, unless the government does anything"
This is a dangerous neoliberal dogma. Total lie.
=== quote ===
The efficient market hypothesis (EMH) is a flavor of economic Lysenkoism which became
popular for the last 30 years in the USA. It is a pseudo scientific theory or, in more
politically correct terms, unrealistic idealization of market behavior. Like classic
Lysenkoism in the past was supported by Stalin's totalitarian state, it was supported by
the power of neoliberal state, which is the state captured by financial oligarchy (see
Casino Capitalism and Quiet coup for more details).
Among the factors ignored by EMH is the positive feedback loop inherent in any system
based on factional reserve banking, the level of market players ignorance, unequal access
to the real information about the markets, the level of brainwashing performed on
"lemmings" by controlled by elite MSM and market manipulation by the largest players and
the state.
Economics, it is said, is the study of scarcity. There is, however, one thing that
certainly isn't scarce, but which deserves the attention of economists - ignorance.
...Conventional economics analyses how individuals choose - maybe rationally, maybe not -
from a range of options. But this raises the question: how do they know what these options
are? Many feasible - even optimum - options might not occur to them. This fact has some
important implications. ...
Slightly simplifying, we can say that (financial) markets are mainly efficient in
separation of fools and their money... And efficient market hypothesis mostly bypasses
important question about how the inequity of resources which inevitably affects the
outcomes of market participants. For example, the level of education of market players is
one aspect of the inequity of resources. Herd behavior is another important, but overlooked
in EMH factor.
Great comment. I especially liked this point: "The distribution of the use of credit between
pure financial speculation and productive investment is not a function of"
....Supervising regulators need to look carefully at the ratio of credit used for financial
trading compared to credit used for what we've called real-economy matters. They should adjust
the level of monitoring based on this view while they also inform policy makers including those
in the legislature.
There may be an opportunity in 2017 to revise the statutes so the public plainly says what
the rules of Commerce are in these financial 'inter-mediation' areas - society is better served
if more of such credit offerings go to investments in the real economy where inputs are real things
like employees, supplies, equipment/technologies. The public's law can effect this change.
david said in reply to JF...
except that a significant chunk of institutional investors have sticky nominal targets
for return thanks to the politics of return expectation setting (true for pension fund and endowments)
-- low interest rates do encourage chasing phantoms or looking to extract some rents, for those
subject to that kind of pressure
BenIsNotYoda said in reply to reason...
"The distribution of the use of credit between pure financial speculation and productive
investment is not a function of interest rates, but of things like bank culture, bank regulation
and macro-economic and technological prospects."
The relationship between low interest rates and bubbles has nothing to do with the above.
Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings
and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low.
Raising asset prices and the resultant higher net worth was supposed to lead to higher spending
today. But outsized returns also attracts speculation. what is so difficult to understand? John
Williams of SF Fed has shown how positive returns in asset markets raises the speculator's expected
returns. when this dynamic gets out of control, it is a bubble.
Sanjait said in reply to BenIsNotYoda...
It's hard to see how to your claim that expected returns are high when earnings yields across
the board are historically low.
BenIsNotYoda said in reply to Sanjait...
That is exactly the point. Expected returns in stocks have nothing to do with earnings growth.
It does not seem reasonable or fair to pay practically no interest on savings, which is a consequence
of Fed policy. A consequence of this is that people go into risky investments that lead to catastrophe,
sometimes widespread. If the goal was to get people to spend (i.e. consume) more, it seems that
they are persistently & stubbornly frugal.
Last night I was invited to a screening of "The Big Short," which I thought was terrific; who
knew that collateralized debt obligations and credit default swaps could be made into an edge-of-your-seat
narrative (with great acting)?
But there was one shortcut the narrative took, which was understandable and possibly necessary,
but still worth noting.
In the film, various eccentrics and oddballs make the discovery that subprime-backed securities
are garbage, which is pretty much what happened; but this is wrapped together with their realization
that there was a massive housing bubble, which is presented as equally contrary to anything anyone
respectable was saying. And that's not quite right.
It's true that Greenspan and others were busy denying the very possibility of a housing bubble.
And it's also true that anyone suggesting that such a bubble existed was attacked furiously -
"You're only saying that because you hate Bush!" Still, there were a number of economic analysts
making the case for a massive bubble. Here's Dean Baker in 2002. * Bill McBride (Calculated Risk)
was on the case early and very effectively. I keyed off Baker and McBride, arguing for a bubble
in 2004 and making my big statement about the analytics in 2005, ** that is, if anything a bit
earlier than most of the events in the film. I'm still fairly proud of that piece, by the way,
because I think I got it very right by emphasizing the importance of breaking apart regional trends.
So the bubble itself was something number crunchers could see without delving into the details
of mortgage-backed securities, traveling around Florida, or any of the other drama shown in the
film. In fact, I'd say that the housing bubble of the mid-2000s was the most obvious thing I've
ever seen, and that the refusal of so many people to acknowledge the possibility was a dramatic
illustration of motivated reasoning at work.
The financial superstructure built on the bubble was something else; I was clueless about that,
and didn't see the financial crisis coming at all.
More and more people are using the B-word about the housing market. A recent analysis * by
Dean Baker, of the Center for Economic Policy Research, makes a particularly compelling case for
a housing bubble. House prices have run well ahead of rents, suggesting that people are now buying
houses for speculation rather than merely for shelter. And the explanations one hears for those
high prices sound more and more like the rationalizations one heard for Nasdaq 5,000.
If we do have a housing bubble, and it bursts, we'll be looking a lot too Japanese for comfort....
This is the way the bubble ends: not with a pop, but with a hiss.
Housing prices move much more slowly than stock prices. There are no Black Mondays, when prices
fall 23 percent in a day. In fact, prices often keep rising for a while even after a housing boom
goes bust.
So the news that the U.S. housing bubble is over won't come in the form of plunging prices;
it will come in the form of falling sales and rising inventory, as sellers try to get prices that
buyers are no longer willing to pay. And the process may already have started.
Of course, some people still deny that there's a housing bubble. Let me explain how we know
that they're wrong.
One piece of evidence is the sense of frenzy about real estate, which irresistibly brings to
mind the stock frenzy of 1999. Even some of the players are the same. The authors of the 1999
best seller "Dow 36,000" are now among the most vocal proponents of the view that there is no
housing bubble.
Then there are the numbers. Many bubble deniers point to average prices for the country as
a whole, which look worrisome but not totally crazy. When it comes to housing, however, the United
States is really two countries, Flatland and the Zoned Zone.
In Flatland, which occupies the middle of the country, it's easy to build houses. When the
demand for houses rises, Flatland metropolitan areas, which don't really have traditional downtowns,
just sprawl some more. As a result, housing prices are basically determined by the cost of construction.
In Flatland, a housing bubble can't even get started.
But in the Zoned Zone, which lies along the coasts, a combination of high population density
and land-use restrictions - hence "zoned" - makes it hard to build new houses. So when people
become willing to spend more on houses, say because of a fall in mortgage rates, some houses get
built, but the prices of existing houses also go up. And if people think that prices will continue
to rise, they become willing to spend even more, driving prices still higher, and so on. In other
words, the Zoned Zone is prone to housing bubbles.
And Zoned Zone housing prices, which have risen much faster than the national average, clearly
point to a bubble....
Yeah, the only thing he missed was the timing of the collapse. The day he wrote this the Fed
had already raised rates 250% in one year, on the way to a total of 400% in the next 6 months.
Yet prices accelerated until the top was reached a year after the column.
Bubble, bubble, Toll's in trouble. This week, Toll Brothers, the nation's premier builder of
McMansions, announced that sales were way off, profits were down, and the company was walking
away from already-purchased options on land for future development.
Toll's announcement was one of many indications that the long-feared housing bust has arrived.
Home sales are down sharply; home prices, which rose 57 percent over the past five years (and
much more than that along the coasts), are now falling in much of the country. The inventory of
unsold existing homes is at a 13-year high; builders' confidence is at a 15-year low.
A year ago, Robert Toll, who runs Toll Brothers, was euphoric about the housing boom, declaring:
"We've got the supply, and the market has got the demand. So it's a match made in heaven." In
a New York Times profile of his company published last October, he dismissed worries about a possible
bust. "Why can't real estate just have a boom like every other industry?" he asked. "Why do we
have to have a bubble and then a pop?"
The current downturn, Mr. Toll now says, is unlike anything he's seen: sales are slumping despite
the absence of any "macroeconomic nasty condition" taking housing down along with the rest of
the economy. He suggests that unease about the direction of the country and the war in Iraq is
undermining confidence. All I have to say is: pop! ...
"Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence
of any "macroeconomic nasty condition""
You gotta love builders and RE agents. It wasn't macro that caused it, it was default rates
across the board on supposedly safe investments that caused mortgage money supply to totally disappear.
One day people will understand that payments are the key to all finance.
JohnH said...
"and it is an outrage that basically nobody ended up being punished ."
Yes, indeed. And who do we have to blame for that? Obama and Holder, of course. They made
the investigation of mortgage securities fraud DOJ's lowest priority. Krugman's Democratic proclivities
prevent him from stating the obvious.
I' m sure that pgl and his band of merry Obamabots will try to spin this in Obama's favor...I.e.
Congress prevented him from implementing the law, even though Congress has nothing to do with
it.
Fact is, Obama has intentionally been a lame duck ever since he took office. He was even
clueless on how to capitalize on a filibuster-proof majority in the midst of an economic crisis...which
brings us to Trump. Many are so desperate for leadership after Obama's hollow presidency that
they'll even support a racist demagogue to avoid another empty White House.
run75441 said in reply to JohnH...
Yes you are correct. From 2001 into 2008 when all of the liar and ninja loans were being
made, not one government official stepped forward to investigate the possibility of fraud, the
predatory lending, the misrepresentation of loans taking place, the loans with "teaser" rates
which later ballooned, the packing of loans with deceptive fees, the illegal kick backs, etc.
Not one. To make matters worst, the administration from 2001-2008 aligned itself with the banks
along with the maestro hisself "Greenspan."
When state AGs took on the burden of investigating the flagrant violations, the administration
moves to block them saying they had no jurisdiction to do so. It did this through the OCC issuing
rules preventing the states from prosecuting the banks. Besides blocking any investigation, the
OCC failed in its mission to audit the banks for which it was by law to do.
What was the SEC doing during this time period? What was the administration doing with Enron
in 2002? Didn't Cheney get sued by the GAO to find out who he was talking to at Enron?
Yes there is the matter of not prosecuting banking execs after 2008; however, the issue was
allowed to grow during the prior administration and left on the next administration's doorstep.
Closing the barn door after the perps have escaped is a bit late and it should have been stopped
dead in its tracks during the prior 8 years.
So keep going down that path and we can also talk about fraud with tranching, CDS, Naked CDs,
reserves, etc.
So, where was the administration during this time period?
DeDude said...
Subprime loans in poor communities represented a very small fraction of the total subprime
volume and defaulted loans. I mean talk about the mouse and the elephant. Yet the FoxBots are
being convinced to look at those scary mice and all that thundering noise they are making.
Alex H said in reply to Peter K....
In the book, one of the supposed villains went to the division of AIG that was selling CDSes (i.e.
"insuring" the toxic crap) and explained to a direct subordinate of the division exactly how his
bank and the other companies of Wall Street were suckering them into taking on absurd risks. In
*2005*.
Because he was massively short in this market, and AIG pulling the plug would have popped
the bubble. Nobody else was selling CDSes (then), and Wall Street couldn't have pretended that
their risks were covered without them. That doesn't make him a hero, but seriously, if AIG had
listened, no collapse.
Several of the characters effectively called up the ratings agencies to shout at them. Others
called NYT and WSJ reporters, who ignored them. Then they called the SEC's enforcement division,
who ignored them.
Besides, if the other side in all of those bets were foreign "widows and orphans", then it
wouldn't have wrecked the financial system. If Bear Stearns had been sitting as the middleman
between a Korean pension fund and Steve Eisman, they'd have just taken their cut and moved on.
The
seventh edition of
Manias, Panics, and Crashes has recently been published by Palgrave Macmillan.
Charles Kindleberger of MIT wrote the first edition, which appeared in 1978, and followed
it with three more editions. Robert Aliber of the Booth School of Business at the University
of Chicago took over the editing and rewriting of the fifth edition, which came out in
2005. (Aliber is also the author of another well-known book on international finance,
The New International Money Game.) The continuing popularity of Manias,
Panics and Crashes shows that financial crises continue to be a matter of widespread
concern.
Kindleberger built upon the work of
Hyman Minsky, a faculty member at Washington University in St. Louis. Minsky was
a proponent of what he called the "financial instability hypothesis," which posited that
financial markets are inherently unstable. Periods of financial booms are followed by
busts, and governmental intervention can delay but not eliminate crises. Minsky's work
received a great deal of attention during the global financial crisis (see
here and
here; for a summary of Minksy's work, see
Why Minsky Mattersby L. Randall Wray of the University of Missouri-Kansas City
and the Levy Economics Institute).
Kindleberger provided a more detailed description of the stages of a financial crisis.
The period preceding a crisis begins with a "displacement," a shock to the system. When
a displacement improves the profitability of at least one sector of an economy, firms
and individuals will seek to take advantage of this opportunity. The resulting demand
for financial assets leads to an increase in their prices. Positive feedback in asset
markets lead to more investments and financial speculation, and a period of "euphoria,"
or mania develops.
At some point, however, insiders begin to take profits and withdraw from the markets.
Once market participants realize that prices have peaked, flight from the markets becomes
widespread. As prices plummet, a period of "revulsion" or panic ensues. Those who had
financed their positions in the market by borrowing on the promise of profits on the
purchased assets become insolvent. The panic ends when prices fall so far that some traders
are tempted to come back into the market, or
trading is limited by the authorities, or a lender of last resort intervenes to halt
the decline.
In addition to elaborating on the stages of a financial crisis, Kindleberger also
placed them in an international context. He wrote about the propagation of crises through
the arbitrage of divergences in the prices of assets across markets or their substitutes.
Capital flows and the spread of euphoria also contribute to the simultaneous rises in
asset prices in different countries. (Piero
Pasotti and Alessandro Vercelli of the University of Siena provide an analysis of
Kindleberger's contributions.)
Aliber has continued to update the book, and the new edition has a chapter on the
European sovereign debt crisis. (The prior edition covered the events of 2008-09.) But
he has also made his own contributions to the Minsky-Kindleberger (and now –Aliber) framework.
Aliber characterizes the decades since the early 1980s as "…the most tumultuous in monetary
history in terms of the number, scope and severity of banking crises." To date, there
have been four waves of such crises, which are almost always accompanied by currency
crises. The first wave was the debt crisis of developing nations during the 1980s, and
it was followed by a second wave of crises in Japan and the Nordic countries in the early
1990s. The third wave was the Asian financial crisis of 1997-98, and the fourth is the
global financial crisis.
Aliber emphasizes the role of cross-border investment flows in precipitating the crises.
Their volatility has risen under flexible exchange rates, which allow central banks more
freedom in formulating monetary policies that influence capital allocation. He also draws
attention to the increases in household wealth due to rising asset prices and currency
appreciation that contribute to consumption expenditures and amplify the boom periods.
The reversal in wealth once investors revise their expectations and capital begins to
flow out makes the resulting downturn more acute.
These views are consistent in many ways with those of
Claudio Borio of the Bank for International Settlements (see also
here). He has written that the international monetary and financial system amplifies
the "excess financial elasticity," i.e., the buildup of financial imbalances that characterizes
domestic financial markets. He identifies two channels of transmission. First, capital
inflows contribute to the rise in domestic credit during a financial boom. The impact
of global conditions on domestic financial markets exacerbates this development (see
here). Second, monetary regimes may facilitate the expansion of monetary conditions
from one country to others. Central bankers concerned about currency appreciation and
a loss of competitiveness keep interest rates lower than they would otherwise, which
furthers a domestic boom. In addition, the actions of central banks with international
currencies such as the dollar has international ramifications, as the current widespread
concern about the impending rise in the Federal Funds rate shows.
Aliber ends the current edition of Manias, Panics and Crashes with an appendix
on China's financial situation. He compares the surge in China's housing markets with
the Japanese boom of the 1980s and subsequent bust that initiated decades of slow economic
growth. An oversupply of new housing in China has resulted in a
decline in prices that threatens the solvency of property developers and the banks
and shadow banks that financed them. Aliber is dubious of the claim that the Chinese
government will support the banks, pointing out that such support will only worsen
China's indebtedness. The need for an eighth edition of Manias, Panics and Crashes
may soon be apparent.
"... Any serious discussion of Fed policy would note that the banking industry appears to have a grossly disproportionate say in the country's monetary policy. ..."
But what is even more striking is the Post's ability to
treat the Fed a neutral party when the evidence is so
overwhelming in the opposite direction. The majority of
the Fed's 12 district bank presidents have long been
pushing for a rate hike. While there are some doves among
this group, most notably Charles Evans, the Chicago bank
president, and Narayana Kocherlakota, the departing
president of the Minneapolis bank, most of this group has
publicly pushed for higher rate hikes for some time. By
contrast, the governors who are appointed through the
democratic process, have been far more cautious about
raising rates.
It should raise serious concerns that the bank
presidents, who are appointed through a process dominated
by the banking industry, has such a different perspective
on the best path forward for monetary policy. With only
five of the seven governor slots currently filled, there
are as many presidents with voting seats on the Fed's Open
Market Committee as governors. In total, the governors are
outnumbered at meetings by a ratio of twelve to five.
Any serious discussion of Fed policy would note that
the banking industry appears to have a grossly
disproportionate say in the country's monetary policy.
Furthermore, it seems determined to use that influence to
push the Fed on a path that slows growth and reduces the
rate of job creation. The Post somehow missed this story
or at least would prefer that the rest of us not take
notice.
In ten years time I doubt very much most people around the world will care about small changes
in shale oil production.
The United States uses 19 million barrels of oil per day. The same
population in Germany, Great Britain, France, Poland, the low countries and Scandinavia use 10
million.
The United States could reduce it's exorbitant consumption by firstly having the sort of extensive
bus services that most European countries have. Ever time a train system can be built up and people
would still get to work etc without any real hardship.
http://www.bueker.net/trainspotting/map.php?file=maps/germany/germany.gif
The real problems facing the world are far more difficult to adapt to.
Looks like growth of financial sector represents direct threat to the society
Notable quotes:
"... Perhaps the financialization of the economy and rising inequality leads to a corruption of the political process which leads to monetary, currency and fiscal policy such that labor markets are loose and inflation is low. ..."
"... Growth of the non-financial-sector == growth in productivity ..."
"... In complex subject matters, even the most competent person joining a company has to become familiar with the details of the products, the industry niche, the processes and professional/personal relationships in the company or industry, etc. All these are not really teachable and require between months and years in the job. This represents a significant sunk cost. Sometimes (actually rather often) experience within the niche/industry is in a degree portable between companies, but some company still had to employ enough people to build this experience, and it cannot be readily bought by bringing in however competent freshers. ..."
Working Paper: : In the years since 1980, there has been a well-documented upward redistribution
of income. While there are some differences by methodology and the precise years chosen, the top
one percent of households have seen their income share roughly double from 10 percent in 1980
to 20 percent in the second decade of the 21st century. As a result of this upward redistribution,
most workers have seen little improvement in living standards from the productivity gains over
this period.
This paper argues that the bulk of this upward redistribution comes from the growth
of rents in the economy in four major areas: patent and copyright protection, the financial sector,
the pay of CEOs and other top executives, and protectionist measures that have boosted the pay
of doctors and other highly educated professionals. The argument on rents is important because,
if correct, it means that there is nothing intrinsic to capitalism that led to this rapid rise
in inequality, as for example argued by Thomas Piketty.
"...the growth of finance capitalism was what would kill capitalism off..."
"Financialization" is a short-cut terminology that in full is term either "financialization
of non-financial firms" or "financialization of the means of production." In either case it leads
to consolidation of firms, outsourcing, downsizing, and offshoring to reduce work force and wages
and increase rents.
Consolidation, the alpha and omega of financialization can only be executed with very liquid
financial markets, big investment banks to back necessary leverage to make the proffers, and an
acute capital gains tax preference relative to dividends and interest earnings, the grease to
liquidity.
It takes big finance to do "financialization" and it takes "financialization" to extract big
rents while maintaining low wages.
Finance sector as percent of US GDP, 1860-present: the growth of the rentier economy
[graph]
Financialization is a term sometimes used in discussions of financial capitalism which developed
over recent decades, in which financial leverage tended to override capital (equity) and financial
markets tended to dominate over the traditional industrial economy and agricultural economics.
Financialization is a term that describes an economic system or process that attempts to reduce
all value that is exchanged (whether tangible, intangible, future or present promises, etc.) either
into a financial instrument or a derivative of a financial instrument. The original intent of
financialization is to be able to reduce any work-product or service to an exchangeable financial
instrument... Financialization also makes economic rents possible...financial leverage tended
to override capital (equity) and financial markets tended to dominate over the traditional industrial
economy and agricultural economics...
Companies are not able to invest in new physical capital equipment or buildings because they
are obliged to use their operating revenue to pay their bankers and bondholders, as well as junk-bond
holders. This is what I mean when I say that the economy is becoming financialized. Its aim is
not to provide tangible capital formation or rising living standards, but to generate interest,
financial fees for underwriting mergers and acquisitions, and capital gains that accrue mainly
to insiders, headed by upper management and large financial institutions. The upshot is that the
traditional business cycle has been overshadowed by a secular increase in debt.
Instead of labor earning more, hourly earnings have declined in real terms. There has been
a drop in net disposable income after paying taxes and withholding "forced saving" for social
Security and medical insurance, pension-fund contributions and–most serious of all–debt service
on credit cards, bank loans, mortgage loans, student loans, auto loans, home insurance premiums,
life insurance, private medical insurance and other FIRE-sector charges. ... This diverts spending
away from goods and services.
In the United States, probably more money has been made through the appreciation of real estate
than in any other way. What are the long-term consequences if an increasing percentage of savings
and wealth, as it now seems, is used to inflate the prices of already existing assets - real estate
and stocks - instead of to create new production and innovation?
Your graph shows something I've been meaning to suggest for a while. Take a look at the last time
that the financial sector share of GDP rose. The late 1920's. Which was followed by the Great
Depression which has similar causes as our Great Recession. Here is my observation.
Give that Wall Street clowns a huge increase in our national income and we don't get more services
from them. What we get is screwed on the grandest of scales.
BTW - there is a simple causal relationship that explains both the rise in the share of financial
sector income/GDP and the massive collapses of the economy (1929 and 2007). It is called stupid
financial deregulation. First we see the megabanks and Wall Street milking the system for all
its worth and when their unhanded and often secretive risk taking falls apart - the rest of bear
the brunt of the damage.
Which is why this election is crucial. Elect a Republican and we repeat this mistake again.
Elect a real progressive and we can put in place the types of financial reforms FDR was known
for.
" and it takes "financialization" to extract big rents while maintaining low wages."
It takes governmental macro policy to maintain loose labor markets and low wages. Perhaps
the financialization of the economy and rising inequality leads to a corruption of the political
process which leads to monetary, currency and fiscal policy such that labor markets are loose
and inflation is low.
[Anne gave you FIRE sector profits as a share of GDP while this gives FIRE sector profits as a
share of total corporate profits.]
*
[Smoking gun excerpt:]
"...The financial system has grown rapidly since the early 1980s. In the 1950s, the financial
sector accounted for about 3 percent of U.S. gross domestic product. Today, that figure has more
than doubled, to 6.5 percent. The sector's yearly rate of growth doubled after 1980, rising to
a peak of 7.5 percent of GDP in 2006. As finance has grown in relative size it has also grown
disproportionately more profitable. In 1950, financial-sector profits were about 8 percent of
overall U.S. profits-meaning all the profit earned by any kind of business enterprise in the country.
By the 2000s, they ranged between 20 and 40 percent...
If you want to know what happened to economic equality in this country, one word will explain
a lot of it: financialization. That term refers to an increase in the size, scope, and power of
the financial sector-the people and firms that manage money and underwrite stocks, bonds, derivatives,
and other securities-relative to the rest of the economy.
The financialization revolution over the past thirty-five years has moved us toward greater
inequality in three distinct ways. The first involves moving a larger share of the total national
wealth into the hands of the financial sector. The second involves concentrating on activities
that are of questionable value, or even detrimental to the economy as a whole. And finally, finance
has increased inequality by convincing corporate executives and asset managers that corporations
must be judged not by the quality of their products and workforce but by one thing only: immediate
income paid to shareholders.
The financial system has grown rapidly since the early 1980s. In the 1950s, the financial sector
accounted for about 3 percent of U.S. gross domestic product. Today, that figure has more than
doubled, to 6.5 percent. The sector's yearly rate of growth doubled after 1980, rising to a peak
of 7.5 percent of GDP in 2006. As finance has grown in relative size it has also grown disproportionately
more profitable. In 1950, financial-sector profits were about 8 percent of overall U.S. profits-meaning
all the profit earned by any kind of business enterprise in the country. By the 2000s, they ranged
between 20 and 40 percent. This isn't just the decline of profits in other industries, either.
Between 1980 and 2006, while GDP increased five times, financial-sector profits increased sixteen
times over. While financial and nonfinancial profits grew at roughly the same rate before 1980,
between 1980 and 2006 nonfinancial profits grew seven times while financial profits grew sixteen
times.
This trend has continued even after the financial crisis of 2008 and subsequent financial reforms,
including the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Financial profits
in 2012 were 24 percent of total profits, while the financial sector's share of GDP was 6.8 percent.
These numbers are lower than the high points of the mid-2000s; but, compared to the years before
1980, they are remarkably high.
This explosion of finance has generated greater inequality. To begin with, the share of the
total workforce employed in the financial sector has barely budged, much less grown at a rate
equivalent to the size and profitability of the sector as a whole. That means that these swollen
profits are flowing to a small sliver of the population: those employed in finance. And financiers,
in turn, have become substantially more prominent among the top 1 percent. Recent work by the
economists Jon Bakija, Adam Cole, and Bradley T. Heim found that the percentage of those in the
top 1 percent of income working in finance nearly doubled between 1979 and 2005, from 7.7 percent
to 13.9 percent.
If the economy had become far more productive as a result of these changes, they could have
been worthwhile. But the evidence shows it did not. Economist Thomas Philippon found that financial
services themselves have become less, not more, efficient over this time period. The unit cost
of financial services, or the percentage of assets it costs to produce all financial issuances,
was relatively high at the dawn of the twentieth century, but declined to below 2 percent between
1901 and 1960. However, it has increased since the 1960s, and is back to levels seen at the early
twentieth century. Whatever finance is doing, it isn't doing it more cheaply.
In fact, the second damaging trend is that financial institutions began to concentrate more
and more on activities that are worrisome at best and destructive at worst. Harvard Business School
professors Robin Greenwood and David Scharfstein argue that between 1980 and 2007 the growth in
financial-industry revenues came from two things: asset management and loan origination. Fees
associated either with asset management or with household credit in particular were responsible
for 74 percent of the growth in financial-sector output over that period.
The asset management portion reflects the explosion of mutual funds, which increased from $134
billion in assets in 1980 to $12 trillion in 2007. Much of it also comes from "alternative investment
vehicles" like hedge funds and private equity. Over this time, the fee rate for mutual funds fell,
but fees associated with alternative investment vehicles exploded. This is, in essence, money
for nothing-there is little evidence that hedge funds actually perform better than the market
over time. And, unlike mutual funds, alternative investment funds do not fully disclose their
practices and fees publicly.
Beginning in 1980 and continuing today, banks generate less and less of their income from interest
on loans. Instead, they rely on fees, from either consumers or borrowers. Fees associated with
household credit grew from 1.1 percent of GDP in 1980 to 3.4 percent in 2007. As part of the unregulated
shadow banking sector that took over the financial sector, banks are less and less in the business
of holding loans and more and more concerned with packaging them and selling them off. Instead
of holding loans on their books, banks originate loans to sell off and distribute into this new
type of banking sector.
Again, if this "originate-to-distribute" model created value for society, it could be a worthwhile
practice. But, in fact, this model introduced huge opportunities for fraud throughout the lending
process. Loans-such as "securitized mortgages" made up of pledges of the income stream from subprime
mortgage loans-were passed along a chain of buyers until someone far away held the ultimate risk.
Bankers who originated the mortgages received significant commissions, with virtually no accountability
or oversight. The incentive, in fact, was perverse: find the worst loans with the biggest fees
instead of properly screening for whether the loans would be any good for investors.
The same model made it difficult, if not impossible, to renegotiate bad mortgages when the
system collapsed. Those tasked with tackling bad mortgages on behalf of investors had their own
conflicts of interests, and found themselves profiting while loans struggled. This process created
bad debts that could never be paid, and blocked attempts to try and rework them after the fact.
The resulting pool of bad debt has been a drag on the economy ever since, giving us the fall in
median wages of the Great Recession and the sluggish recovery we still live with.
And of course it's been an epic disaster for the borrowers themselves. Many of them, we now
know, were moderate- and lower-income families who were in no financial position to borrow as
much as they did, especially under such predatory terms and with such high fees. Collapsing home
prices and the inability to renegotiate their underwater mortgages stripped these folks of whatever
savings they had and left them in deep debt, widening even further the gulf of inequality in this
country.
Moreover, financialization isn't just confined to the financial sector itself. It's also ultimately
about who controls, guides, and benefits from our economy as a whole. And here's the last big
change: the "shareholder revolution," started in the 1980s and continuing to this very day, has
fundamentally transformed the way our economy functions in favor of wealth owners.
To understand this change, compare two eras at General Electric. This is how business professor
Gerald Davis describes the perspective of Owen Young, who was CEO of GE almost straight through
from 1922 to 1945: "[S]tockholders are confined to a maximum return equivalent to a risk premium.
The remaining profit stays in the enterprise, is paid out in higher wages, or is passed on to
the customer." Davis contrasts that ethos with that of Jack Welch, CEO from 1981 to 2001; Welch,
Davis says, believed in "the shareholder as king-the residual claimant, entitled to the [whole]
pot of earnings."
This change had dramatic consequences. Economist J. W. Mason found that, before the 1980s,
firms tended to borrow funds in order to fuel investment. Since 1980, that link has been broken.
Now when firms borrow, they tend to use the money to fund dividends or buy back stocks. Indeed,
even during the height of the housing boom, Mason notes, "corporations were paying out more than
100 percent of their cash flow to shareholders."
This lack of investment is obviously holding back our recovery. Productive investment remains
low, and even extraordinary action by the Federal Reserve to make investments more profitable
by keeping interest rates low has not been able to counteract the general corporate presumption
that this money should go to shareholders. There is thus less innovation, less risk taking, and
ultimately less growth. One of the reasons this revolution was engineered in the 1980s was to
put a check on what kinds of investments CEOs could make, and one of those investments was wage
growth. Finance has now won the battle against wage earners: corporations today are reluctant
to raise wages even as the economy slowly starts to recover. This keeps the economy perpetually
sluggish by retarding consumer demand, while also increasing inequality.
How can these changes be challenged? The first thing we must understand is the scope of the
change. As Mason writes, the changes have been intellectual, legal, and institutional. At the
intellectual level, academic research and conventional wisdom among economists and policymakers
coalesced around the ideas that maximizing returns to shareholders is the only goal of a corporation,
and that the financial markets were always right. At the legal level, laws regulating finance
at the state level were overturned by the Supreme Court or preempted by federal regulators, and
antitrust regulations were gutted by the Reagan administration and not taken up again.
At the institutional level, deregulation over several administrations led to a massive concentration
of the financial sector into fewer, richer firms. As financial expertise became more prestigious
than industry-specific knowledge, CEOs no longer came from within the firms they represented but
instead from other firms or from Wall Street; their pay was aligned through stock options, which
naturally turned their focus toward maximizing stock prices. The intellectual and institutional
transformation was part of an overwhelming ideological change: the health and strength of the
economy became identified solely with the profitability of the financial markets.
This was a bold revolution, and any program that seeks to change it has to be just as bold
intellectually. Such a program will also require legal and institutional changes, ones that go
beyond making sure that financial firms can fail without destroying the economy. Dodd-Frank can
be thought of as a reaction against the worst excesses of the financial sector at the height of
the housing bubble, and as a line of defense against future financial panics. Many parts of it
are doing yeoman's work in curtailing the financial sector's abuses, especially in terms of protecting
consumers from fraud and bringing some transparency to the Wild West of the derivatives markets.
But the scope of the law is too limited to roll back these larger changes.
One provision of Dodd-Frank, however, suggests a way forward. At the urging of the AFL-CIO,
Dodd-Frank empowered the Securities and Exchange Commission to examine the activities of private
equity firms on behalf of their investors. At around $3.5 trillion, private equity is a massive
market with serious consequences for the economy as a whole. On its first pass, the SEC found
extensive abuses. Andrew Bowden, the director of the SEC's examinations office, stated that the
agency found "what we believe are violations of law or material weaknesses in controls over 50
percent of the time."
Lawmakers could require private equity and hedge funds to standardize their disclosures of
fees and holdings, as is currently the case for mutual funds. The decline in fees for mutual funds
noted above didn't just happen by itself; it happened because the law structured the market for
actual transparency and price competition. This will need to happen again for the broader financial
sector.
But the most important change will be intellectual: we must come to understand our economy
not as simply a vehicle for capital owners, but rather as the creation of all of us, a common
endeavor that creates space for innovation, risk taking, and a stronger workforce. This change
will be difficult, as we will have to alter how we approach the economy as a whole. Our wealth
and companies can't just be strip-mined for a small sliver of capital holders; we'll need to bring
the corporation back to the public realm. But without it, we will remain trapped inside an economy
that only works for a select few.
[Whew!]
Puerto Barato said in reply to RC AKA Darryl, Ron,
"3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5"
~~RC AKA Darryl, Ron ~
Growth of the non-financial-sector == growth in productivity
Growth of the financial-sector == growth in upward transfer of wealth
Ostensibly financial-sector is there to protect your money from being eaten up by inflation.
Closer inspection shows that the prevention of *eaten up* is by the method of rent collection.
Accountants handle this analysis poorly, but you can see what is happening. Boiling it down
to the bottom line you can easily see that wiping out the financial sector is the remedy to the
Piketty.
Hell! Financial sector wiped itself out in 008. Problem was that the GSE and administration
brought the zombie back to life then put the vampire back at our throats. What was the precipitating
factor that snagged the financial sector without warning?
Unexpected
deflation
!
Gimme some
of that
pgl said in reply to djb...
People like Brad DeLong have noted this for a while. Twice as many people making twice as much
money per person. And their true value to us - not a bit more than it was back in the 1940's.
Piketty looks at centuries of data from all over the world and concludes that capitalism has
a long-run bias towards income concentration. Baker looks at 35 years of data in one country and
concludes that Piketty is wrong. Um...?
A little more generously, what Baker actually writes is:
"The argument on rents is important because, if correct, it means that there is nothing intrinsic
to capitalism that led to **this** rapid rise in inequality, as for example argued by Thomas Piketty."
(emphasis added)
But Piketty has always been very explicit that the recent rise in US income inequality is anomalous
-- driven primarily by rising inequality in the distribution of labor income, and only secondarily
by any shift from labor to capital income.
So perhaps Baker is "correctly" refuting Straw Thomas Piketty. Which I suppose is better than
just being obviously wrong. Maybe.
tew said...
Some simple math shows that this assertion is false "As a result of this upward redistribution,
most workers have seen little improvement in living standards" unless you think an apprx. 60%
in per-capita real income (expressed as GDP) among the 99% is "little improvement".
Real GDP 2015 / Real GDP 1980 = 2.57 (Source: FRED)
If the income share of the 1% shifted from 10% to 20% then The 1%' real GDP component went up
410% while that of The 99% went up 130%. Accounting for a population increase of about 41% brings
those numbers to a 265% increase and a 62% increase.
Certainly a very unequal distribution of the productivity gains but hard to call "little".
I believe the truth of the statement is revealed when you look at the Top 5% vs. the other
95%.
cm said in reply to tew...
For most "working people", their raises are quickly eaten up by increases in housing/rental,
food, local services, and other nondiscretionary costs. Sure, you can buy more and better imported
consumer electronics per dollar, but you have to pay the rent/mortgage every months, how often
do you buy a new flat screen TV? In a high-cost metro, a big ass TV will easily cost less than
a single monthly rent (and probably less than your annual cable bill that you need to actually
watch TV).
pgl said in reply to tew...
Are you trying to be the champion of the 1%? Sorry dude but Greg Mankiw beat you to this.
anne said...
In the years since 1980, there has been a well-documented upward redistribution of income.
While there are some differences by methodology and the precise years chosen, the top one percent
of households have seen their income share roughly double from 10 percent in 1980 to 20 percent
in the second decade of the 21st century. As a result of this upward redistribution, most workers
have seen little improvement in living standards from the productivity gains over this period....
Between 1948 and 1980, real median family income increased by 110.2%, while between 1980 and 2014
real median family income increased by a mere 15.8%.
cm said...
"protectionist measures that have boosted the pay of doctors and other highly educated
professionals"
Protectionist measures (largely of the variety that foreign credentials are not recognized)
apply to doctors and similar accredited occupations considered to be of some importance, but certainly
much less so to "highly educated professionals" in tech, where the protectionism is limited to
annual quotas for some categories of new workers imported into the country and requiring companies
to pay above a certain wage rate for work visa holders in jobs claimed to have high skills requirements.
A little mentioned but significant factor for growing wages in "highly skilled" jobs is that
the level of foundational and generic domain skills is a necessity, but is not all the value the
individual brings to the company. In complex subject matters, even the most competent person
joining a company has to become familiar with the details of the products, the industry niche,
the processes and professional/personal relationships in the company or industry, etc. All these
are not really teachable and require between months and years in the job. This represents a significant
sunk cost. Sometimes (actually rather often) experience within the niche/industry is in a degree
portable between companies, but some company still had to employ enough people to build this experience,
and it cannot be readily bought by bringing in however competent freshers.
This applies less so e.g. in medicine. There are of course many heavily specialized disciplines,
but a top flight brain or internal organ surgeon can essentially work on any person. The variation
in the subject matter is large and complex, but much more static than in technology.
That's not to knock down the skill of medical staff in any way (or anybody else who does a
job that is not trivial, and that's true for many jobs). But specialization vs. genericity follow
a different pattern than in tech.
Another example, the legal profession. There are similar principles that carry across, with
a lot of the specialization happening along different legislation, case law, etc., specific to
the jurisdiction and/or domain being litigated.
In an article * on the Federal Reserve Board's decision to raise interest rates, the
Washington Post referred to the 2.4 percent median growth forecast of the Fed's Open Market
Committee. For example, last December their median forecast for growth in 2015 was 2.8 percent.
It now appears growth will be around 2.2 percent for the year. The Fed was not out of line with
other forecasts. For example the Congressional Budget Office, which quite explicitly tries to be
near the middle of major forecasts, forecast 2.9 percent growth for 2015.
"CBO's Publications - CBO's 2015 Long-Term Projections for Social Security: Additional Information"
New From CBO
pdf 446.38 KB
"CBO's 2015 Long-Term Projections for Social Security: Additional Information"
"Under current law, CBO projects, Social Security's trust funds, considered together, will be
exhausted in 2029. In that case, benefits in 2030 would need to be reduced by 29 percent from the
scheduled amounts."
Summary
"Social Security, which marked its 80th anniversary in 2015, is the largest single program in
the federal government's budget. About 72 percent of the roughly 60 million people who currently
receive Social Security benefits are retired workers or their spouses and children, and another 10
percent are survivors of deceased workers; all of those beneficiaries receive payments through Old-Age
and Survivors Insurance (OASI). The remaining 18 percent of beneficiaries are disabled workers or
their spouses and children; they receive Disability Insurance (DI) benefits.
In fiscal year 2015, spending for Social Security benefits totaled $877 billion, or almost one-quarter
of federal spending. OASI payments accounted for about 84 percent of those outlays, and DI payments
made up about 16 percent."
"... So let's see how things go this week, keeping in mind that there may be antics aplenty after the Fed announcement and into the quad witch for stocks on Friday. ..."
...There is a heavy lean towards believing that the Fed will raise rates 25 basis points.
Fed Funds futures are indicating expectation of a move to 100 basis points total by the end of next
year. Let's see if they can pull that one off. It seems aspirational, if one wishes to have room
to cut when their latest folly falls back upon them.
The idea that since recoveries are often accompanied by inflation, if we can only use monetary
policy to create inflation then the recovery will come, is so wrong-headed that it leaves me aghast.
Even Keynes recognized that the point of stimulus was to provoke aggregate demand, which is the
organic form of growth in the economy that will provide all the inflation that one might expect.
But to pursue this effete, top down stimulus focused primary on the still unreformed Banking system
and the wealthiest top few percent is beyond policy error, and more policy malpractice. And of course,
if one puts austerity and financial parasitism into the mix, then we just aren't in Kansas anymore
Toto.
So let's see how things go this week, keeping in mind that there may be antics aplenty
after the Fed announcement and into the quad witch for stocks on Friday. The miners have
been beaten bloody.
"... Yeah but its junk credit... who cares! I am invested in solid megacaps and even solider FANGs - what can go wrong? ..."
"... The biggest buyer of stocks in 2016, will be, according to Goldman Sachs, the same as it was in 2015 - corporate management teams buying back their own stock in near record quantities. But there is a problem with this thesis... the cost of funding these epic buybacks is surging, making the un-economic actions of the CFO (if very economical for their own bank accounts as they sell record amounts of their own personal stock to their company) even more irrational. ..."
"... Charts: Bloomberg ..."
"... And this is why the contagion to IG matters: the biggest buyer of stocks of the last few years is about to priced away as its (cheap debt) funding dries up, removing the biggest pillar of delusion from current equity valuations. ..."
"... Did nobody tell this stupid asshole that the west funds jihadism in order to conquer Russia? ..."
"... ...After Ukraine and Syria, Russians have no illusions left about how the West intends to treat Russia. Russians are ready for any action Putin may take against the West and any fall out from it for themselves. ..."
"... What is sometimes forgotten, is how the Bush neo-cons gave their "spin" to this narrative for the Middle East by casting Arab national secularists and Ba'athists as the offspring of "Satan": David Wurmser was advocating in 1996, "expediting the chaotic collapse" of secular-Arab nationalism in general, and Baathism in particular. He concurred with King Hussein of Jordan that "the phenomenon of Baathism" was, from the very beginning, "an agent of foreign, namely Soviet policy." ..."
"... Putin knows Erdogan was following Obama's orders when Erdogan let US Air Force pilots in Turkish planes shot down the Russian bomber. ..."
"... if the US were ever to develop the capability to neutralise a Russian nuclear attack, Russia can be guaranteed she will be treated with no greater respect than Iraq under Saddam was. Neither being locked in a weapons race to keep the US vulnerable to Russian attacks nor being prepared to live under Western dictates are options for Russia. ..."
"... Our DC Beltway and NYC elites are wildly delusional about their ability to win a nuclear war. They listen only to the defense contractors. In fact the West's elites are the prime target in a nuclear war, and even though a small and select strata might have time to hide in a deep bunker, the vast substrata that supports them, runs their bureaucracies and mans their deep state will certainly be annihilated. ..."
"... The nuclear war our elites seek to provoke will be the first in nearly a thousand years in which the elites themselves will be on the front lines of the combat. ..."
"... Personally, I think the biggest weakness the USA has is its increasingly diverse and divided population ..."
"... The Pentagon and their masters must expect to resolve any future major conflict by means of technologic jujitsu; if they think that Americans from all walks of life are going to rally in support of a major foreign war of choice, support mass conscription etc., they're making IMHO a big mistake. ..."
"... Still, with enough provocation and manipulation, perhaps the typical Amurican can be goosed into enthusiasm for a fight against Islam ; TPTB certainly seem to be giving this angle their best shot these days. ..."
"... What a shame, such stupidity; the other great power and nation that is at least still Western and Christian. Europe appears to be lost, and yet the U.S. arms Muslim armies and pokes Russia on its borders. Abject insanity. ..."
"... Simple. Kill the Neocons one by one and we have a safer world for your children, your family and you. ..."
"Yeah but it's junk credit... who cares! I am invested in solid megacaps and even
solider FANGs - what can go wrong?"
The biggest buyer of stocks in 2016, will be, according to Goldman Sachs, the same as it
was in 2015 - corporate management teams buying back their own stock in near record quantities. But
there is a problem with this thesis... the cost of funding these epic buybacks is surging, making
the un-economic actions of the CFO (if very economical for their own bank accounts as they sell
record amounts of their own personal stock to their company) even more irrational.
Here is Goldman's David Kostin explaining who the biggest
buyer of stocks is (and will be) - as a reminder, it's not "mom(o) and pop".
We expect corporations will continue to be the largest source of demand for stocks,
with net purchases by US companies totaling $450 billion, equal to about 2% of public equity cap.
We forecast equity inflows from equity-related ETFs ($225 billion), equity mutual funds
($200 billion), life insurance ($50 billion), and foreign investors ($25 billion). We forecast
net outflows from households ($25 billion) and pensions ($150 billion).
Well, the cost of funding that carnival of financial engineering and artifice (just ask
Nordstrom, Macy's, IBM and so on) is soaring, as high-yield decompression pukes over into
investment grade markets, spiking the cost of funding and crushing the 'economic feasibility' of
debt-funded shareholder-friendliness:
Charts: Bloomberg
And, in case you thought "well, cost of funding has only gone up 30-40bps in IG, they can handle
that," you are wrong! To all those who claim US corporate balance sheets are in great shape
- they are not! Leverage is at record highs and interest coverage near record lows for the IG universe.
And judging by today's collapse in Investment Grade bond prices, the market just woke up
to this reality.
Simply put, the Fed's policies enabled massive releveraging and now corporations are stuck with
few options to escape a vicious circle - which by the way, is why it's called the credit
'cycle'.
And this is why the contagion to IG matters: the biggest buyer of stocks of the last
few years is about to priced away as its (cheap debt) funding dries up, removing the biggest pillar
of delusion from current equity valuations.
Professor Steve Cohen, the foremost Russia scholar in the U.S., laments, is that it is this narrative which has precluded America from ever concluding any real ability to find a mutually acceptable modus vivendi with Russia – which it sorely needs, if it is ever seriously to tackle the phenomenon of Wahhabist jihadism (or resolve the Syrian conflict).
Wow, the foremost scholar on Russia is one dumb motherfucker. Did nobody tell this stupid asshole that the west funds jihadism in order to conquer Russia?
sam i am
The Western nations underestimated the horrible trauma that the Russian society experienced
in 1990s when the Russians peacefully surrendered their society, their lands, their economy to
the West, hoping to be accepted and treated as equals by the "world" community. Instead, the
West dealt with the Russian skillfully, decisively, and mercilessly, just like the American
Indians were dealt with by the colonizers. The Russia was gutted, scalped, and hanged on a
cross to die slow and painful death. Some say that Russia like a cat has nine lives. Others
say that Russia died and resurrected like Phoenix or Jesus. Open wounds have not healed yet,
when after the February 22nd 2014 putsch in Kiev, and publication of the US Department of
Defense tenders on the constructions of facilities in Sevastopol for the US fleet and NAVY
everyone in Russia, including its government, understood that it was a declaration of war, and
stood up in arms.
...After Ukraine and Syria, Russians have no illusions left about how the West intends
to treat Russia. Russians are ready for any action Putin may take against the West and any
fall out from it for themselves.
Ghordius
"It is the basis to America's and Europe's claim to exceptionalism and leadership".
seriously?
"What is sometimes forgotten, is how the Bush neo-cons gave their "spin" to this
narrative for the Middle East by casting Arab national secularists and Ba'athists as the
offspring of "Satan": David Wurmser was advocating in 1996, "expediting the chaotic collapse"
of secular-Arab nationalism in general, and Baathism in particular. He concurred with King
Hussein of Jordan that "the phenomenon of Baathism" was, from the very beginning, "an agent of
foreign, namely Soviet policy.""
so? yes, King Hussein is right, in the very beginning it was mainly the Soviet Union that
fostered Ba'athism. and again, so? the Soviet Union is no more
junction
Obama is stark raving mad, and his female neocons - Nuland, Powers and assorted other power
hungry bitches - are too busy following orders from Israel to realize they are on a treasonous
path to World War III. Putin will vaporize Raqqa with one of his new nuclear weapons that
works like a neutron bomb. In all likelihood, when the first Kalibr cruise missiles hit
ISIS/Bush's Captagon meth plant in Raqqa, the U.S. National Reconnaissance Office couldn't
even detect them to warn CIA black ops spies in the drug facility to run. Putin knows
Erdogan was following Obama's orders when Erdogan let US Air Force pilots in Turkish planes
shot down the Russian bomber.
Global Observer
NOBODY WINS A NUCLEAR WAR.
I hope that Putin and his Military Advisors are smart enough to figure that out.
They are. But what the Americans don't seem to be aware of is that for some there are worse
things than being dead and in order to avoid these worse things, people are prepared to die
and nations willing to risk annihilation.
Russia is willing to risk annihilation in order to be able to live peacefully and with
dignity. Is the USA willing to risk annihilation in order to be able to continue to insult
Russia and bully the world? If the USA is indeed willing to risk annihilation to continue to
do that, it would be silly for Russia not to attack the USA while she still can, because
if the US were ever to develop the capability to neutralise a Russian nuclear attack, Russia
can be guaranteed she will be treated with no greater respect than Iraq under Saddam was.
Neither being locked in a weapons race to keep the US vulnerable to Russian attacks nor being
prepared to live under Western dictates are options for Russia.
monk27
If the US will be stupid enough to start a war with Russia or/and China, it will lose such
a fight big time. That will be the end of America as we know it, and also the end of the
contemporary Western "elite" whether they believe it or not. Their move...
MrPalladium
"and also the end of the contemporary Western "elite"
Our DC Beltway and NYC elites are wildly delusional about "their" ability to win a
nuclear war. They listen only to the defense contractors. In fact the West's elites are the
prime target in a nuclear war, and even though a small and select strata might have time to
hide in a deep bunker, the vast substrata that supports them, runs their bureaucracies and
mans their deep state will certainly be annihilated.
No intelligent power like Russia is likely to waste a perfectly good nuke on Paducah
Kentucky, but it is certain that the entire population of Manhattan Island, and the DC beltway
will be vaporized along with West Los Angeles (propaganda production central) and Silly
Valley. The effluvia of the silos in Iowa and Nebraska can be intercepted. Remarkably, our
elites and their supporting substrata still believe that the main combatants will be rural
boys from Texas and Tennessee which in a strange turn of justice will be the safest places to
hide. Our 400 or so billionaire oligarchs who control this country are concentrated in about
20 zip codes. Do you really think that Russia hasn't already targeted them? The whole point of
nuclear war is to decapitate the regime but spare the resources and general population for
future use, and the real regime, the oligarchs, occupy a very modest and easily cleared amount
of territory.
The nuclear war our elites seek to provoke will be the first in nearly a thousand
years in which the elites themselves will be on the front lines of the combat.
August
I do like the way you think, Mr. P, and it's entertaining to speculate about war, TEOTWAWKI
etc.
Personally, I think the biggest weakness the USA has is its increasingly diverse and
divided population (which is also rather dumbed-down, infantile and irresponsible).
The Pentagon and their masters must expect to resolve any future major conflict by means of
technologic jujitsu; if they think that "Americans from all walks of life" are going to rally
in support of a major foreign war of choice, support mass conscription etc., they're making
IMHO a big mistake.
Still, with enough provocation and manipulation, perhaps the typical Amurican can be
goosed into enthusiasm for a "fight against Islam"; TPTB certainly seem to be giving this
angle their best shot these days.
monk27
"They" (i.e. the Russians) stand a better chance to survive than us. Ours is a much more
complex AND violent society than theirs. The Mad Max way of living works only in movie...
Tall Tom
NO. THEY DO NOT. NUCLEAR WINTER, PAL.
You will either freeze to death or succumb to suffocation due to LACK OF OXYGEN.
The ash will blot out most sunlight. Plants require sunlight to photosynthesize Carbon,
from CO2, into complex sugars and starches.
They transpire OXYGEN. Without the plants...YOU ARE DEAD.
Watch this video. Even the former Soviet Academy of Sciences concur with this modeling.
NOBODY WILL SURVIVE. It is GLOBAL EXTINCTION. It is a God Damned Extinction Level Event.
I am a physicist. This is valid science. My warning is not without a solid foundation.
Volkodav
Soviet did not so much invade. Soviet was already, support moderate government, building
infrastructure, schools and other. Girls attended school in dresses.
Search for photos Kabul in 60's 70's
Moderate leader was murdered in coup by extremist backed from outsiders. Russians, moderates
and monorities were slaughtered. That is when Soviet, after much concern debate, sent
additional forces. Soviet was not defeated, but withdrew orderly result of collapse of funds,
problems.
Soviet controlled more of country than west coalition ever did and alone, against outside
interferences aiding radicals there was some beginning of what is today, some nasty creations.
You never understood there was other side, moderate and civil
What a shame, such stupidity; the other great power and nation that is at least still
Western and Christian. Europe appears to be lost, and yet the U.S. arms Muslim armies and
pokes Russia on its borders. Abject insanity.
Insurrexion
Simple. Kill the Neocons one by one and we have a safer world for your children, your
family and you.
"... For investors who hold bonds primarily for the income they generate, the drop in prices doesn't matter as much. That's because if you hold a bond until maturity, you never have to sell it and take a loss. ..."
Keep in mind that the Fed's first rate hike won't really change much. Rates will still be at
historic lows. It all depends on how much the central bank raises rates in the coming months. So
you don't have to rush to do anything.
An increase of 0.25 percentage point on Wednesday will almost certainly not result in big swings
in bond values, especially given how many in the market expect the hike. And the Fed is likely to
say that the pace of future increases will be slow.
Still, higher rates lessen the value of the bonds you currently own. That's because newly issued
bonds under those higher rates will pay out more than older ones. So the price of your older
bonds falls as a result.
For investors who hold bonds primarily for the income they generate, the drop in prices
doesn't matter as much. That's because if you hold a bond until maturity, you never have to sell
it and take a loss.
But it's a different story if you hold bonds through a mutual fund, as most investors do. The
value of the fund declines with any interest rate hike because the fund becomes less attractive
to investors.
The drop in value is closely linked with the term of the bonds, known as duration. Those
durations are usually indicated as short term, intermediate term, or long term. In theory,
short-term bonds will drop the least in value, and long-term bonds will drop the most when rates
go up.
So what should investors do?
Larry Swedroe, author of The Only Guide to a Winning Bond Strategy You'll Ever Need, urges
investors not to make big moves without making a plan first.
"Inaction is almost always better" than making a sudden shift in strategy in a panic, he said.
"The most anticipated event of any we can think of is that the Fed is going to raise interest
rates on Dec. 16," Swedroe said. "The market must already have that information incorporated into
the current price" of bonds (and stocks too, for that matter).
Don't try to outsmart the market, said Swedroe, who also is director of research for the BAM
Alliance of financial advisers.
Investors "stretching for yield" can make "very bad errors," Swedroe said, including investing
in real estate investment trusts, dividend-paying stocks, emerging-market bonds, and other
securities that are much more risky than bonds.
If the economy falters and investors flee those asset classes and move to high-quality
investments, investors in riskier assets "get crushed, just when you need the safety the most,"
said Swedroe.
Swedroe suggests three possible strategies for investors looking for yield in this market.
1.Stick to the middle. For bonds, the "sweet spot" for balancing risk and reward is via
intermediate-term bonds with about a 5-year duration, Swedroe said. Investors there can get "most
of the term premium without the longer-term inflation risk." Consider any low-cost,
intermediate-term, high-quality bond fund, he said. That could include the Vanguard
Intermediate-Term Bond ETF (BIV) or the Fidelity Spartan U.S. Bond Index Fund (FBIDX) -- there
are many such funds available.
2.Move to CDs. Investors who really want yield but can't stomach the market fluctuation of bond
funds should look at certificates of deposit, "where you can have much higher yields" than bonds
but with very low risk and no mutual fund fees. For example, 5-year CDs can pay up to 2.45% in
annual percentage yield, while 5-year U.S. Treasury securities pay a yield of a mere 1.56%.
Swedroe said CDs are most useful for investors with IRAs, who can choose where they hold their
assets.
3.Embrace the wisdom of the markets. This is the most Zen option. Swedroe said investors should
take a page out of Warren Buffett's book, ignore market forecasts, and simply develop a financial
plan. Find the best way to implement the plan -- with simplicity and low costs. "Stop worrying
and stick with your plan," he said. Forever.
If investors really do want to rely on the consensus judgment of the markets, they should
consider the world's largest bond fund, the Vanguard Total Bond Market Index (VBMFX) (VBTLX) (BND)
. (In April, Vanguard's fund surpassed Pacific Investment Management's Pimco Total Return Fund (PTTAX)
, which had been the largest bond fund for decades.)
Must Read: Why Wall Street Won't Be Pouring Cristal on New Year's Eve
Vanguard's Total Bond index fund is totally market weighted, with no active calls about which
types of bonds will outperform and which will not. The investor class charges a 0.2% fee
annually, and the ETF class charges 0.07%. The fund's SEC yield is 2.27% and its average duration
is 5.8 years (in the "sweet spot"), and its pretax return for the past 12 months as of Sept. 30
has been 2.64%. It's hard to get cheaper or simpler.
Investors can also buy Treasury bonds directly from the government via Treasury Direct -- and pay
no fees. The bonds available there are high-quality and simple to buy. There are some caveats: EE
and E savings bonds must be held for at least one year, and you'll pay a penalty of three months'
interest if you sell them within five years of buying them; they earn interest for 30 years.
Other Treasury notes and bonds can be bought directly through Treasury Direct, but if you want to
sell them before their term is up, you'll need to move them to a broker for sale. You can also
buy resold Treasury securities at auction on Treasury Direct.
And investors should also maintain perspective, according to Vanguard.
"Many people look at bonds independently from their stocks," Fran Kinniry, of Vanguard's
Investment Strategy Group, said in a statement. "But it's more beneficial to think, 'How do my
bonds complement my stocks and fit into my whole investment picture?' You really want to put the
two types of investments together and see how they interact as a whole. Ask yourself: 'What's my
risk level for all my holdings? Does it align with my risk comfort if there's a downturn?' If you
answer no, make the appropriate adjustments."
In other words, investors should hold bonds to manage volatility, to provide consistency in a
portfolio, and to earn a reasonable return. Using bonds for speculation or to take more risk
makes an entire portfolio more volatile.
So investors may want to stick to plain-vanilla bonds. If they plan to hold a bond fund to its
average duration, which is listed on the prospectus, they will likely come out ahead even after
an interest rate hike -- being paid more in interest than they have lost to reduced principal (or
the face value of the bonds).
Investors hold bonds for safety -- or at least they should. If you have too much money tied up in
junk bonds or in long-term bonds, be prepared for swings in the value of the principal. If you
can wait out the duration of the bonds, you will likely be OK. If you can't stomach big swings,
face that about yourself and move to shorter duration bonds or CDs. They could pay less, but they
will also fluctuate less in value.
Must Read: 8 Winning Financial Stocks Once the Fed Raises Interest Rates
Fixed-income investing is about reducing risk and receiving a predictable payment on schedule.
Remember that the bonds will keep paying the same even if their face value has dropped.
Now's the time when bond investors should verify that they have enough -- not too much, not too
little -- in bonds, then sit back and collect the interest.
"... Many people are merely worried about having a job and getting by rather than profoundly changing
the system or being organized under shrewd far sighted leadership. ..."
"... Mr. Harris, for one, is not ready. "It's scary when you hear that the government is planning
to slow things down," the wiry 39-year-old said as he folded menus. "We live on people's extra money.
That's the money they spend on pizza. And it still feels very fragile." ..."
"... The Fed didnt demonstrate technical know-how. The corrupt politicians appointed the wrong technocrats.
..."
"... You regulate the financial sector to decrease risk and increase sustainability. You dont starve
it of credit so the entire thing collapses. ..."
Many people are merely worried about having a job and getting by rather than "profoundly"
changing the system or being organized under "shrewd far sighted" leadership.
In Denver, Worries That the Fed Will Chill a Sizzling Recovery
By BINYAMIN APPELBAUM
DEC. 13, 2015
AURORA, Colo. - William Harris tapped his retirement savings to open A-Town Pizza, a Neapolitan
pizzeria, in this Denver suburb three years ago. He borrowed $200,000 to open a second location
this year and now employs 60 people. On a good Friday, his shops sell 1,200 pies.
In such stories, the Federal Reserve finds evidence that its seven-year campaign to reboot
the American economy is succeeding. So on Wednesday, the Fed, which has held short-term interest
rates near zero since December 2008, will most likely announce that it will start nudging rates
upward, slowly ending what has amounted to a once-in-a-lifetime sale on money.
Mr. Harris, for one, is not ready. "It's scary when you hear that the government is planning
to slow things down," the wiry 39-year-old said as he folded menus. "We live on people's extra
money. That's the money they spend on pizza. And it still feels very fragile."
Monetary policy is conducted in a language of bloodless abstraction, and most Americans pay
little, if any, attention. But the Fed is about to make a big bet, and the decisions it makes
in Washington have large consequences, here in Colorado and across the nation.
Janet L. Yellen, the Fed's chairwoman, and her colleagues have concluded that the economy is
finally strong enough to grow with a little less help from the central bank. Indeed, they worry
inflation will rise too quickly if they do not start raising interest rates. The first rate increase
will be small, then the Fed expects to raise rates about one percentage point a year for the next
few years.
The Fed's move is coming in the face of worries about the health of the stock market and falling
commodities prices. Still, by itself, the increase probably will not matter much. The Fed is expected
to set short-term rates in a range from 0.25 to 0.5 percent, a small jump from the current range
of zero to 0.25 percent.
It is what follows that will make the difference.
Denver seems ready for higher rates. The area's economy has enjoyed one of the nation's strongest
rebounds from the recession. The local unemployment rate fell to 3.1 percent in October. There
are new skyscrapers downtown and new subdivisions in every direction. The former oil town is now
at the center of one of the nation's largest booms of technology start-ups.
Yet the local mood is fragile. Housing prices have climbed 24 percent above the precrisis peak,
but whereas that once would have encouraged economic optimism, now people fret that home prices
are due for a fall.
Optimists say that the economic expansion is just gaining steam and that modestly higher rates
will probably not slow the region's growth.
Pessimists see evidence of fragility in the same facts. Josh Downey, president of the Denver
Area Labor Federation, says the resurgence of development has created construction jobs for a
new generation of workers. They need cars to reach their jobs, and jobs to pay for their cars.
"If those buildings stop going up in Denver, they're going to be out of a job and a car," he said.
Mark McKissick, director of fixed-income research at Denver Investments, says he is waiting
to see how quickly the Fed raises rates before he adjusts the firm's investment holdings. The
economy, he says, does not seem strong enough to handle higher rates, and he expects the Fed to
reach the same conclusion. Otherwise, he worries it could push the economy back into recession.
"The Fed threw a bunch of money into the financial system, but it hasn't stimulated growth
or inflation the way it might have in earlier periods," he said.
Builders, for example, will start construction on about 9,000 single-family homes in the Denver
metropolitan area this year, according to Metrostudy, a real estate research firm. That is up
14 percent from last year - but less than half the 20,000 home starts in the Denver area at the
peak of the bubble in 2005.
Some workers will be getting raises. Bakery and deli clerks at King Soopers, a grocery chain,
will earn a minimum wage of $10.50, an increase of as much as $2 an hour, under the terms of a
new contract negotiated by the United Food and Commercial Workers Union. The previous four-year
deal held wages steady.
Others, however, are still waiting for prosperity to affect them.
Ethel Ayo's landlord raised her rent this year by $400 a month, to $1,126. Ms. Ayo has a part-time
job as a home-care worker and her son, a college student, works at Enterprise Rent-a-Car. Together
they can barely afford the rent - and then only because the landlord does not require full payment
at the beginning of the month. "And you didn't hear me talk about food," Ms. Ayo said. "After
I work two or three days, I buy $50 of food and make it last two or three weeks."
Mr. Harris, the restaurateur, says Denver's growth feels nothing like the boom he lived through
in Southern California a decade ago. He is struggling to repay his start-up costs, particularly
during the holidays, when people eat less pizza. The Fed will most likely raise rates before his
risks have paid off. If it has overestimated the recovery and moves too fast, people would have
less money to spend, and Mr. Harris said he could lose his restaurants and his retirement savings.
On South Broadway, a commercial strip south of downtown lined with dilapidated auto dealerships
and freshly painted marijuana shops, those worries seem far away. Khalid Sarway, sales manager
at Famous Motors, says he is selling about 25 used cars a month, and he does not think higher
rates will bother his customers.
"The people, they don't care about the rate," said Mr. Sarway, who added that he was making
more money now than in the best years before the recession. "They just want a vehicle. They just
want to be able to get back and forth between their jobs and school, or whatever their lifestyle
is."
North of downtown, Denver's tech entrepreneurs also see little immediate danger from higher
rates.
Steve Adams, the 62-year-old chief executive of Leo Technologies, runs a start-up, his sixth,
in a former produce warehouse that has been renamed Industry, where the nearest thing to manual
labor occurs when people play table tennis in the atrium.
Uber has its Denver office in one corner of the sprawling building.
Mr. Adams is trying to raise $500,000 to test a biometric device that uses blood pressure readings
to measure hydration levels - data he says could help athletes as well as people with medical
conditions, like those on dialysis.
Like many of his peers, Mr. Adams thinks low rates have made it easier for young companies
to raise money from investors seeking higher returns. Denver is also a technology frontier town,
reliant on coastal capital, so it may be more vulnerable if the availability of funding begins
to recede.
But Mr. Adams said he expected the money to keep flowing even as rates on safer investments
like corporate bonds started to rise. "The people I'm pitching want to get in early and make a
big multiple," he said.
Some in the real estate business similarly insist that the local market will probably remain
hot. Greg Geller, the owner of Vision Real Estate, says builders are struggling to keep pace with
population growth because it takes years to find land, obtain permits and train replacements for
workers laid off during the recession.
Others are less sanguine. Mitchell Goldman, the owner of Apex Homes, said customers rushed
to buy houses in recent years because they worried prices would climb. Now people are holding
back, wondering if prices will fall.
"I've been getting asked the question a lot, 'Should we wait?'"
Mr. Goldman said he expected that higher rates would also push some buyers out of the market.
The math, after all, is inexorable. If mortgage rates increase by one percentage point, the monthly
cost of a $300,000 mortgage increases by $177.
He added that he was looking for land to build a home for his own family. They have moved several
times in recent years, but with higher interest rates on the horizon, he wants to build "a more
permanent forever home."
"I'm a little more anxious," Mr. Goldman said. "Interest rates are never going to be what they
were when I was growing up, but every little bit makes a difference."
djb said in reply to Peter K....
"Like many of his peers, Mr. Adams thinks low rates have made it easier for young companies
to raise money from investors seeking higher returns."
yes exactly how monetary policy is
supposed to work
Again, the Fed tightening in 2008 was not just about the absence of a 2% interest rate cut.
It was about an expectation that the Fed was going to raise rates going forward, even though the
economy was weakening. This development was huge because current spending decisions are shaped
more by the expected path of interest rates than by current interest rates.
So why did the public expect this tightening? Because the Fed was signalling it! Among other
places, this signalling was clear in the August and September 2008 FOMC statements. Here is a
gem from the August FOMC meeting (my bold):
"Although downside risks to growth remain, the upside risks to inflation are also of significant
concern to the Committee."
And from the September FOMC meeting we get a similar warning:
"The downside risks to growth and the upside risks to inflation are both of significant concern
to the Committee"
This was forward guidance at its worst and points to a far more intense tightening cycle than
is apparent by looking only at the current policy interest rate. The Fed was willing to strangle
the already weak economy over inflation concerns and the market knew it.
It was this severe tightening of monetary policy that turned an otherwise ordinary recession
into the Great Recession. As I noted before, this tightening of policy occurred before the worst
part of the financial crisis in late 2008. Recall that many of the CDOs and MBS were not subprime,
but when the market panicked in late 2008 a liquidity crisis became a solvency crisis for all.
Had the Fed not tightened during the second half of 2008 the financial panic probably would have
been far less severe and the resulting bankruptcies far fewer. So no, it is not obvious that a
severe financial crisis was inevitable.
P.S. The Fed was not the only central bank to tighten in 2008 because of inflation concerns.
The ECB did as well and repeated the mistake two times in 2011. These experiences illustrates
the the limits of inflation targeting and why it is a monetary regime that has outlived its expiration
date.
Peter K. said in reply to Peter K....
This is policy malfeasance by Bush's Fed. Once can think of it as macro policy rather than strictly
monetary policy. The Fed needs its independence b/c politicians don't have the technical know-how?
The Fed didn't demonstrate technical know-how. The corrupt politicians appointed the wrong
technocrats.
Imagine there was one of Wren-Lewis's fiscal councils deciding on fiscal spending
for the year. As the housing bubble deflated, they should have increased fiscal spending to replace
lost home builder jobs and lost housing wealth, instead of tightening fiscal policy over inflation
fears.
Peter K. said in reply to Peter K....
You regulate the financial sector to decrease risk and increase sustainability. You don't
starve it of credit so the entire thing collapses.
Dan Balz and the Pew Research Center Discover Wage Stagnation
by Dean Baker
Published: 13 December 2015
Okay, this one is a bit personal, but it reflects a larger issue. The Pew Research Center just
put out a study showing that declining share of the U.S. population is middle class, with greater
percentages falling both in the upper and lower income category than was the case four decades
ago. Washington Post columnist Dan Balz touted this declining middle class story as an explanation
for the rise of Donald Trump.
The problem here is that there is zero new in the Pew study. My friend and former boss, Larry
Mishel, has been writing about wage stagnation for a quarter century at the Economic Policy Institute.
The biannual volume, The State of Working America, has been tracking the pattern of stagnating
middle class wages and family income (for the non-elderly middle class, income is wages) since
1990.
The Pew study added nothing new to this research. They simply constructed an arbitrary definition
of middle class and found that fewer families fall within it.
Perhaps having a high budget "centrist" outfit like Pew tout this finding is the only way to
get a centrist Washington Post columnist like Balz to pay attention, but it is a bit annoying
when we see someone touted for discovering what was already well-known. Oh well, at least it creates
good-paying jobs for people without discernible skills.
"... Can you list all of the pro- or anti- Wall Street reforms and actions Bill Clinton performed as President including nominating Alan Greenspan as head regulator? Cutting the capital gains tax? Are you aware of Greenspans record? ..."
"... Its actually pro-neoliberalism crowd vs anti-neoliberalism crowd. In no way anti-neoliberalism commenters here view this is a character melodrama, although psychologically Hillary probably does has certain problems as her reaction to the death of Gadhafi attests. The key problem with anti-neoliberalism crowd is the question What is a realistic alternative? Thats where differences and policy debate starts. ..."
"... Events do not occur in isolation. GLBA increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. Democrats gained majority, but not filibuster proof, caught between Iraq and a hard place following their votes for TARP and a broader understanding of their participation in the unanimous consent passage of the CFMA, over objection by Senators James Inhofe (R-OK) and Paul Wellstone (D-MN). ..."
"... It certainly fits the kind of herd mentality that I always saw in corporate Amerika until I retired. The William Greider article posted by RGC was very consistent in its account by John Reed with the details of one or two books written about AIG back in 2009 or so. I dont have time to hunt them up now. Besides, no one would read them anyway. ..."
"... GS was one of several actions taken by the New Deal. That it wasnt sufficient by itself doesnt equate to it wasnt beneficial. ..."
"... "Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," said then-Treasury Secretary Lawrence Summers. "This historic legislation will better enable American companies to compete in the new economy." ..."
"... The repeal of Glass Steagal was a landmark victory in deregulation that greased the skids for the passage of CFMA once Democrats had been further demoralized by the SCOTUS decision on Bush-v-Gore. The first vote on GLBA was split along party lines, but passed because Republicans had majority and Clinton was willing to sign which was clear from the waiver that had been granted to illegal Citi merger with Travelers. Both Citi and AIG mergers contributed to too big to fail. The CFMA was the nail in the coffin that probably would have never gotten off the ground if Democrats had held the line on the GLBA. Glass-Steagal was insufficient as a regulatory system to prevent the 2008 mortgage crisis, but it was giant as an icon of New Deal financial system reform. Its loss institutionalized too big to fail ..."
"... Gramm Leach Biley was a mistake. But it was not the only failure of US regulatory policies towards financial institutions nor the most important. ..."
"... It was more symbolic caving in on financial regulation than a specific technical failure except for making too big to fail worse at Citi and AIG. It marked a sea change of thinking about financial regulation. Nothing mattered any more, including the CFMA just a little over one year later. Deregulation of derivatives trading mandated by the CFMA was a colossal failure and it is not bizarre to believe that GLBA precipitated the consensus on financial deregulation enough that after the demoralizing defeat of Democrats in Bush-v-Gore then there was no New Deal spirit of financial regulation left. Social development is not just a series of unconnected events. It is carried on a tide of change. A falling tide grounds all boats. ..."
"... We had a financial dereg craze back in the late 1970s and early 1980s which led to the S L disaster. One would have thought we would have learned from that. But then came the dereg craziness 20 years later. And this disaster was much worse. ..."
"... This brings us to Lawrence Summers, the former Treasury Secretary of the United States and at the time right hand man to then Treasury Security Robert Rubin. Mr. Summers was widely credited with implementation of the aggressive tactics used to remove Ms. Born from her office, tactics that multiple sources describe as showing an old world bias against women piercing the glass ceiling. ..."
"... According to numerous published reports, Mr. Summers was involved in. silencing those who questioned the opaque derivative product's design. ..."
"... The Tax Policy Center estimated that a 0.1 percent tax on stock trades, scaled with lower taxes on other assets, would raise $50 billion a year in tax revenue. The implied reduction in trading revenue was even larger. Senator Sanders has proposed a tax of 0.5 percent on equities (also with a scaled tax on other assets). This would lead to an even larger reduction in revenue for the financial industry. ..."
"... Great to see Bakers acknowledgement that an updated Glass-Steagall is just one component of the progressive wings plan to rein in Wall Street, not the sum total of it. Besides, if Wall Street types dont think restoring Glass-Steagall will have any meaningful effects, why do they expend so much energy to disparage it? Methinks they doth protest too much. ..."
"... Yes thats a good way to look it. Wall Street gave the Democrats and Clinton a lot of campaign cash so that they would dismantle Glass-Steagall. ..."
"... Slippery slope. Ya gotta find me a business of any type that does not protest any kind of regulation on their business. ..."
"... Yeah, but usually because of all the bad things they say will happen because of the regulation. The question is, what do they think of Clintons plan? Ive heard surprisingly little about that, and what I have heard is along these lines: http://money.cnn.com/2015/10/08/investing/hillary-clinton-wall-street-plan/ ..."
"... Hillary Clinton unveiled her big plan to curb the worst of Wall Streets excesses on Thursday. The reaction from the banking community was a shrug, if not relief. ..."
"... Iceland's government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled "A better monetary system for Iceland". ..."
Hillary Clinton Is Whitewashing the Financial Catastrophe
She has a plan that she claims will reform Wall Street-but she's deflecting responsibility
from old friends and donors in the industry.
By William Greider
Yesterday 3:11 pm
Hillary Clinton's recent op-ed in The New York Times, "How I'd Rein In Wall Street," was intended
to reassure nervous Democrats who fear she is still in thrall to those mega-bankers of New York
who crashed the American economy. Clinton's brisk recital of plausible reform ideas might convince
wishful thinkers who are not familiar with the complexities of banking. But informed skeptics,
myself included, see a disturbing message in her argument that ought to alarm innocent supporters.
Candidate Clinton is essentially whitewashing the financial catastrophe. She has produced a
clumsy rewrite of what caused the 2008 collapse, one that conveniently leaves her husband out
of the story. He was the president who legislated the predicate for Wall Street's meltdown. Hillary
Clinton's redefinition of the reform problem deflects the blame from Wall Street's most powerful
institutions, like JPMorgan Chase and Goldman Sachs, and instead fingers less celebrated players
that failed. In roundabout fashion, Hillary Clinton sounds like she is assuring old friends and
donors in the financial sector that, if she becomes president, she will not come after them.
The seminal event that sowed financial disaster was the repeal of the New Deal's Glass-Steagall
Act of 1933, which had separated banking into different realms: investment banks, which organize
capital investors for risk-taking ventures; and deposit-holding banks, which serve people as borrowers
and lenders. That law's repeal, a great victory for Wall Street, was delivered by Bill Clinton
in 1999, assisted by the Federal Reserve and the financial sector's armies of lobbyists. The "universal
banking model" was saluted as a modernizing reform that liberated traditional banks to participate
directly and indirectly in long-prohibited and vastly more profitable risk-taking.
Exotic financial instruments like derivatives and credit-default swaps flourished, enabling
old-line bankers to share in the fun and profit on an awesome scale. The banks invented "guarantees"
against loss and sold them to both companies and market players. The fast-expanding financial
sector claimed a larger and larger share of the economy (and still does) at the expense of the
real economy of producers and consumers. The interconnectedness across market sectors created
the illusion of safety. When illusions failed, these connected guarantees became the dragnet that
drove panic in every direction. Ultimately, the federal government had to rescue everyone, foreign
and domestic, to stop the bleeding.
Yet Hillary Clinton asserts in her Times op-ed that repeal of Glass-Steagall had nothing to
do with it. She claims that Glass-Steagall would not have limited the reckless behavior of institutions
like Lehman Brothers or insurance giant AIG, which were not traditional banks. Her argument amounts
to facile evasion that ignores the interconnected exposures. The Federal Reserve spent $180 billion
bailing out AIG so AIG could pay back Goldman Sachs and other banks. If the Fed hadn't acted and
had allowed AIG to fail, the banks would have gone down too.
These sound like esoteric questions of bank regulation (and they are), but the consequences
of pretending they do not matter are enormous. The federal government and Federal Reserve would
remain on the hook for rescuing losers in a future crisis. The largest and most adventurous banks
would remain free to experiment, inventing fictitious guarantees and selling them to eager suckers.
If things go wrong, Uncle Sam cleans up the mess.
Senator Elizabeth Warren and other reformers are pushing a simpler remedy-restore the Glass-Steagall
principles and give citizens a safe, government-insured place to store their money. "Banking should
be boring," Warren explains (her co-sponsor is GOP Senator John McCain).
That's a hard sell in politics, given the banking sector's bear hug of Congress and the White
House, its callous manipulation of both political parties. Of course, it is more complicated than
that. But recreating a safe, stable banking system-a place where ordinary people can keep their
money-ought to be the first benchmark for Democrats who claim to be reformers.
Actually, the most compelling witnesses for Senator Warren's argument are the two bankers who
introduced this adventure in "universal banking" back in the 1990s. They used their political
savvy and relentless muscle to seduce Bill Clinton and his so-called New Democrats. John Reed
was CEO of Citicorp and led the charge. He has since apologized to the nation. Sandy Weill was
chairman of the board and a brilliant financier who envisioned the possibilities of a single,
all-purpose financial house, freed of government's narrow-minded regulations. They won politically,
but at staggering cost to the country.
Weill confessed error back in 2012: "What we should probably do is go and split up investment
banking from banking. Have banks do something that's not going to risk the taxpayer dollars, that's
not going to be too big to fail."
John Reed's confession explained explicitly why their modernizing crusade failed for two fundamental
business reasons. "One was the belief that combining all types of finance into one institution
would drive costs down-and the larger institution the more efficient it would be," Reed wrote
in the Financial Times in November. Reed said, "We now know that there are very few cost efficiencies
that come from the merger of functions-indeed, there may be none at all. It is possible that combining
so much in a single bank makes services more expensive than if they were instead offered by smaller,
specialised players."
The second grave error, Reed said, was trying to mix the two conflicting cultures in banking-bankers
who are pulling in opposite directions. That tension helps explain the competitive greed displayed
by the modernized banking system. This disorder speaks to the current political crisis in ways
that neither Dems nor Republicans wish to confront. It would require the politicians to critique
the bankers (often their funders) in terms of human failure.
"Mixing incompatible cultures is a problem all by itself," Reed wrote. "It makes the entire
finance industry more fragile…. As is now clear, traditional banking attracts one kind of talent,
which is entirely different from the kinds drawn towards investment banking and trading. Traditional
bankers tend to be extroverts, sociable people who are focused on longer term relationships. They
are, in many important respects, risk averse. Investment bankers and their traders are more short
termist. They are comfortable with, and many even seek out, risk and are more focused on immediate
reward."
Reed concludes, "As I have reflected about the years since 1999, I think the lessons of Glass-Steagall
and its repeal suggest that the universal banking model is inherently unstable and unworkable.
No amount of restructuring, management change or regulation is ever likely to change that."
This might sound hopelessly naive, but the Democratic Party might do better in politics if
it told more of the truth more often: what they tried do and why it failed, and what they think
they may have gotten wrong. People already know they haven't gotten a straight story from politicians.
They might be favorably impressed by a little more candor in the plain-spoken manner of John Reed.
Of course it's unfair to pick on the Dems. Republicans have been lying about their big stuff
for so long and so relentlessly that their voters are now staging a wrathful rebellion. Who knows,
maybe a little honest talk might lead to honest debate. Think about it. Do the people want to
hear the truth about our national condition? Could they stand it?
"She claims that Glass-Steagall would not have limited the reckless behavior of institutions
like Lehman Brothers or insurance giant AIG, which were not traditional banks."
Of course this claim is absolutely true. Just like GS would not have affected the other investment
banks, whatever their name was. And just like we would have had to bail out those other banks
whatever their name was.
Peter K. -> EMichael...
Can you list all of the pro- or anti- Wall Street "reforms" and actions Bill Clinton performed
as President including nominating Alan Greenspan as head regulator? Cutting the capital gains
tax? Are you aware of Greenspan's record?
Yes Hillary isn't Bill but she hasn't criticized her husband specifically about his record and
seems to want to have her cake and eat it too.
Of course Hillary is much better than the Republicans, pace Rustbucket and the Green Lantern Lefty
club. Still, critics have a point.
I won't be surprised if she doesn't do much to rein in Wall Street besides some window dressing.
sanjait -> Peter K....
"Can you list all of the pro- or anti- Wall Street "reforms" and actions Bill Clinton
performed..."
That, right there, is what's wrong with Bernie and his fans. They measure everything by whether
it is "pro- or anti- Wall Street". Glass Steagall is anti-Wall Street. A financial transactions
tax is anti-Wall Street. But neither has any hope of controlling systemic financial risk in this
country. None.
You guys want to punish Wall Street but not even bother trying to think of how to achieve useful
policy goals. Some people, like Paine here, are actually open about this vacuity, as if the only
thing that were important were winning a power struggle.
Hillary's plan is flat out better. It's more comprehensive and more effective at reining in
the financial system to limit systemic risk. Period.
You guys want to make this a character melodrama rather than a policy debate, and I fear the
result of that will be that the candidate who actually has the best plan won't get to enact it.
likbez -> sanjait...
"You guys want to make this a character melodrama rather than a policy debate, and I
fear the result of that will be that the candidate who actually has the best plan won't get
to enact it."
You are misrepresenting the positions. It's actually pro-neoliberalism crowd vs anti-neoliberalism
crowd. In no way anti-neoliberalism commenters here view this is a character melodrama, although
psychologically Hillary probably does has certain problems as her reaction to the death of Gadhafi
attests. The key problem with anti-neoliberalism crowd is the question "What is a realistic alternative?"
That's where differences and policy debate starts.
RGC -> EMichael...
"Her argument amounts to facile evasion"
Fred C. Dobbs -> RGC...
'The majority favors policies to the left of Hillary.'
... The Democrats' liberal faction has been greatly overestimated by pundits who mistake noisiness
for clout or assume that the left functions like the right. In fact, liberals hold nowhere near
the power in the Democratic Party that conservatives hold in the Republican Party. And while they
may well be gaining, they're still far from being in charge. ...
Paine -> RGC...
What's not confronted ? Suggest what a System like the pre repeal system would have done in
the 00's. My guess we'd have ended in a crisis anyway. Yes we can segregate the depository system.
But credit is elastic enough to build bubbles without the depository system involved
EMichael -> Paine ...
Exactly.
Most people think of lending like the Bailey Brothers Savings and Loan still exists.
RC AKA Darryl, Ron -> EMichael...
Don't be such a whistle dick. Just because you cannot figure out why GLBA made such an impact
that in no way means that people that do understand are stupid. See my posted comment to RGC on
GLBA just down thread for an more detailed explanation including a linked web article. No, GS
alone would not have prevented the mortgage bubble, but it would have lessened TBTF and GS stood
as icon, a symbol of financial regulation. Hell, if we don't need GS then why don't we just allow
unregulated derivatives trading? Who cares, right? Senators Byron Dorgan, Barbara Boxer, Barbara
Mikulski, Richard Shelby, Tom Harkin, Richard Bryan, Russ Feingold and Bernie Sanders all voted
against GLBA to repeal GS for some strange reason and Dorgan made a really big deal out of it
at the time. I doubt everyone on that list of Senators was just stupid because they did not see
it your way.
RC AKA Darryl, Ron -> EMichael...
I ran all out of ceteris paribus quite some time ago. Events do not occur in isolation. GLBA
increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. Democrats gained
majority, but not filibuster proof, caught between Iraq and a hard place following their votes
for TARP and a broader understanding of their participation in the unanimous consent passage of
the CFMA, over "objection" by Senators James Inhofe (R-OK) and Paul Wellstone (D-MN). We
have had a Republican majority in the House since the 2010 election and now they have the Senate
as well. If you are that sure that voters just choose divided government, then aren't we better
off to have a Republican POTUS and Democratic Congress?
sanjait -> RC AKA Darryl, Ron...
"I ran all out of ceteris paribus quite some time ago. Events do not occur in isolation.
GLBA increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. "
I know you think this is a really meaningful string that evidences causation, but it just looks
like you are reaching, reaching, reaching ...
RC AKA Darryl, Ron -> sanjait...
Maybe. No way to say for sure. It certainly fits the kind of herd mentality that I always
saw in corporate Amerika until I retired. The William Greider article posted by RGC was very consistent
in its account by John Reed with the details of one or two books written about AIG back in 2009
or so. I don't have time to hunt them up now. Besides, no one would read them anyway.
I am voting for whoever wins the Democratic nomination for POTUS. Bernie without a like-minded
Congress would not do much good. But when we shoot each other down here at EV without offering
any agreement or consideration that we might not be 100% correct, then that goes against Doc Thoma's
idea of an open forum. Granted, with my great big pair then I am willing to state my opinion with
no consideration for validation or acceptance, but not everyone has that degree of a comfort zone.
Besides, I am so old an cynical that shooting down the overdogs that go after the underdogs is
one of the few things that I still care about.
RGC -> Paine ...
GS was one of several actions taken by the New Deal. That it wasn't sufficient by itself doesn't
equate to it wasn't beneficial.
Glass-Steagall: Warren and Sanders bring it back into focus
Madonna Gauding / May 13, 2015
Senators Bernie Sanders and Elizabeth Warren are putting a new focus on the Glass-Steagall
Act, which was, unfortunately, repealed in 1999 and led directly to the financial crises we have
faced ever since. Here's a bit of history of this legislative debacle from an older post on Occasional
Planet published several years ago :
On November 4, 1999, Senator Byron Dorgan (D-ND) took to the floor of the senate to make an
impassioned speech against the repeal of the Glass-Steagall Act, (alternately known as Gramm Leach
Biley, or the "Financial Modernization Act") Repeal of Glass-Steagall would allow banks to merge
with insurance companies and investments houses. He said "I want to sound a warning call today
about this legislation, I think this legislation is just fundamentally terrible."
According to Sam Stein, writing in 2009 in the Huffington Post, only eight senators voted against
the repeal. Senior staff in the Clinton administration and many now in the Obama administration
praised the repeal as the "most important breakthrough in the world of finance and politics in
decades"
According to Stein, Dorgan warned that banks would become "too big to fail" and claimed that
Congress would "look back in a decade and say we should not have done this." The repeal of Glass
Steagall, of course, was one of several bad policies that helped lead to the current economic
crisis we are in now.
Dorgan wasn't entirely alone. Sens. Barbara Boxer, Barbara Mikulski, Richard Shelby, Tom Harkin,
Richard Bryan, Russ Feingold and Bernie Sanders also cast nay votes. The late Sen. Paul Wellstone
opposed the bill, and warned at the time that Congress was "about to repeal the economic stabilizer
without putting any comparable safeguard in its place."
Democratic Senators had sufficient knowledge about the dangers of the repeal of Glass Steagall,
but chose to ignore it. Plenty of experts warned that it would be impossible to "discipline" banks
once the legislation was passed, and that they would get too big and complex to regulate. Editorials
against repeal appeared in the New York Times and other mainstream venues, suggesting that if
the new megabanks were to falter, they could take down the entire global economy, which is exactly
what happened. Stein quotes Ralph Nader who said at the time, "We will look back at this and wonder
how the country was so asleep. It's just a nightmare."
According to Stein:
"The Senate voted to pass Gramm-Leach-Bliley by a vote of 90-8 and reversed what was, for
more than six decades, a framework that had governed the functions and reach of the nation's
largest banks. No longer limited by laws and regulations commercial and investment banks could
now merge. Many had already begun the process, including, among others, J.P. Morgan and Citicorp.
The new law allowed it to be permanent. The updated ground rules were low on oversight and
heavy on risky ventures. Historically in the business of mortgages and credit cards, banks
now would sell insurance and stock.
Nevertheless, the bill did not lack champions, many of whom declared that the original legislation
- forged during the Great Depression - was both antiquated and cumbersome for the banking industry.
Congress had tried 11 times to repeal Glass-Steagall. The twelfth was the charm.
"Today Congress voted to update the rules that have governed financial services since
the Great Depression and replace them with a system for the 21st century," said then-Treasury
Secretary Lawrence Summers. "This historic legislation will better enable American companies
to compete in the new economy."
"I welcome this day as a day of success and triumph," said Sen. Christopher Dodd, (D-Conn.).
"The concerns that we will have a meltdown like 1929 are dramatically overblown," said Sen.
Bob Kerrey, (D-Neb.).
"If we don't pass this bill, we could find London or Frankfurt or years down the road Shanghai
becoming the financial capital of the world," said Sen. Chuck Schumer, D-N.Y. "There are many
reasons for this bill, but first and foremost is to ensure that U.S. financial firms remain
competitive."
Unfortunately, the statement by Chuck Schumer sounds very much like it was prepared by a lobbyist.
This vote underscores the way in which our elected officials are so heavily swayed by corporate
and banking money that our voices and needs become irrelevant. It is why we need publicly funded
elections. Democratic senators, the so-called representatives of the people, fell over themselves
to please their Wall Street donors knowing full well there were dangers for the country at large,
for ordinary Americans, in repealing Glass-Steagall.
It is important to hold Democratic senators (along with current members of the Obama administration)
accountable for the significant role they have played in the current economic crisis that has
caused so much suffering for ordinary Americans. In case you were wondering, the current Democratic
Senators who voted yes to repeal the Glass-Steagall act are the following:
Daniel Akaka – Max Baucus – Evan Bayh – Jeff Bingaman – Kent Conrad – Chris Dodd – Dick Durbin
– Dianne Feinstein – Daniel Inouye – Tim Johnson – John Kerry – Herb Kohl – Mary Landrieu – Frank
Lautenberg – Patrick Leahy – Carl Levin – Joseph Lieberman – Blanche Lincoln – Patty Murray –
Jack Reed – Harry Reid – Jay Rockefeller – Chuck Schumer – Ron Wyden
Former House members who voted for repeal who are current Senators.
Mark Udall [as of 2010] – Debbie Stabenow – Bob Menendez – Tom Udall -Sherrod Brown
No longer in the Senate, or passed away, but who voted for repeal:
Joe Biden -Ted Kennedy -Robert Byrd
These Democratic senators would like to forget or make excuses for their enthusiastic vote
on the repeal of Glass Steagall, but it is important to hold them accountable for helping their
bank donors realize obscene profits while their constituents lost jobs, savings and homes. And
it is important to demand that they serve the interests of the American people.
*
[The repeal of Glass Steagal was a landmark victory in deregulation that greased the skids
for the passage of CFMA once Democrats had been further demoralized by the SCOTUS decision on
Bush-v-Gore. The first vote on GLBA was split along party lines, but passed because Republicans
had majority and Clinton was willing to sign which was clear from the waiver that had been granted
to illegal Citi merger with Travelers. Both Citi and AIG mergers contributed to too big to fail.
The CFMA was the nail in the coffin that probably would have never gotten off the ground if Democrats
had held the line on the GLBA. Glass-Steagal was insufficient as a regulatory system to prevent
the 2008 mortgage crisis, but it was giant as an icon of New Deal financial system reform. Its
loss institutionalized too big to fail.]
pgl -> RC AKA Darryl, Ron...
Gramm Leach Biley was a mistake. But it was not the only failure of US regulatory policies
towards financial institutions nor the most important. I think that is what Hillary Clinton
is saying.
RC AKA Darryl, Ron -> pgl...
It was more symbolic caving in on financial regulation than a specific technical failure except
for making too big to fail worse at Citi and AIG. It marked a sea change of thinking about financial
regulation. Nothing mattered any more, including the CFMA just a little over one year later. Deregulation
of derivatives trading mandated by the CFMA was a colossal failure and it is not bizarre to believe
that GLBA precipitated the consensus on financial deregulation enough that after the demoralizing
defeat of Democrats in Bush-v-Gore then there was no New Deal spirit of financial regulation left.
Social development is not just a series of unconnected events. It is carried on a tide of change.
A falling tide grounds all boats.
pgl -> RC AKA Darryl, Ron...
We had a financial dereg craze back in the late 1970's and early 1980's which led to the S&L
disaster. One would have thought we would have learned from that. But then came the dereg craziness
20 years later. And this disaster was much worse.
I don't care whether Hillary says 1999
was a mistake or not. I do care what the regulations of financial institutions will be like going
forward.
RC AKA Darryl, Ron -> pgl...
I cannot disagree with any of that.
sanjait -> RC AKA Darryl, Ron...
"Deregulation of derivatives trading mandated by the CFMA was a colossal failure and it
is not bizarre to believe that GLBA precipitated the consensus"
Yeah, it is kind of bizarre to blame one bill for a crisis that occurred largely because another
bill was passed, based on some some vague assertion about how the first bill made everyone think
crazy.
RC AKA Darryl, Ron -> sanjait...
Democrats did not vote for GLBA until after reconciliation between the House and Senate bills.
Democrats were tossed a bone in the Community Reinvestment Act financing provisions and given
that Bill Clinton was going to sign anyway and that Republicans were able to pass the bill without
a single vote from Democrats then all but a few Democrats bought in. They could not stop it, so
they just bought into it. I thought there was supposed to be an understanding of behaviorism devoted
to understanding the political economy. For that matter Republicans did not need Democrats to
vote for the CFMA either, but they did. That gave Republicans political cover for whatever went
wrong later on. No one with a clue believed things would go well from the passage of either of
these bills. It was pure Wall Street driven kleptocracy.
likbez -> sanjait...
It was not one bill or another. It was a government policy to get traders what they want.
"As the western world wakes to the fact it is in the middle of a debt crisis spiral, intelligent
voices are wondering how this manifested itself? As we speak, those close to the situation could
be engaging in historical revisionism to obfuscate their role in the design of faulty leverage
structures that were identified in the derivatives markets in 1998 and 2008. These same design
flaws, first identified in 1998, are persistent today and could become graphically evident in
the very near future under the weight of a European debt crisis.
Author and Bloomberg columnist William Cohan chronicles the fascinating start of this historic
leverage implosion in his recent article Rethinking Robert Rubin. Readers may recall it was Mr.
Cohan who, in 2004, noted leverage issues that ultimately imploded in 2007-08.
At some point, market watchers will realize the debt crisis story will literally change the
world. They will look to the root cause of the problem, and they might just find one critical
point revealed in Mr. Cohan's article.
This point occurs in 1998 when then Commodity Futures Trading Commission (CFTC) ChairwomanBrooksley
Born identified what now might be recognized as core design flaws in leverage structure used in
Over the Counter (OTC) transactions. Ms. Born brought her concerns public, by first asking just
to study the issue, as appropriate action was not being taken. She issued a concept release paper
that simply asked for more information. "The Commission is not entering into this process with
preconceived results in mind," the document reads.
Ms. Born later noted in, the PBS Frontline documentary on the topic speculation at the CFTC
was the unregulated OTC derivatives were opaque, the risk to the global economy could not be determined
and the risk was potentially catastrophic. As a result of this inquiry, Ms. Born was ultimately
forced from office.
This brings us to Lawrence Summers, the former Treasury Secretary of the United States and
at the time right hand man to then Treasury Security Robert Rubin. Mr. Summers was widely credited
with implementation of the aggressive tactics used to remove Ms. Born from her office, tactics
that multiple sources describe as showing an old world bias against women piercing the glass ceiling.
According to numerous published reports, Mr. Summers was involved in. silencing those who questioned
the opaque derivative product's design. "
RC AKA Darryl, Ron -> Paine ...
TBTF on steroids, might as well CFMA - why not?
Bubbles with less TBTF and a lot less credit
default swaps would have been a lot less messy going in. Without TARP, then Congress might have
still had the guts for making a lesser New Deal.
EMichael -> RC AKA Darryl, Ron...
TARP was window dressing. The curtain that covered up the FED's actions.
pgl -> RGC...
Where have I heard about William Greider? Oh yea - this critique of something stupid he wrote
about a Supreme Court decision:
"Exotic financial instruments like derivatives and credit-default swaps flourished, enabling
old-line bankers to share in the fun and profit on an awesome scale."
These would have flourished even if Glass-Steagall remained on the books. Leave it to RGC to
find some critic of HRC who knows nothing about financial markets.
RGC -> pgl...
Derivatives flourished because of the other deregulation under Clinton, the CFMA. The repeal of
GS helped commercial banks participate.
RGC -> pgl...
The repeal of GS helped commercial banks participate.
Fred C. Dobbs -> pgl...
Warren Buffet used to rail about how risky derivative investing is, until he realized they
are *extremely* important in the re-insurance biz, which is a
big part of Berkshire Hathaway.
Hillary Clinton, Bernie Sanders, and Cracking Down on Wall Street
by Dean Baker
Published: 12 December 2015
The New Yorker ran a rather confused piece on Gary Sernovitz, a managing director at the investment
firm Lime Rock Partners, on whether Bernie Sanders or Hillary Clinton would be more effective
in reining in Wall Street. The piece assures us that Secretary Clinton has a better understanding
of Wall Street and that her plan would be more effective in cracking down on the industry. The
piece is bizarre both because it essentially dismisses the concern with too big to fail banks
and completely ignores Sanders' proposal for a financial transactions tax which is by far the
most important mechanism for reining in the financial industry.
The piece assures us that too big to fail banks are no longer a problem, noting their drop
in profitability from bubble peaks and telling readers:
"not only are Sanders's bogeybanks just one part of Wall Street but they are getting less
powerful and less problematic by the year."
This argument is strange for a couple of reasons. First, the peak of the subprime bubble frenzy
is hardly a good base of comparison. The real question is should we anticipate declining profits
going forward. That hardly seems clear. For example, Citigroup recently reported surging profits,
while Wells Fargo's third quarter profits were up 8 percent from 2014 levels.
If Sernovitz is predicting that the big banks are about to shrivel up to nothingness, the market
does not agree with him. Citigroup has a market capitalization of $152 billion, JPMorgan has a
market cap of $236 billion, and Bank of America has a market cap of $174 billion. Clearly investors
agree with Sanders in thinking that these huge banks will have sizable profits for some time to
come.
The real question on too big to fail is whether the government would sit by and let a Goldman
Sachs or Citigroup go bankrupt. Perhaps some people think that it is now the case, but I've never
met anyone in that group.
Sernovitz is also dismissive on Sanders call for bringing back the Glass-Steagall separation
between commercial banking and investment banking. He makes the comparison to the battle over
the Keystone XL pipeline, which is actually quite appropriate. The Keystone battle did take on
exaggerated importance in the climate debate. There was never a zero/one proposition in which
no tar sands oil would be pumped without the pipeline, while all of it would be pumped if the
pipeline was constructed. Nonetheless, if the Obama administration was committed to restricting
greenhouse gas emissions, it is difficult to see why it would support the building of a pipeline
that would facilitate bringing some of the world's dirtiest oil to market.
In the same vein, Sernovitz is right that it is difficult to see how anything about the growth
of the housing bubble and its subsequent collapse would have been very different if Glass-Steagall
were still in place. And, it is possible in principle to regulate bank's risky practices without
Glass-Steagall, as the Volcker rule is doing. However, enforcement tends to weaken over time under
industry pressure, which is a reason why the clear lines of Glass-Steagall can be beneficial.
Furthermore, as with Keystone, if we want to restrict banks' power, what is the advantage of letting
them get bigger and more complex?
The repeal of Glass-Steagall was sold in large part by boasting of the potential synergies
from combining investment and commercial banking under one roof. But if the operations are kept
completely separate, as is supposed to be the case, where are the synergies?
But the strangest part of Sernovitz's story is that he leaves out Sanders' financial transactions
tax (FTT) altogether. This is bizarre, because the FTT is essentially a hatchet blow to the waste
and exorbitant salaries in the industry.
Most research shows that trading volume is very responsive to the cost of trading, with most
estimates putting the elasticity close to one. This means that if trading costs rise by 50 percent,
then trading volume declines by 50 percent. (In its recent analysis of FTTs, the Tax Policy Center
assumed that the elasticity was 1.5, meaning that trading volume decline by 150 percent of the
increase in trading costs.) The implication of this finding is that the financial industry would
pay the full cost of a financial transactions tax in the form of reduced trading revenue.
The Tax Policy Center estimated that a 0.1 percent tax on stock trades, scaled with lower taxes
on other assets, would raise $50 billion a year in tax revenue. The implied reduction in trading
revenue was even larger. Senator Sanders has proposed a tax of 0.5 percent on equities (also with
a scaled tax on other assets). This would lead to an even larger reduction in revenue for the
financial industry.
It is incredible that Sernovitz would ignore a policy with such enormous consequences for the
financial sector in his assessment of which candidate would be tougher on Wall Street. Sanders
FTT would almost certainly do more to change behavior on Wall Street then everything that Clinton
has proposed taken together by a rather large margin. It's sort of like evaluating the New England
Patriots' Super Bowl prospects without discussing their quarterback.
Syaloch -> Peter K....
Great to see Baker's acknowledgement that an updated Glass-Steagall is just one component
of the progressive wing's plan to rein in Wall Street, not the sum total of it. Besides, if Wall
Street types don't think restoring Glass-Steagall will have any meaningful effects, why do they
expend so much energy to disparage it? Methinks they doth protest too much.
Peter K. -> Syaloch...
Yes that's a good way to look it. Wall Street gave the Democrats and Clinton a lot of campaign
cash so that they would dismantle Glass-Steagall. If they want it done, it's probably not
a good idea.
EMichael -> Syaloch...
Slippery slope. Ya' gotta find me a business of any type that does not protest any kind of regulation
on their business.
Syaloch -> EMichael...
Yeah, but usually because of all the bad things they say will happen because of the regulation.
The question is, what do they think of Clinton's plan? I've heard surprisingly little about that,
and what I have heard is along these lines:
http://money.cnn.com/2015/10/08/investing/hillary-clinton-wall-street-plan/
"Hillary Clinton unveiled her big plan to curb the worst of Wall Street's excesses on Thursday.
The reaction from the banking community was a shrug, if not relief."
pgl -> Syaloch...
Two excellent points!!!
sanjait -> Syaloch...
"Besides, if Wall Street types don't think restoring Glass-Steagall will have any meaningful
effects, why do they expend so much energy to disparage it? Methinks they doth protest too
much."
It has an effect of shrinking the size of a few firms, and that has a detrimental effect on
the top managers of those firms, who get paid more money if they have larger firms to manage. But it has little to no meaningful effect on systemic risk.
So if your main policy goal is to shrink the compensation for a small number of powerful Wall
Street managers, G-S is great. But if you actually want to accomplish something useful to the American people, like limiting
systemic risk in the financial sector, then a plan like Hillary's is much much better. She explained
this fairly well in her recent NYT piece.
Paine -> Peter K....
There is absolutely NO question Bernie is for real. Wall Street does not want Bernie. So they'll
let Hillary talk as big as she needs to . Why should we believe her when an honest guy like
Barry caved once in power
Paine -> Paine ...
Bernie has been anti Wall Street his whole career . He's on a crusade. Hillary is pulling a sham
bola
Paine -> Paine ...
Perhaps too often we look at Wall Street as monolithic whether consciously or not. Obviously we
know it's no monolithic: there are serious differences
When the street is riding high especially. Right now the street is probably not united but
too cautious to display profound differences in public. They're sitting on their hands waiting
to see how high the anti Wall Street tide runs this election cycle. Trump gives them cover and
I really fear secretly Hillary gives them comfort
This all coiled change if Bernie surges. How that happens depends crucially on New Hampshire.
Not Iowa
EMichael -> Paine ...
If Bernie surges and wins the nomination, we will all get to watch the death of the Progressive
movement for a decade or two. Congress will become more GOP dominated, and we will have a President
in office who will make Hoover look like a Socialist.
You should like the moderate Democrats after George McGovern ran in 1972. I'm hoping we have another
1964 with Bernie leading a united Democratic Congress.
EMichael -> pgl...
Not a chance in the world. And I like Sanders much more than anyone else. It just simply cannot,
and will not, happen. He is a communist. Not to me, not to you, but to the vast majority
of American voters.
pgl -> EMichael...
He is not a communist. But I agree - Hillary is winning the Democratic nomination. I have only
one vote and in New York, I'm badly outnumbered.
ilsm -> Paine ...
I believe Hillary will be to liberal causes after she is elected as LBJ was to peace in Vietnam.
Like Bill and Obomber.
pgl -> ilsm...
By 1968, LBJ finally realized it was time to end that stupid war. But it seems certain members
in the State Department undermined his efforts in a cynical ploy to get Nixon to be President.
The Republican Party has had more slime than substance of most of my life time.
pgl -> Peter K....
Gary Sernovitz, a managing director at the investment firm Lime Rock Partners? Why are we listening
to this guy too. It's like letting the fox guard the hen house.
sanjait -> Peter K....
"The piece is bizarre both because it essentially dismisses the concern with too big to
fail banks and completely ignores Sanders' proposal for a financial transactions tax which
is by far the most important mechanism for reining in the financial industry."
This is just wrong. Is financial system risk in any way correlated with the frequency
of transactions? Except for market volatility from HFT ... no. The financial crisis wasn't caused
by a high volume of trades. It was caused by bad investments into highly illiquid assets. Again,
great example of wanting to punish Wall Street but not bothering to think about what actually
works.
Peter K. said...
Robert Reich to the Fed: this is not the time to raise rates.
Iceland, too, is looking at a radical transformation of its money
system, after suffering the crushing boom/bust cycle of the private banking model that bankrupted
its largest banks in 2008. According to a March 2015 article in the UK Telegraph:
Iceland's government is considering a revolutionary monetary proposal – removing the power
of commercial banks to create money and handing it to the central bank. The proposal, which would
be a turnaround in the history of modern finance, was part of a report written by a lawmaker from
the ruling centrist Progress Party, Frosti Sigurjonsson, entitled "A better monetary system for
Iceland".
"The findings will be an important contribution to the upcoming discussion, here and elsewhere,
on money creation and monetary policy," Prime Minister Sigmundur David Gunnlaugsson said. The
report, commissioned by the premier, is aimed at putting an end to a monetary system in place
through a slew of financial crises, including the latest one in 2008.
Under this "Sovereign Money" proposal, the country's central bank would become the only creator
of money. Banks would continue to manage accounts and payments and would serve as intermediaries
between savers and lenders. The proposal is a variant of the Chicago Plan promoted by Kumhof and
Benes of the IMF and the Positive Money group in the UK.
Public Banking Initiatives in Iceland, Ireland and the UK
A major concern with stripping private banks of the power to create money as deposits when
they make loans is that it will seriously reduce the availability of credit in an already sluggish
economy. One solution is to make the banks, or some of them, public institutions. They would still
be creating money when they made loans, but it would be as agents of the government; and the profits
would be available for public use, on the model of the US Bank of North Dakota and the German
Sparkassen (public savings banks).
In Ireland, three political parties – Sinn Fein, the Green Party and Renua Ireland (a new party)
- are now supporting initiatives for a network of local publicly-owned banks on the Sparkassen
model. In the UK, the New Economy Foundation (NEF) is proposing that the failed Royal Bank of
Scotland be transformed into a network of public interest banks on that model. And in Iceland,
public banking is part of the platform of a new political party called the Dawn Party.
December 11, 2015
Reinventing Banking: From Russia to Iceland to Ecuador
"Banks would continue to manage accounts and payments and would serve as intermediaries between
savers and lenders."
OK but that means they issue bank accounts which of course we call deposits.
So is this just semantics? People want checking accounts. People want savings accounts. Otherwise
they would not exist. Iceland plans to do what to stop the private sector from getting what it
wants?
I like the idea of public banks. Let's nationalize JPMorganChase so we don't have to listen
to Jamie Dimon anymore!
sanjait -> pgl...
I don't know for sure (not bothering to search and read the referenced proposals), but I assumed
the described proposal was for an end to fractional reserve banking. Banks would have to have
full reserves to make loans. Or something. I could be wrong about that.
Syaloch said...
Sorry, but Your Favorite Company Can't Be Your Friend
To think that an artificial person, whether corporeal or corporate, can ever be your friend
requires a remarkable level of self-delusion.
A commenter on the Times site aptly quotes Marx in response:
"The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal,
idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to
his "natural superiors", and has left remaining no other nexus between man and man than naked
self-interest, than callous "cash payment". It has drowned the most heavenly ecstasies of religious
fervour, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical
calculation. It has resolved personal worth into exchange value, and in place of the numberless
indefeasible chartered freedoms, has set up that single, unconscionable freedom - Free Trade.
In one word, for exploitation, veiled by religious and political illusions, it has substituted
naked, shameless, direct, brutal exploitation.
"The bourgeoisie has stripped of its halo every occupation hitherto honoured and looked
up to with reverent awe. It has converted the physician, the lawyer, the priest, the poet,
the man of science, into its paid wage labourers."
"... Within days the Fed will begin hiking interest rates in an effort to prevent inflation. This is nuts. There's no sign of dangerous inflation anywhere. Raising rates will just slow the economy, making it harder for people to find jobs. The share of working-age people in jobs is near a 40-year low. Watch our video to find out what this is all about -- and how it will affect you. ..."
Within days the Fed will begin hiking interest rates in an
effort to prevent inflation. This is nuts. There's no sign of
dangerous inflation anywhere. Raising rates will just slow
the economy, making it harder for people to find jobs. The
share of working-age people in jobs is near a 40-year low.
Watch our video to find out what this is all about -- and how
it will affect you.
Dwight McCabe
According to Paul Krugman the banks
desperately need rates higher so they make more
profits. With these very low rates they are stuck in
low profit. The Fed lives in the financial culture
and all the learned people around them, bankers, are
convinced that the economy needs higher rates. The
economy will not benefit but the financial community
sure will.
David Van Dyne
...By the way, how about the negative returns on
money market funds invested through a 401(k) plan?
The quest for yield is pushing investors into risk in a frantic hunt for yield in an environment
where risk free assets yield at best an inflation adjusted zero and at worst have a negative carrying
cost. Add to this fake earnings and share repurchases that weaken many companies including such stalwart
as IBM and you get the message.
Notable quotes:
"... A firm founded by legendary vulture investor Martin Whitman is barring investor withdrawals
while it liquidates its high-yield bond fund, an unusual move that highlights the severity of the months
long junk-bond plunge that has swept Wall Street. ..."
"... All 30 of the largest high-yield bond funds tracked by Morningstar have lost money this year,
reflecting price declines as investors shied away from risk. ..."
"... "Investors have been dazzled that yields on bonds have climbed so high, even while default
rates remained low," said Martin Fridson, founder of Lehmann Livian Fridson Advisors and a longtime
junk-bond analyst. "Currently, though, the ability to sell a large position is especially poor…. When
that tension gets especially high, you can see something snap." ..."
"... Speculation by retail investors in high risk instruments like high yield bonds, oil ETN funds
(based off oil futures), gold funds, etc rose tremendously during ZIPR period. Probably several
billions were lost by retail investors during this period in search for yield. The same is true
about participation of retail investors in regular casino games such as stock funds and indexes
like S&P500. ..."
Third Avenue Focused Credit Fund takes rare step, seeking an orderly liquidation as junk-bond
market swoons
A firm founded by legendary vulture investor Martin Whitman is barring investor withdrawals
while it liquidates its high-yield bond fund, an unusual move that highlights the severity of
the months long junk-bond plunge that has swept Wall Street.
The decision by Third Avenue Management LLC means investors in the $789 million Third Avenue
Focused Credit Fund may not receive all their money back for months, if not more.
BenIsNotYoda said in reply to BenIsNotYoda...
of course, biotech has to be added to this list; down 20%.
pgl said in reply to BenIsNotYoda...
Amgen shares trading at $145 and Gilead shares trading at $102. Not feeling sorry for these dudes.
pgl said in reply to BenIsNotYoda...
Talk about burying the lead:
"The yield spread between junk-rated debt and U.S. Treasurys narrowed to a multiyear low
in mid-2014, reflecting investors' confidence in companies' business prospects. But spreads
have since risen, reflecting lower prices, as the energy bust intensified questions about junk-rated
companies' ability to repay debts. All 30 of the largest high-yield bond funds tracked
by Morningstar have lost money this year, reflecting price declines as investors shied away
from risk.
"Investors have been dazzled that yields on bonds have climbed so high, even while default
rates remained low," said Martin Fridson, founder of Lehmann Livian Fridson Advisors and a
longtime junk-bond analyst. "Currently, though, the ability to sell a large position is especially
poor…. When that tension gets especially high, you can see something snap."
The Securities and Exchange Commission has been warning mutual-fund managers who purchase illiquid
securities-those that may be difficult to buy or sell at stated prices because of a lack of willing
investors-to prepare better for potential redemptions and is drawing up new rules requiring such
measures."
Simply put - people who go into the junk bond market get a very high return but they also take
the risk. No feeling sorry for these guys especially given that the SEC gave them fair warning.
Peter K. said in reply to pgl...
"All 30 of the largest high-yield bond funds tracked by Morningstar have lost money this year,
reflecting price declines as investors shied away from risk."
Investors are shying away from risk? I thought ZIRP encouraged reach-for-yield.
The market goes up and down. Only drama queens would see a bubble like the tech stock bubble
or housing bubble in the data.
"Preventing the rebirth of housing bubbles in these markets was a very good thing in my
book. I will add the qualification that high interest rates is not my preferred way of bursting
bubbles. The first recourse should be talk, as in using the Fed's bully pulpit, coupled with
its research, to warn the markets of rising bubbles. Janet Yellen did this successfully in
the summer of 2014 when she used congressional testimony to warn of bubbles in social media
companies, biotech stocks, and junk bonds. She did not follow through with subsequent warnings,
but all three markets did take a hit in the weeks following her testimony.
For some reason most economists reject the idea of having the Fed talk down bubbles. I guess
it is considered impolite. This seems more than a bit bizarre given the enormous damage done
by bursting bubbles compared with the virtually costless effort to talk them down.
Of course the Fed also has substantial regulatory powers which can be used to curb bank
lending to support bubbles. This is also a policy option that should be pursued before deliberately
slowing the economy with higher interest rates.
Anyhow, I was not happy to see the economy slowed by the Taper Tantrum, but I was very happy
to see that it prevented the growth of another bubble. It is unfortunate that almost no one
knows this story - I guess it is difficult for reporters to get access to the Case-Shiller
data on the web."
pgl said in reply to Peter K....
"The market goes up and down. Only drama queens would see a bubble like the tech stock bubble
or housing bubble in the data."
Yep! And the lack of QE of late has driven up both government
bond rates and credit spreads. Now wonder these vulture investors lost money. I'm not feeling
for them a bit. And yes - BenIsNotYoda was being a drama queen.
likbez said in reply to Peter K....
"Investors are shying away from risk? I thought ZIRP encouraged reach-for-yield."
Yes, very
true.
Speculation by retail investors in high risk instruments like high yield bonds, oil ETN funds
(based off oil futures), gold funds, etc rose tremendously during ZIPR period. Probably several
billions were lost by retail investors during this period in search for yield. The same is true
about participation of retail investors in regular casino games such as stock funds and indexes
like S&P500.
"... Robert Waldmann writes that that the reason Krugman was surprised by the failure of the supply side is that he didn't pay enough attention to the European unemployment problem. The natural unemployment rate hypothesis failed spectacularly in Europe in the 1980s. Extremely high unemployment did not lead to deflation - rather it coexisted with moderate inflation for a long time, then with low inflation. By 2008, the flat Phillips curve was already very clear to anyone who read Italian newspapers. ..."
The natural unemployment rate hypothesis failed spectacularly in Europe in the 1980s. Extremely
high unemployment did not lead to deflation - rather it coexisted with moderate inflation for a long
time, then with low inflation.
Krugman posted a graph showing how the US graph of inflation and unemployment has changed (just
click the
link and look). In the past high unemployment gradually lead to lower inflation and then to lower
inflation and unemployment - this is the pattern predicted by Friedman, Phelps, Tobin (and discussed
already by Samuelson and Solow in 1960). But in the recent past extremely high unemployment has come
with low and stable core inflation.
Things used look very different here in Italy than in the USA. Here is a graph of data from before
January 2008. Extremely high unemployment was consistent with moderate and then with low inflation.
The only clear shift in inflation occurred in 1996 and 1997 (which may or may not be when Italians
began to think they might actually earn the wonderful reward of being allowed to adopt the Euro).
By 2008, The flat Phillips curve (the Fillipo curve?) was already very clear to anyone who read
Italian newspapers.
Here are all data which are available on FRED (yes I sit in Rome and surf to St Louis for Italian
data). Oddly the harmonized unemployment series is only available (at FRED) from 1983 on.
In this graph there is also very little sign of Friedman-Phelps cycles. The old pattern was a
steady decline from extremely high inflation - it looks almost like an expectations unaugmented Phillips
curve. But then (really from 1986 on) there was fairly stable moderate to low inflation along with
extreme swings in unemployment. I stress that this is CPI inflation including food and energy not
core inflation. the peak oil spike in 2007 and the collapse in 2008 are clearly visible. It is possible
that the most recent observations show a slide to actual persistent deflation, but it is more likely
that the recent decline in inflation is due to the collapse of the price of oil.
[…] Robert Waldmann writes that that the reason Krugman was surprised by the failure of the
supply side is that he didn't pay enough attention to the European unemployment problem. The natural
unemployment rate hypothesis failed spectacularly in Europe in the 1980s. Extremely high unemployment
did not lead to deflation - rather it coexisted with moderate inflation for a long time, then
with low inflation. By 2008, the flat Phillips curve was already very clear to anyone who read
Italian newspapers. […]
"There is no reason for central banks to have the kind of independence that judicial
institutions have. Justice may be blind and above politics, but money and banking are not." Economic
and politics are like Siamese twins (which actually . If somebody trying to separate them it is a
clear sign that the guy is either neoliberal propagandists or outright crook.
Notable quotes:
"... I think FED chairman is the second most powerful political position in the USA after the POTUS. Or may be in some respects it is even the first ;-) So it is quintessentially high-power political position masked with the smokescreen of purely economic (like many other things are camouflaged under neoliberalism.) ..."
"... I think that is a hidden principle behind attacks on FED chair. A neoliberal principle that the state should not intrude into economics and limit itself to the police, security, defense, law enforcement and few other related to this functions. So their point that she overextended her mandate is an objection based on principle. Which can be violated only if it is used to uphold neoliberalism, as Greenspan did during his career many times. ..."
"... This kind of debate seems to be a by-product of the contemporary obsession with having an independent central bank, run according to the fantasy that there is such a thing as a neutral or apolitical way to conduct monetary policy. ..."
"... A number of commenters and authors have recently pointed out that inequality may not just be an unrelated phenomenon to monetary policy, but actually, in part at least, a byproduct of it. ..."
"... The theory is that the Fed in the Great Moderation age has been so keen to stave off even the possibility of inflation that it chokes down the vigor of recoveries before they get to the part where median wages start rising quickly. The result is that wages get ratcheted down with the economic cycle, falling during recessions and never fully recovering during the recoveries. ..."
"... Two Things: (i) The Fed should be open and honest about monetary policy. No one wants to return to the Greenspan days. (ii) Brad Delong is a neoliberal hack. ..."
"... As to why risk a political backlash in the piece, the short answer is: to invoke the debate on whether politics or fact (science) is going to dominate. Because they can't both. See: Romer. Let's have this out once and for all. ..."
Fine column, with which I agree. Federal Reserve policy as such is difficult and contentious enough
to avoid wandering to social-economic analysis or philosophy from aspects of the Fed mandate.
As for the use of the word "hack" in referring to Janet Yellen, that needlessly insulting use
was by a Washington Post editor and not by columnist Michael Strain.
anne -> RW (the other)...
As Brad notes, many Fed Chairs before Yellen have opined on matters outside monetary policy
so why is Yellen subject to a different standard?
[ Fine, I have reconsidered and agree. No matter how the headline was written, the headline
was meant to be intimidating and was willfully mean and that could and should have been made clear
immediately by the writer of the column. ]
likbez -> anne...
"Federal Reserve policy as such is difficult and contentious enough to avoid wandering to social-economic
analysis or philosophy from aspects of the Fed mandate."
Anne,
I think FED chairman is the second most powerful political position in the USA after the POTUS.
Or may be in some respects it is even the first ;-) So it is quintessentially high-power political position masked with the smokescreen of "purely
economic" (like many other things are camouflaged under neoliberalism.)
That's why Greenspan got it, while being despised by his Wall-Street colleagues...
He got it because he was perfect for promoting deregulation political agenda from the position
of FED chair.
pgl -> likbez...
Greenspan was despised on Wall Street? Wow as he tried so hard to serve their interests. I
guess the Wall Street crowd is never happy no matter how much income we feed these blow hards.
anne -> likbez...
So it is quintessentially high-power political position masked with the smokescreen of "purely
economic" (like many other things are camouflaged under neoliberalism.)
[ I understand, and am convinced. ]
Peter K. said...
I respectfully disagree. Republicans are always working the refs and despite what the writer
from AEI said, they're okay with conservative Fed chairs talking politics. They have double standards.
Greenspan testified to Congress on behalf of Bush's tax cuts for the rich. Something about
how since Clinton balanced the budget, the financial markets had too little safe debt to work
with. (maybe that's why they dove into mortgaged-backed securities). But tax cuts versus more
government spending? He and Rubin advised Clinton to drop his middle class spending bill and trade
deficit reduction for lower interest rates. That's economics which have political outcomes.
So if the rightwing is going to work the the refs, so should the left. We shouldn't unilaterally
disarm over fears Congress will gun for the Fed. There should be more groups like Fed Up protesting.
The good thing about Yellen's speech is that it's a signal to progressives that inequality
is problem for her even as she is raising rates in a political dance with hawks and Congress.
The Fed is constantly accused of increasing inequality so it's good Yellen is saying she thinks
it's a bad thing and not American.
Bernie Sanders is right that for change to happen we'll need more political involvement from
regular citizens. We'll need a popular movement with many leaders.
The Fed should be square in the sights of a progressive movement. A high-pressured economy
with full employment should be a top priority.
Instead I saw Nancy Pelosi being interviewed by Al Hunt on Charlie Rose the other night. Hunt
asked her about Yellen raising rates.
Pelosi said no comment as she wasn't looking at the data Yellen was and didn't want to interfere.
The Fed should be independent, etc. Perhaps like Thoma she has the best of motives and doesn't
want to motivate the Republicans to go after the Fed and oppose what she wants.
Still I felt the Democratic leadership should be committed to a high-pressure economy. Her
staff should know what Krugman, Summers etc are saying. What the IMF and World Bank are sayings.
She should have said "they shouldn't raise rates until they see the whites of inflation's eyes"
as Krugman memorably put it. She should have said that emphatically.
We need a Democratic Party like that.
Instead Peter Diamond is blocked from becoming a Fed governor by Republicans and Pelosi is
afraid to comment on monetary policy.
Must-Read: I would beg the highly-esteemed Mark Thoma to draw a distinction here between "inappropriate"
and unwise. In my view, it is not at all inappropriate for Fed Chair Janet Yellen to express her
concern about excessive inequality. Previous Fed Chairs, after all, have expressed their liking
for inequality as an essential engine of economic growth over and over again over the past half
century--with exactly zero critical snarking from the American Enterprise Institute for trespassing
beyond the boundaries of their role.
But that it is not inappropriate for Janet Yellen to do so does not mean that it is wise. Mark's
argument is, I think, that given the current political situation it is unwise for Janet to further
incite the ire of the nutboys in the way that even the mildest expression of concern about rising
inequality will do.
That may or may not be true. I think it is not.
But I do not think that bears on my point that Michael R. Strain's arguments that Janet Yellen's
speech on inequality was inappropriate are void, wrong, erroneous, inattentive to precedent, shoddy,
expired, expired, gone to meet their maker, bereft of life, resting in peace, pushing up the daisies,
kicked the bucket, shuffled off their mortal coil, run down the curtain, and joined the bleeding
choir invisible:
Mark Thoma: Why It's Tricky for Fed Officials to Talk Politically: "I think I disagree with
Brad DeLong...
pgl -> Peter K....
"my point that Michael R. Strain's arguments that Janet Yellen's speech on inequality
was inappropriate are void, wrong, erroneous..."
DeLong is exactly right here. Strain's argument has its own share of partisan lies whereas
Yellen is telling the truth. Brad will not be intimidated by this AEI weasel.
sanjait said...
Why would Yellen not talk about inequality? It's an important macroeconomic topic and one that
is relevant for her job. It's both an input and an output variable that is related to monetary
policy.
And, arguably I think, median wage growth should be regarded as a policy goal for the Fed,
related to its explicit mandate of "maximum employment."
But even if you think inequality is unrelated to the Fed's policy goals, that doesn't stop
them from talking about other topics. Do people accuse the Fed of playing politics when they talk
about desiring reduced financial market volatility? That has little to do with growth, employment
and general price stability.
likbez -> sanjait...
I think that is a hidden principle behind attacks on FED chair. A neoliberal principle that the state should not intrude into economics and limit itself to
the police, security, defense, law enforcement and few other related to this functions. So their point that she overextended her mandate is an objection based on principle. Which
can be violated only if it is used to uphold neoliberalism, as Greenspan did during his career
many times.
Sandwichman said...
I think I disagree with Mark Thoma's disagreement with Brad DeLong. Actually, ALL economic
discourse is political and efforts to restrain the politics are inevitably efforts to keep the
politics one-sided
Dan Kervick said...
This kind of debate seems to be a by-product of the contemporary obsession with having
an "independent" central bank, run according to the fantasy that there is such a thing as a neutral
or apolitical way to conduct monetary policy.
But there really isn't. Different kinds of social, economic and political values and policy
agendas are going to call for different kinds monetary and credit policies. It might be better
for our political health if the Fed were administratively re-located as an executive branch agency
that is in turn part of a broader Department of Money and Banking - no different from the Departments
of Agriculture, Labor, Education, etc. In that case everybody would then view Fed governors as
ordinary executive branch appointees who report to the President, and whose policies are naturally
an extension of the administration's broader agenda. Then if people don't like the monetary policies
that are carried out, that would be one factor in their decision about whom to vote for.
There is no reason for central banks to have the kind of independence that judicial institutions
have. Justice may be blind and above politics, but money and banking are not. Decisions in that
latter area should be no more politics-free than decisions about taxing and spending. If we fold
the central bank more completely into the regular processes of representative government, then
if a candidate wants to run on a platform of keeping interest rates low, small business credit
easy, bank profits small, etc., they could do so without all of the doubletalk about the protecting
the independence of the sacrosanct bankers' temple.
We could also then avoid unproductive wheel-spinning about that impossibly vague and hedged
Fed mandate that can be stretched to mean almost anything people want it to mean. The Fed's mandate
under the political solution would just be whatever monetary policy the President ran on.
likbez -> Dan Kervick...
"The Fed's mandate under the political solution would just be whatever monetary policy
the President ran on"
Perfect !
Actually sanjait in his post made a good point why this illusive goal is desirable (providing
"electoral advantage") although Greenspan probably violated this rule. A couple of hikes of interest
rates from now till election probably will doom Democrats.
Also the idea of FEB independence went into overdrive since 80th not accidentally. It has its
value in enhancing the level of deregulation.
Among other things it helps to protect large financial institutions from outright nationalization
in cases like 2008.
Does somebody in this forum really think that Bernanke has an option of putting a couple of
Wall-Street most violent and destructive behemoths into receivership (in other words nationalize
them) in 2008 without Congress approval ?
Dan Kervick -> Sanjait ...
Sanjait, with due respect, you are not really responding to the reform proposal, but only
affirming the differences between that proposal and the current system.
Yes, of course fiscal policy is "constrained" by Congress. Indeed, it is not just constrained by
Congress but actually made by Congress, subject only to an overridable executive branch veto. The
executive branch is responsible primarily for carrying out the legislature's fiscal directives.
That's the point. In a democratic system decisions about all forms of taxation and government
spending are supposed to be made by the elected legislative branch, and then executed by agencies
of the executive branch. My proposal is that monetary policy should be handled in the same way:
by the elected political branches of the government.
You point out that under current arrangements, central banks can, if they choose, effect large
monetary offsets to fiscal policy (or at least to some of the aggregate macroeconomic effects of
those policies). I don't understand why any non-elected and politically unaccountable branch of
our government should have the power to offset the policies of the elected branches in this way.
Fiscal and monetary policy need to be yoked together to achieve policy ends effectively. Those
policy ends should be the ones people vote for, not the ones a handful of men and women happen to
think are appropriate.
JF -> Dan Kervick...
"In a democratic system" is what you wrote.
It is more proper to refer to it as republicanism. The separation of powers doctrine, underlying
the US constitution, is a reflection of James Madison's characterization in the 51st The
Federalist Paper, and it is a US-defined republicanism that is almost unique:
"the republican form, wherein the legislative authority necessarily predominates."
- or something like that is the quote.
In the US framers' view, at least those who constructed the re-write in 1787 and were the leaders
- I'd say the most important word in Madison's explanation is the word "necessarily" - this
philosophy has all law and policy stemming from the public, it presumes that you can't have
stability and dynamic change of benefit to society without this.
Arguably, aristocracies, fascists, totalitarians, and all the other isms, just don't see it that
way, they see things as top-down ordering of society.
The mythology of the monetary theorizing and the notions about a central bank being independently
delphic has some of this top-down ordering view to it (austerianism, comes to mind). Well, I
don't believe in a religious sense that this is how it should be, nor do you it seems.
It will be an interesting Congress in 2017 when new legislative authorities are enacted to
establish clearer framing of the ministerial duties now held by the FRB.
Are FED officials scared that this will happen, and as a result they circle the wagons with their
associates in the financial community now to fend off the public????
I hope this is not true. They can allay their own fears by leading not back toward 1907, in my
opinion.
Of course, I could say where I'd like economic policies to go, and do here often, but this thread
is about Yellin and other FED officials.
I recognize that FRB officials can say things too, and should, as leaders of this nation (with a
whole lot of research power and evidence available to them their commentary on political
economics should have merit and be influential).
Thanks for continuing to remind people that we govern ourselves in the US in a US-defined
republican-form. But I think the people still respect and listen to leadership - so speak out FED
officials.
JF -> Dan Kervick...
But Dan K, then you'd de-mythologize an entire wing of macroeconomics in a wing referred to as
monetary theory based on a separate Central Bank, or some non-political theory of money.
Don't mind the theory as it is an analytic framework that questions and sometimes informs - but
it is good to step back and realize some of the religious-like framing.
It is political-economy.
Peter K. -> pgl...
Yellen really lays it out in her speech.
"The extent of and continuing increase in inequality in the United States greatly concern
me. The past several decades have seen the most sustained rise in inequality since the 19th
century after more than 40 years of narrowing inequality following the Great Depression. By
some estimates, income and wealth inequality are near their highest levels in the past hundred
years, much higher than the average during that time span and probably higher than for much of
American history before then.2 It is no secret that the past few decades of widening
inequality can be summed up as significant income and wealth gains for those at the very top
and stagnant living standards for the majority. I think it is appropriate to ask whether this
trend is compatible with values rooted in our nation's history, among them the high value
Americans have traditionally placed on equality of opportunity."
And even links to Piketty in footnote 42.
"Along with other economic advantages, it is likely that large inheritances play a role in
the fairly limited intergenerational mobility that I described earlier.42"
42. This topic is discussed extensively in Thomas Piketty (2014), Capital in the 21st Century,
trans. Arthur Goldhammer (Cambridge, Mass.: Belknap Press). Return to text
Sanjait said...
A number of commenters and authors have recently pointed out that inequality may not just
be an unrelated phenomenon to monetary policy, but actually, in part at least, a byproduct of it.
The theory is that the Fed in the Great Moderation age has been so keen to stave off even the
possibility of inflation that it chokes down the vigor of recoveries before they get to the part
where median wages start rising quickly. The result is that wages get ratcheted down with the
economic cycle, falling during recessions and never fully recovering during the recoveries.
Do I believe this theory? Increasingly, yes I do. And seeing the Fed right now decide to raise
rates, citing accelerating wage growth as one of the main reasons, has reinforced my belief.
A Boy Named Sue said...
Two Things: (i) The Fed should be open and honest about monetary policy. No one wants to
return to the Greenspan days. (ii) Brad Delong is a neoliberal hack.
A Boy Named Sue -> A Boy Named Sue...
I do admit, Delong is my favorite conservative economist. He is witty and educational, unlike
most RW hacks.
Jeff said...
As to "why risk a political backlash" in the piece, the short answer is: to invoke the
debate on whether politics or fact (science) is going to dominate. Because they can't both. See:
Romer. Let's have this out once and for all.
Presumably, Yellen and her posse know that we did not have seven years running of negative real
money market rates even during the Great Depression of the 1930s.
So after one pretension, delusion, head fake and forecasting error after another, the denizens of
the Eccles Building have painted themselves into the most dangerous monetary corner in history. They
have left themselves no alternative except to provoke a riot in the casino - the very outcome that
has filled them with fear and dread all these years.
... ... ...
But the fantastic global credit bubble summarized below has now reached its apogee. China and
the EM economies are rolling over into a debilitating deflation, thereby catalyzing the mother of
all margins calls. This time subprime is lettered in Chinese and speaks with a Portuguese accent.
... ... ...
According to Dr. Summers, the thing to do when recession strikes is to cut interest rates by 300
basis points. But even he admits it ain't going to happen this time.
Even if were technically possible
to have a negative 300 bps federal funds rate, what is already a 2016 election year gong show would
take on a whole new level of crazy. The brutally trod upon savers and retirees of American would
well and truly revolt.
Historical experience suggests that when recession comes it is necessary to cut interest rates
by more than 300 basis points. I agree with the market that the Fed likely will not be able to
raise rates by 100 basis points a year without threatening to undermine the recovery. But even
if this were possible, the chances are very high that recession will come before there is room
to cut rates by enough to offset it. The knowledge that this is the case must surely reduce confidence
and inhibit demand.
Central bankers bravely assert that they can always use unconventional tools. But there may
be less in the cupboard than they suppose. The efficacy of further quantitative easing in an environment
of well-functioning markets and already very low medium-term rates is highly questionable. There
are severe limits on how negative rates can become. A central bank that is forced back to the
zero lower bound is not likely to have great credibility if it engages in forward guidance.
Just spent the major part of my day putting together the records to file the old man's tax this
year. We have contributed mightily to the insurance industry, the pharmaceutical industry,
the medical industry and yes, a major part of our income that makes up our yearly retirement amount
has ended up in the pockets of these Wall Street bums! Therefore, I am posting this
song as a tribute to Wall Street...thanks to you guys we barely have a dime left over! Hope
you choke on your fucking bonus!
"... We had a sluggish economy during the Bush Mismanagement years. The Fed compensated by allowing an under regulated housing bubble to form. We never fixed the core problem that led to the 2001 recession. It would be foolish to try to fix the jobs problem with housing alone and I think Bondad has a point that housing is not saving us this time. ..."
"... the crucial indicator being real wage growth. ..."
"... Another problem is that we live in a bad society. Whether or not there is another recession affects the precise level of pain. But even if there is no recession the future will only be bright for a select class of socially privileged winners. For many, many Americans, the future is bleak no matter what - absent major structural political and economic changes. ..."
"... Clintons tech stock bubble popped and morphed into Bushs housing bubble. Bush thought military Keynesianism and tax cuts for the rich would help but they didnt help much. The solution is to regulate and tax the financial industry to prevent bubbles from forming. Greenspan denied its existenc ..."
"... The simple tool for reining in our excessively top-heavy financial sector is deflation! ..."
"... Its generally useful to talk about macroeconomic factors in terms of cyclical and structural factors. Its a reductionist framework, but one that IMO holds up well and is quite clarifying. So when I hear someone say something about a nebulous core problem that leads to recessions, I am very suspicious. Usually, such claims are about someones hobby horse structural issue, which may or may not be important, but is generally not the cause of recessions. ..."
We had a sluggish economy during the Bush Mismanagement years.
The Fed compensated by allowing an under regulated housing bubble to form.
We never fixed the core problem that led to the 2001 recession.
It would be foolish to try to fix the jobs problem with housing alone and I think Bondad has a
point that housing is not saving us this time.
cawley said in reply to bakho...
Agreed. Also with the crucial indicator being real wage growth.
ken melvin said in reply to bakho...
Yup, housing is the effect, not the cause.
RC AKA Darryl, Ron said in reply to ken melvin...
Exactly!
New Deal democrat said in reply to bakho...
Thanks.
My post at Bonddad was an elaboration on a comment I made here two days ago. I had been
meaning to reply to CR last year when he made the same argument, but never got around to it.
In fairness, I think Bill makes an excellent case that we won't have another recession brought
about by a housing bubble, and/or too much consumer leverage any time soon. But there are plenty
of other reasons why the economy might tip back into recession, as comments here have already mentioned.
Dan Kervick said in reply to New Deal democrat...
Another problem is that we live in a bad society. Whether or not there is another recession affects
the precise level of pain. But even if there is no recession the future will only be "bright" for
a select class of socially privileged winners. For many, many Americans, the future is bleak no matter
what - absent major structural political and economic changes.
Dan Kervick said in reply to JF...
Well I said the prospects are bleak only absent major structural political and economic changes.
And they are. American society is killing off whole classes of people. The prisons are full; there
are epidemics of substance abuse going on, and rising suicide rates. The Financial Times reported
today Even if there is no recession, that just means that these people are not also laid off, and
can trudge back and forth every day from their Wal-Jobs to their hardscrabble communities, slums
and trailer parks and afford more booze to drink themselves to death or buy lottery tickets to win
imaginary pots of gold that will never come, and to have a functioning TV so they can watch people
scream at each other all night. Oh, and the prices of hookers and drugs are down. Bright times!
Why should any of these people care what the "Bonddad" thinks about how bright the future is for
people who ... well, own bonds; or who party in Manhattan and Silicon Valley with their fortunes;
or who make use of their abundant low-anxiety leisure to talk to their college chums all day in the
establishment punditariat?
The up and down cyclical motions of the pretty horsies going up and down mean little to the people
who sleep in the dark machinery underneath the merry-go-round.
If US society keeps its basic overall shape, the future isn't bright. But it does contain just
enough glare to make sure that the party boys with their ever-evolving fashion lines of fancy sunglasses
will continue not to see half of the world.
Dan Kervick said in reply to Dan Kervick...
Incomplete sentence. I meant to say, "The Financial Times reported today on the further hollowing
out of the US middle class and growing income stratification."
Yes. Net Wealth of US residents is nearly $85 T with an annual flow of economic activity over $17
T.
We have a rising population, not a declining one.
We produce more food than we can eat and have access to immense energy sources.
And we have one of the better judicial systems and at least historically a governing set of institutions
that brings up to the pragmatic middle that has made sound currency and nationwide payment systems,
lots of supportive infrastructure including some good literacy levels from the educational system
part of it.
We can do better, but I'd take the US over any other place (we even have a moderate climate).
This election might change my thinking on this last point about taking the US over say Canada
- but I think I'll be happy to remain.
Yes, I went through some of the same thoughts when we reelected Bush-Cheney. But here I am.
Dan Kervick said in reply to JF...
JF, I agree that the aggregates and net numbers are great. But our cruel, stratified, inegalitarian
social system is the problem. The way those aggregate quantities are spread out over the population
is a global scandal.
America is good for me too, personally. My wife and I live in a well-off upper
middle class community in New Hampshire. Very good schools, no crime to speak of, a town full of
healthy and advantaged kids 95% bound for colleges. We had and still do have various recession-related
anxieties, but they are the anxieties most people in the world only dream of.
But my life isn't America. It's a privileged and charmed part of it. If I get pulled over by a
policeman for driving a bit too fast, I just get a courteous and smiling warning from Officer Friendly.
Many others run a good chance of getting tasered, shot or sodomized in a police station. And that's
just the tip of the iceberg of the savage inequalities.
The Future is Bright . . . or perhaps not By New Deal democrat
[ Really nicely done. ]
Peter K. said in reply to bakho...
Clinton's tech stock bubble popped and morphed into Bush's housing bubble. Bush thought military Keynesianism and tax cuts for the rich would help but they didn't help much. The solution is to regulate and tax the financial industry to prevent bubbles from forming. Greenspan
denied its existence.
The solution is not to raise interest rates in a depressed economy.
As DeLong has written the housing bubble was deflating and housing jobs were being replaced by
export jobs.
Then the whole thing short-circuited with the financial crisis.
At the time the Fed was passively tightening over inflation concerns.
Peter K. said in reply to Peter K....
Another solution is more fiscal policy so that monetary policy doesn't carry all of the burden.
Tax cuts for the rich isn't good fiscal policy.
pgl said in reply to Peter K....
Greg Mankiw links to some report on the effects of the Jeb! tax cuts but does not comment (Krugman
did comment in this report). I followed the link and read the abstract. It is not exactly what Mankiw
usually says about the wonders of tax cuts for rich people.
Peter K. said in reply to pgl...
I avoid Mankiw's website. No comments.
:D
Interesting though. Didn't Krugman blog that the report backs up his (everyone's) claims?
pgl said in reply to Peter K....
Krugman did. Abstract of the report and Krugman's comment below. I just found it funny that Mankiw
gave a hat tip to something that I doubt he even read first. I guess Greg is getting a lot like JohnH
in that way.
Peter K. said in reply to pgl...
"I guess Greg is getting a lot like JohnH in that way."
So much trolling to do, so
little time. It's hard to keep up with all the misinformation.
PPaine said in reply to Peter K....
Pay roll tax cuts and increased retirement payments
Plus a greatly expanded earned income subsidy aka tax credit
These are job class macro moves
Bernie gets this
Hillary ???
PPaine said in reply to PPaine ...
The fed needs to be captured first before we can rely on. It to operate in sync with a pro job class
macro policy
ilsm said in reply to PPaine ...
ARAMCO and the pentagon need the cash!
Norovirus said in reply to Peter K....
"tax the financial industry to prevent"
~~Peter K~
When you need less of something, tax it. This will shift the supply/price/demand curve
of financial "services". We need more of sawmills but less of banks, brokers and quants. Production
we need. Casino we don't need. Hell!
If you want casino then go to Vegas -- more bells and whistles for you money!
Guten fahrt !
Laundry Bank & Trust said in reply to Norovirus...
Most efficient way to tax financial services is a simple tool.
"simplicity is the meaning of life. " ~~Ockham's axiom~
" Simplicity is more sustainable than complexity. " ~~Ockham's first theorem~
The simple tool for reining in our excessively top-heavy financial sector is
deflation!
sanjait said in reply to bakho...
It's generally useful to talk about macroeconomic factors in terms of "cyclical" and "structural"
factors. It's a reductionist framework, but one that IMO holds up well and is quite clarifying.
So when I hear someone say something about a nebulous "core problem" that leads to recessions, I
am very suspicious. Usually, such claims are about someone's hobby horse structural issue, which
may or may not be important, but is generally not the cause of recessions.
PPaine said in reply to sanjait...
Well a chronic trade deficit And. Spontaneous over accumulation are clearly structural problems that may well require significant if varying
full employment budget deficits over the whole cycle
The inter action of structural and cyclical requires composite macro policy programs using multiple
instruments
The dollar should stay at the assumed long run balanced trade forex thru out the cycle Over accumulation suggests a ceiling of zero real for the policy rate
Etc etc
Sanjait said in reply to PPaine ...
Rich developed countries are supposed to have a chronic trade deficit.
But sure, let's humor that
concern for a sec:
What then, do you claim, is the structural factor that causes chronic trade deficits? This should
be interesting.
RC AKA Darryl, Ron said...
RE: The Evolution of Work
[This piece is sort of like the David Warsh broad brush economic history
short form pieces except that it is focused purely on the plight of the proletariat instead of elites.]
RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron...
Dani Rodrik seems to be on the side of the weebles.
ken melvin said in reply to RC AKA Darryl, Ron...
Are we still evolving?
RC AKA Darryl, Ron said in reply to ken melvin...
Yep. Evolution never seems to be happening when most of what one sees is within their own generation,
sort of by definition. What the millennials are evolving into is something I want to learn, but have
not had the chance to duly observe for myself yet. Jealousy between my current wife and the mother
of my children created an atmosphere too tedious for my current wife to be subjected to. You should
know though that I am not the father of my children either. I just raised them from 4, 6, and 12.
Husbands number one and two of the mother of my children were the biological fathers. She had no
children with husbands number three (me) nor four. She is still hunting for number five but her powder
is too wet now to fire.
So, what have you learned from your grandchildren?
From our three girls I learned that progress is mighty slow.
PPaine said in reply to RC AKA Darryl, Ron...
Yes
I love his strong advocacy for cross border labor mobility. Control the borders but increase the OECD inflow
We should set a huge quota for middle easterners
But let them in very slowly Meanwhile those that apply Get to stay in a safe area provided by lady liberty
Inside the us !
RC AKA Darryl, Ron said in reply to PPaine ...
That would trump Trump.
ilsm said in reply to PPaine ...
Wll st banks already get a cut on banking al Qaeda!
bakho said in reply to RC AKA Darryl, Ron...
Dani does not address hours worked or time off. The US has one of the worst leave policies in the developed world.
When was the last reduction in the work week? There are a lot of services that are not being provided due to lack of money. Some of the underemployed
could move into low level service jobs if other workers moved up to a higher level.
It is a failure
when large numbers of people do not have productive work. They have too little money to sustain potential
output, leaving employment far below potential. It is a vicious downward spiral. The spiral is fixed
by intervention that reverses the spiral. We have a failure of fiscal policy to address the root
problem.
Dan Kervick said in reply to bakho...
He's a development economist and his article is about work in the developing world.
RC AKA Darryl, Ron said in reply to bakho...
We have a lot of failures and I don't have time enough to make a full list. Changing stuff requires
political action on behalf of and usually orchestrated by those that have the needs that require
addressing. We need massive working class majority electoral solidarity. Until then the political
establishment is safe to treat us as second rate constituents and focus on the desires of the elite.
JF said in reply to bakho...
The Tim Taylor piece is helping to remind people to focus more attention on economic policies related
to work practices being seen in society. More talk about this the better.
My two cents, is that
society is better when people are hired for stable, full-time jobs. All kinds of definitional matters
attend to just saying this, but I still think it needs to be a predominating focus. Society wants
more people to have full-time jobs, however you define full-time. So we need to watch developments
in the gig economy carefully.
By predominating full-time employment as a policy-making factor, I'd say this view means that
in serious downturns, for instance, we do not want govts eliminating full time, stable jobs if we
can somehow do fiscal sharing to avoid this as much as can be done.
The largest employer segment in the US (well at least it used to be bigger than retail, last time
I studied this) is state and local govt employment. These employers don't pay out of whack high-salaries
and for the most part the hiring has had a stable and proportional growth rate (political bosses
in the US don't hand out jobs to create voters much anymore). These employers create floors in the
labor marketplace and this forces other employers to compete on stability factors and on the notion
of being full-time. I think we want this type of competition.
The right-wing Machiavelli ones understand this dynamic and that is why they are very happy to
undermine govt employment (cut it, they are lazy anyway, ugh-bureaucrats don't do real things, etc.)
- they don't want the competition as it raises the costs of their decades long control over wages.
But any employer offering stability and full-time jobs - this is good, and economic policies for
our society ought to take this into account as a predominating factor.
sanjait said in reply to JF...
Hey JF.
I didn't have time to write up a solid reply the other day, but I did want to eventually
respond to your question and comments about whether the central bank has control of long term interest
rates ("it's own instruments...") through purchases.
My quick answer:
It influences their prices, but not through inducing scarcity. That is because, unlike commodities,
securities are not priced based on their scarcity, they are priced based on their expected returns.
So when the Fed buys $40b in bonds per month, in a $500+b per month liquid market, it's hardly
going to move the price.
But, the Fed does influence long term bond rates both by modulating the entire money supply and
by setting expectations for how it will modulate the money supply in the future (aka., the reaction
function.)
One very huge observation apropos of all this: every time the Fed announced a new round of QE, longer
term bond rates went UP rather than DOWN. Why? Because it showed the Fed's reaction function was
looser than previously thought, and also they were more committed to staving off disinflation.
Though I will concede, not everyone sees it this way. Even inside the Fed many of them had a simple
model that says: buying more bonds = pushing down the price. But I get the impression they generally
abandoned that model after operation twist utterly failed to work in that way.
JF said in reply to sanjait...
OK. Yield, price, cost to the govt - not always the same thing, but each has a perspective.
Assuming
you are correct that the later QE, and I don't know myself, just assumed that the cost to the govt
of a new 10 year moderated a bit in a later QE, I think this evidence points to why they don't use
new-QEing now.
It dawned on them that its initial cost-to-govt effects, lowering interest rates, was just not
happening. So why subsidize the dealer networks and stuff more assets on to their books using electronic
entries into reserve accounts as payment when we (the FRB) have no idea what to do with assets of
this magnitude.
"... Most publicly traded U.S. companies reward top managers for hitting performance targets, meant to tie the interests of managers and shareholders together. At many big companies, those interests are deemed to be best aligned by linking executive performance to earnings per share, along with measures derived from the company's stock price. ..."
"... But these metrics may not be solely a reflection of a company's operating performance. They can be, and often are, influenced through stock repurchases. In addition to cutting the number of a company's shares outstanding, and thus lifting EPS, buybacks also increase demand for the shares, usually providing a lift to the share price, which affects other performance markers. ..."
"... Pay for performance as it is often structured creates "very troublesome, problematic incentives that can potentially drive very short-term thinking." ..."
"... As reported in the first article in this series, share buybacks by U.S. non-financial companies reached a record $520 billion in the most recent reporting year. A Reuters analysis of 3,300 non-financial companies found that together, buybacks and dividends have surpassed total capital expenditures and are more than double research and development spending. ..."
"... "There's been an over-focus on buybacks and raising EPS to hit share option targets, and we know that those are concentrated in the hands of the few, and that the few is in the top 1 percent," said James Montier, a member of the asset allocation team at global investment firm GMO in London, which manages more than $100 billion in assets. ..."
"... The introduction of performance targets has been a driver of surging executive pay, helping to widen the gap between the richest in America and the rest of the country. Median CEO pay among companies in the S P 500 increased to a record $10.3 million last year, up from $8.6 million in 2010, according to data firm Equilar. ..."
"... At those levels, CEOs last year were paid 303 times what workers in their industries earned, compared with a ratio of 59 times in 1989, according to the Economic Policy Institute, a Washington-based nonprofit. ..."
NEW YORK(Reuters) - When health insurer Humana Inc reported worse-than-expected quarterly earnings
in late 2014 – including a 21 percent drop in net income – it softened the blow by immediately telling
investors it would make a $500 million share repurchase.
In addition to soothing shareholders, the surprise buyback benefited the company's senior executives.
It added around two cents to the company's annual earnings per share, allowing Humana to surpass
its $7.50 EPS target by a single cent and unlocking higher pay for top managers under terms of the
company's compensation agreement.
Thanks to Humana hitting that target, Chief Executive Officer Bruce Broussard earned a $1.68 million
bonus for 2014.
Most publicly traded U.S. companies reward top managers for hitting performance targets, meant
to tie the interests of managers and shareholders together. At many big companies, those interests
are deemed to be best aligned by linking executive performance to earnings per share, along with
measures derived from the company's stock price.
But these metrics may not be solely a reflection of a company's operating performance. They
can be, and often are, influenced through stock repurchases. In addition to cutting the number of
a company's shares outstanding, and thus lifting EPS, buybacks also increase demand for the shares,
usually providing a lift to the share price, which affects other performance markers.
As corporate America engages in an unprecedented buyback binge, soaring CEO pay tied to short-term
performance measures like EPS is prompting criticism that executives are using stock repurchases
to enrich themselves at the expense of long-term corporate health, capital investment and employment.
"We've accepted a definition of performance that is narrow and quite possibly inappropriate,"
said Rosanna Landis Weaver, program manager of the executive compensation initiative at As You Sow,
a Washington, D.C., nonprofit that promotes corporate responsibility. Pay for performance as
it is often structured creates "very troublesome, problematic incentives that can potentially drive
very short-term thinking."
A Reuters analysis of the companies in the Standard & Poor's 500 Index found that 255 of those
companies reward executives in part by using EPS, while another 28 use other per-share metrics that
can be influenced by share buybacks.
In addition, 303 also use total shareholder return, essentially a company's share price appreciation
plus dividends, and 169 companies use both EPS and total shareholder return to help determine pay.
STANDARD PRACTICE
EPS and share-price metrics underpin much of the compensation of some of the highest-paid CEOs,
including those at Walt Disney Co, Viacom Inc, 21st Century Fox Inc, Target Corp and Cisco Systems
Inc.
... ... ...
As reported in the first article in this series, share buybacks by U.S. non-financial companies
reached a record $520 billion in the most recent reporting year. A Reuters analysis of 3,300 non-financial
companies found that together, buybacks and dividends have surpassed total capital expenditures and
are more than double research and development spending.
Companies buy back their shares for various reasons. They do it when they believe their shares
are undervalued, or to make use of cash or cheap debt financing when business conditions don't justify
capital or R&D spending. They also do it to meet the expectations of increasingly demanding investors.
Lately, the sheer volume of buybacks has prompted complaints among academics, politicians and
investors that massive stock repurchases are stifling innovation and hurting U.S. competitiveness
- and contributing to widening income inequality by rewarding executives with ever higher pay, often
divorced from a company's underlying performance.
"There's been an over-focus on buybacks and raising EPS to hit share option targets, and we
know that those are concentrated in the hands of the few, and that the few is in the top 1 percent,"
said James Montier, a member of the asset allocation team at global investment firm GMO in London,
which manages more than $100 billion in assets.
The introduction of performance targets has been a driver of surging executive pay, helping
to widen the gap between the richest in America and the rest of the country. Median CEO pay among
companies in the S&P 500 increased to a record $10.3 million last year, up from $8.6 million in 2010,
according to data firm Equilar.
At those levels, CEOs last year were paid 303 times what workers in their industries earned,
compared with a ratio of 59 times in 1989, according to the Economic Policy Institute, a Washington-based
nonprofit.
SALARY AND A LOT MORE
Today, the bulk of CEO compensation comes from cash and stock awards, much of it tied to performance
metrics. Last year, base salary accounted for just 8 percent of CEO pay for S&P 500 companies, while
cash and stock incentives made up more than 45 percent, according to proxy advisory firm Institutional
Shareholder Services.
...In 1992, Congress changed the tax code to curb rising executive pay and encourage performance-based
compensation. It didn't work. Instead, the shift is widely blamed for soaring executive pay and a
heavier emphasis on short-term results.
Companies started tying performance pay to "short-term metrics, and suddenly all the things we
don't want to happen start happening," said Lynn Stout, a professor of corporate and business law
at Cornell Law School in Ithaca, New York. "Despite 20 years of trying, we have still failed to come
up with an objective performance metric that can't be gamed."
Shareholder expectations have changed, too. The individuals and other smaller, mostly passive
investors who dominated equity markets during the postwar decades have given way to large institutional
investors. These institutions tend to want higher returns, sooner, than their predecessors. Consider
that the average time investors held a particular share has fallen from around eight years in 1960
to a year and a half now, according to New York Stock Exchange data.
"TOO EASY TO MANIPULATE"
Companies like to use EPS as a performance metric because it is the primary focus of financial
analysts when assessing the value of a stock and of investors when evaluating their return on investment.
But "it is not an appropriate target, it's too easy to manipulate," said Almeida, the University
of Illinois finance professor.
...By providing a lift to a stock's price, buybacks can increase total shareholder return to target
levels, resulting in more stock awards for executives. And of course, the higher stock price lifts
the value of company stock they already own.
"It can goose the price at time when the high price means they earn performance shares … even
if the stock price later goes back down, they got their shares," said Michael Dorff, a law professor
at the Southwestern Law School in Los Angeles.
Exxon Corp, the largest repurchaser of shares over the past decade, has rejected shareholder proposals
that it add three-year targets based on shareholder return to its compensation program. In its most
recent proxy, the energy company said doing so could increase risk-taking and encourage underinvestment
to achieve short-term results.
The energy giant makes half of its annual executive bonus payments contingent on meeting longer-term
EPS thresholds. Since 2005, the company has spent more than $200 billion on buybacks.
ADDITIONAL TWEAKS
While performance targets are specific, they aren't necessarily fixed. Corporate boards often
adjust them or how they are calculated in ways that lift executive pay.
"... EIA forecasts that Brent crude oil prices will average $53/b in 2015 and $56/b in 2016. Forecast West Texas Intermediate (WTI) crude oil prices average $4/b lower than the Brent price in 2015 and $5/b lower in 2016. ..."
EIA forecasts that Brent crude oil prices will average $53/b in 2015 and $56/b in 2016. Forecast
West Texas Intermediate (WTI) crude oil prices average $4/b lower than the Brent price in 2015 and
$5/b lower in 2016. The current values of futures and options contracts for March 2016 delivery (Market
Prices and Uncertainty Report) suggest the market expects WTI prices to range from $30/b to $63/b
(at the 95% confidence interval). ...
The monthly average price of U.S. regular retail gasoline was $2.16/gallon (gal) in November, a
decrease of 13 cents/gal from October and 75 cents/gal lower than in November 2014. EIA forecasts
U.S. regular gasoline retail prices to average $2.04/gal in December 2015 and $2.36/gal for 2016.
This important event falls at a peculiar time–less than 48 hours before the largest option
expiry in many years," wrote Kolanovic, noting that $1.1 trillion worth of Standard & Poor's
500-stock index options–of which $670 billion are puts–will expire on Dec. 18. Roughly one-third
of the puts poised to expire are at or near the money, with strike prices from 1,900 to 2,050.
"Clients are net long these puts and will likely hold onto them through the event
and until expiry," the strategist wrote. "At the time of the Fed announcement, these put options
will essentially look like a massive stop loss order under the market."
When a put is close to expiry, the writer of the option becomes a seller of the
underlying security as it hits the strike price in order to mitigate the exposure. Thus, a
negative reaction in the S&P 500 index to the Fed decision could trigger a wave of forced
selling, potentially agitating markets.
No one knows better than Kolanovic how systematic selling can amplify price
changes in financial markets.
However, it's fair to quibble with the premise: Is Janet Yellen really monitoring open interest
in options linked to the S&P 500?
...Seriously though, aren't HYG's always the canary in the coal mine...... No better buzzer
for an incomming slowdown.
anti Oligarchy
I work right in the thick of the real economy... construction / utility / etc. It is
happening right now on the ground floor, sales are drying up, inventories going up. It is as
serious as you are projecting in these articles.
Paint By Number
My experience exactly. The industrial market (except for the flash in the pan oil boom) has
been struggling since 2008. But something changed in September/October of this year. I can't
tell you how many times I've heard "it's like someone flipped a switch."
Most people have no idea of how many highly technical and specialized products (valves,
cables, pumps, transformers, special alloy components) are keeping electricity, gas, and water
going to their homes. Many of these manufacturers are teetering on the edge. If this situation
does not change for the better in the next few months we will begin to see major and
spectacular failures in our infrastructure.
I can't overstate the potential devastating social and environmental chaos. It's all great
fun to talk about popcorn and watching bankers jump from the 14th floor, but if the lights go
out and don't come back on, there won't be much laughing.
kelley805
J.P. Morgan analysts wrote that the three best leading indicators for recession have been
credit spreads, the shape of the yield curve and profit margins.
Here are some signs of a coming recession.
1. Investors in high-yield bonds are expecting to see their first negative return since the
start of the credit crisis in 2008.
"... We have so messed with market forces and reporting and baselines and seasonal adjustments that all the old metrics are useless. Weve also financialized everything. That means velocity. It means contagion. It means liquidity freezes. You know the list. The speed at which the next recession arrives will render any prediction useless except to historians. ..."
"... .... so, now we have an unduly enlarged glut of savings chasing an ever dimming prospect of profit. .... ultimate fiat trapped in a ponzi. ..."
Note: I've made one recession call since starting this blog. One of my
predictions for 2007 was a recession would start as a result of the housing bust (made it by
one month - the recession started in December 2007). That prediction was
out of the consensus for 2007 and, at the time,
ECRI was saying a "recession is no longer a serious concern". Ouch.
For the last 6+ years, there have been an endless parade of incorrect recession calls. The most reported
was probably the multiple recession calls from ECRI in 2011 and 2012.
... ... ...
Also on Friday I posted an excerpt from a Citi's research piece also suggesting a 65% chance of
a recession in 2016.
[A] statistical approach is shown in Figure 46 and highlights the cumulative probability of a
recession based on data from 1970-14 across US, UK, Germany and Japan. As the U.S. economy enters
year seven, the cumulative probability of a recession in the next year rises to 65%.
This is just an historical statistical approach based on elapsed time.
Looking at the economic data, the odds of a recession in 2016 are very low (extremely unlikely in
my view). Someday I'll make another recession call, but I'm not even on recession watch
now.
Rob_Dawg
We have so messed with market forces and reporting and baselines and seasonal adjustments
that all the old metrics are useless. We've also financialized everything. That means velocity.
It means contagion. It means liquidity freezes. You know the list. The speed at which the next
recession arrives will render any prediction useless except to historians.
sum_luk
Rob_Dawg:
all the old metrics are useless.
.... so, now we have an unduly enlarged glut of savings chasing an ever dimming prospect
of profit. .... ultimate fiat trapped in a ponzi.
sum_luk
Rajesh:
I don't expect the U.S. economy to boom except on a relative basis.
... of course, Janet's theory is domestic US will carry on despite the fact that a strong dollar
makes for cheap imports.
Rob_Dawg
Eventually China will have a shadow banking crisis that will leave the rest of the world with
the problem of deciding how much to contain it. Very dangerous. 2016? No way of telling.
sm_landlord
Rajesh
I'm with you on that, Rajesh. To the extent that I'm doomy about the macro economy, it's mostly
about the rest of the world. The US looks to do far less well than it could, but so far, it doesn't
look like a US recession is imminent.
On the middle/micro level, I see a lot of government spending on things like street/road maintenance,
which should prop some things up. Also, auto traffic seems to be back to pre-GR levels. Based
on my recent visit to SM, anyway, most of the downtown area is approaching gridlock for much of
the day again...
Can't say the risk is zero, though, because I still see a lot of fragility and testing of limits.
Cinco-X
Rajesh:
My no recession call for 2015 is looking good. I'm making a no recession in 2016 call
now.
I was in Walmart on Friday evening picking up a prescription, and the place was a ghost town.
Drove by Best Buy the previous evening and the parking lot was about 25% full
yuan
sm_landlord:
The US looks to do far less well than it could, but so far, it doesn't look like a US
recession is imminent.
Umm...so pretty much business as usual since 2008 (and the republican plan to sabotage obummers
by opposing anything that might benefit working class 'merkins).
Early on in the housing bubble, Bill made a number of comments about bubbles using a plot
of Household Net Worth to GDP ratio. Early on, he wrote that the ratio had been stable for
nearly 50 years. He then changed his tune and started talking about a gradual increase since
the 70's.
Here's the raw data series.
CitizenAllenM
Funny how the Boomer generation peak is going to change the economics of so much, just like
I predicted.
I also predict a stunning comeback for Wal-Mart as the cost of living cuts really get going, and
the Social Security Day Sales and Foodstamp sales kick off the monthly sales.
The America of limited everything, as free riders are eliminated.
Now, have you written off your skybox for 2015?
LoL- business has so much fat they will need to cut to survive the increase in poverty that will
be the boomer retirement.
Already planning to shed vehicles as fast as Google Cars become available in 10 years
Yup, $250 bucks for the middle class 1950s fantasy item!
Can't really give them away- Upright Pianos are the worst- worth more as parts for creative reuse
than as instruments.
Grand Pianos still have some marginal value- unless a decent name brand and in excellent condition.
One of my friends was talking about how valuable the family Steinway was, and I told them to contact
the local piano dealer to get an idea of the value, and then see how much it was going to cost
to have shipped down from Minnesota- after she made the calls she decided it was no prize and
stopped negotiating for it in the estate settlement :wink:
Technology is ruthlessly destroying mass books next, along with vinyl records, dvds, cds, etc.
8 tracks are worthless, cassette tapes even more worthless.
"... The international Commission on the Measurement of Economic Performance and Social Progress, which I co-chaired and on which Deaton served, had earlier emphasized that GDP often is not a good measure of a society's wellbeing. These new data on white Americans' declining health status confirms this conclusion. The world's quintessential middle-class society is on the way to becoming its first former middle-class society. ..."
The basic perquisites of a middle-class life were increasingly beyond the reach of a growing
share of Americans. The Great Recession had shown their vulnerability. Those who had invested in
the stock market saw much of their wealth wiped out; those who had put their money in safe
government bonds saw retirement income diminish to near zero, as the Fed relentlessly drove down
both short- and long-term interest rates. With college tuition soaring, the only way their
children could get the education that would provide a modicum of hope was to borrow; but, with
education loans virtually never dischargeable, student debt seemed even worse than other forms of
debt.
... ... ...
The international Commission on the Measurement of Economic Performance
and Social Progress, which I co-chaired and on which Deaton served, had earlier
emphasized that GDP often is not a good measure of a society's wellbeing. These new data on
white Americans' declining health status confirms this conclusion. The world's quintessential
middle-class society is on the way to becoming its first former middle-class society.
The key idea of neoliberal university if to view students as customers and the degree as a product
to sell.
Notable quotes:
"... The university of North Carolina at Chapel Hill now faces one year of probation from the Southern Association of Colleges and Schools Commission on Colleges as a result of a report that documents " widespread and long-lasting academic fraud at the university ." ..."
"... Students are increasingly perceived as customers ..."
"... the "product" the university is selling as a degree rather than an education, so it does seem counter productive to risk losing a customer for something so insignificant as failing to go to class. ..."
"... Today's college students may be ignorant, but they aren't stupid. They take the measure of an institution pretty quickly. They can smell hypocrisy, and if they have to pay tens of thousands of dollars a year for the dubious privilege of uninterrupted olfactory assault, they'll very likely develop the moral equivalent of olfactory fatigue. ..."
It isn't only athletes who get the benefit of such "no-show" courses. Small academic programs
and departments struggling to survive occasionally come up with such courses as a way of boosting
their numbers of majors. Even Harvard is now having to grapple with the question of whether their
"General
Education" program has had the effect of encouraging students to take easy courses.
Universities will bend over backwards not to fail a student–so long as he or she is actually paying
tuition. I know of a case of a professor who was told by the director of the program in which the
professor teaches to "take some responsibility" for the fact that some of this professor's students
were failing a course. Apparently, the professor was expected to find a way to ensure that all
the students passed the course. Fortunately, the professor is tenured, and hence had to freedom to
refuse to do more than to try to help the students actually LEARN the material. Would an adjunct
have felt free to do the same thing?
Students are increasingly perceived as customers and some administrators, and even some faculty,
appear to conceive the "product" the university is selling as a degree rather than an education,
so it does seem counter productive to risk losing a customer for something so insignificant as failing
to go to class.
Failing to pay tuition, however, is a different matter. Faculty are sometimes instructed not to
allow students to attend courses if they have not paid their tuition by the beginning of the term
(which, because of the glacial slowness of some financial aid programs, is frequently a problem).
There's been a lot of discussion recently about how
all students need to be
taught ethics in college. Of course you can't require everyone to take the standard ethics class
that is taught in the philosophy department. That would be too much work. If you suddenly are going
to require that everyone at your university take ethics, well, you'd better dumb it down, so students
won't object.
Keep it rigorous, or dumb it down, requiring students to take an ethics course is unlikely to
make them more ethical. The thing is, you rarely make people ethical by teaching them ethics. You
can help them to better understand the complexities of some ethical dilemmas and you can arm them
with theoretical language they can use to defend choices they probably would have made anyway, but
that doesn't make them better people so much as it makes them happier people.
Moral character is largely formed by the time students enter college. It isn't entirely formed,
of course, so what happens to students in college can affect their moral development. People
are so profoundly social that they continue to develop their conceptions of what is acceptable behavior
throughout their entire lives. Aristotle recognized that. That's why he asserted that ethics was
a subset of politics. If you want people to behave well, you have to organize your society in such
a way that it sends a clear message concerning the behavior it approves of and the behavior it condemns.
If the leaders of a given society want people to be honest and responsible, then they have to exemplify
these character traits themselves, and then reward citizens who emulate their example.
Universities would do a much better job of shaping students' characters in positive ways if instead
of requiring students to take dumbed-down ethics classes, they gave a damn about ethics themselves,
if they cared more about actually delivering the product they purport to be selling, rather than
giving mere lip service to it. Many universities are now delivering degrees that are effectively
equivalent to the indulgences sold by the Catholic church in the middle ages: expensive, but otherwise
meaningless, pieces of paper.
Today's college students may be ignorant, but they aren't stupid. They take the measure of an
institution pretty quickly. They can smell hypocrisy, and if they have to pay tens of thousands of
dollars a year for the dubious privilege of uninterrupted olfactory assault, they'll very likely
develop the moral equivalent of olfactory fatigue. The message that, sadly, is all too often driven
home to students today is that none of the traditional human values that educational institutions
purport to preserve and foster, including learning in the broadest sense, really matter. The message
they all to often receive now is that nothing really matters but money.
When capital became unable of reaping large and fairly secure profits from manufacturing it like
water tries to find other ways. It starts with semi-criminalizing finance -- that's the origin
of the term "casino capitalism" (aka neoliberalism). I see casino capitalism as a set of semi-criminal
ways of maintaining the rate of profits.
The key prerequisite here is corruption of regulators. So laws on the book does not matter
much if regulators do not enforce them.
As Joseph Schumpeter noted, capitalism is not a steady-state system. It is unstable system
in which population constantly experience and then try to overcome one crisis after another. Joseph
Schumpeter naively assumed that the net result is reimaging itself via so called "creative destruction".
But what we observe now it "uncreative destruction". In other words casino capitalism is devouring
the host, the US society.
So all those Hillary statements are for plebs consumption only (another attempt to play "change
we can believe in" trick). Just a hot air designed to get elected. Both Clintons are in the pocket
of financial oligarchy and will never be able to get out of it alive.
GeorgeK said...
I believe I'm the only one on this blog that has actually traded bonds, done swaps and hedged
bank portfolios with futures contracts. Sooo I kinda know something about this topic.
Hilary is a fraud; her daughter worked at a Hedge fund where she met her husband Marc Mezvinsky,
who is now a money manager at the Eaglevale fund. Oddly many of the Eaglevale investors are investors
in the Clinton Foundation and have also given money to Hilary's campaign. The Clinton Foundation
gets boat loads of money from Hedge funds and will not raise taxes on such a rich source of funding.
The grooms mother is Marjory Margolies (ex)Mezvinsky, she cast the final vote giving Clinton
the winning vote to raise taxes. She subsequently lost her run for reelection to congress, then
her husband was convicted of fraud and they divorced.
This speech is an attempt to pry people away from Bernie, it won't work with primary voters
but might with what's left of rational Republicans in the general election.
When capital became unable of reaping large and fairly secure profits from manufacturing it like
water tries to find other ways. It starts with semi-criminalizing finance -- that's the origin
of the term "casino capitalism" (aka neoliberalism). I see casino capitalism as a set of semi-criminal
ways of maintaining the rate of profits.
The key prerequisite here is corruption of regulators. So laws on the book does not matter
much if regulators do not enforce them.
As Joseph Schumpeter noted, capitalism is not a steady-state system. It is unstable system
in which population constantly experience and then try to overcome one crisis after another. Joseph
Schumpeter naively assumed that the net result is reimaging itself via so called "creative destruction".
But what we observe now it "uncreative destruction". In other words casino capitalism is devouring
the host, the US society.
So all those Hillary statements are for plebs consumption only (another attempt to play "change
we can believe in" trick). Just a hot air designed to get elected. Both Clintons are in the pocket
of financial oligarchy and will never be able to get out of it alive.
GeorgeK said...
I believe I'm the only one on this blog that has actually traded bonds, done swaps and
hedged bank portfolios with futures contracts. Sooo I kinda know something about this topic.
Hilary is a fraud; her daughter worked at a Hedge fund where she met her husband Marc
Mezvinsky, who is now a money manager at the Eaglevale fund. Oddly many of the Eaglevale
investors are investors in the Clinton Foundation and have also given money to Hilary's
campaign. The Clinton Foundation gets boat loads of money from Hedge funds and will not raise
taxes on such a rich source of funding.
The grooms mother is Marjory Margolies (ex)Mezvinsky, she cast the final vote giving Clinton
the winning vote to raise taxes. She subsequently lost her run for reelection to congress,
then her husband was convicted of fraud and they divorced.
This speech is an attempt to pry people away from Bernie, it won't work with primary voters
but might with what's left of rational Republicans in the general election.
The key idea of neoliberal university if to view students as customers and the degree as a product
to sell.
Notable quotes:
"... The university of North Carolina at Chapel Hill now faces one year of probation from the Southern Association of Colleges and Schools Commission on Colleges as a result of a report that documents " widespread and long-lasting academic fraud at the university ." ..."
"... Students are increasingly perceived as customers ..."
"... the "product" the university is selling as a degree rather than an education, so it does seem counter productive to risk losing a customer for something so insignificant as failing to go to class. ..."
"... Today's college students may be ignorant, but they aren't stupid. They take the measure of an institution pretty quickly. They can smell hypocrisy, and if they have to pay tens of thousands of dollars a year for the dubious privilege of uninterrupted olfactory assault, they'll very likely develop the moral equivalent of olfactory fatigue. ..."
It isn't only athletes who get the benefit of such "no-show" courses. Small academic programs
and departments struggling to survive occasionally come up with such courses as a way of boosting
their numbers of majors. Even Harvard is now having to grapple with the question of whether their
"General
Education" program has had the effect of encouraging students to take easy courses.
Universities will bend over backwards not to fail a student–so long as he or she is actually paying
tuition. I know of a case of a professor who was told by the director of the program in which the
professor teaches to "take some responsibility" for the fact that some of this professor's students
were failing a course. Apparently, the professor was expected to find a way to ensure that all
the students passed the course. Fortunately, the professor is tenured, and hence had to freedom to
refuse to do more than to try to help the students actually LEARN the material. Would an adjunct
have felt free to do the same thing?
Students are increasingly perceived as customers and some administrators, and even some faculty,
appear to conceive the "product" the university is selling as a degree rather than an education,
so it does seem counter productive to risk losing a customer for something so insignificant as failing
to go to class.
Failing to pay tuition, however, is a different matter. Faculty are sometimes instructed not to
allow students to attend courses if they have not paid their tuition by the beginning of the term
(which, because of the glacial slowness of some financial aid programs, is frequently a problem).
There's been a lot of discussion recently about how
all students need to be
taught ethics in college. Of course you can't require everyone to take the standard ethics class
that is taught in the philosophy department. That would be too much work. If you suddenly are going
to require that everyone at your university take ethics, well, you'd better dumb it down, so students
won't object.
Keep it rigorous, or dumb it down, requiring students to take an ethics course is unlikely to
make them more ethical. The thing is, you rarely make people ethical by teaching them ethics. You
can help them to better understand the complexities of some ethical dilemmas and you can arm them
with theoretical language they can use to defend choices they probably would have made anyway, but
that doesn't make them better people so much as it makes them happier people.
Moral character is largely formed by the time students enter college. It isn't entirely formed,
of course, so what happens to students in college can affect their moral development. People
are so profoundly social that they continue to develop their conceptions of what is acceptable behavior
throughout their entire lives. Aristotle recognized that. That's why he asserted that ethics was
a subset of politics. If you want people to behave well, you have to organize your society in such
a way that it sends a clear message concerning the behavior it approves of and the behavior it condemns.
If the leaders of a given society want people to be honest and responsible, then they have to exemplify
these character traits themselves, and then reward citizens who emulate their example.
Universities would do a much better job of shaping students' characters in positive ways if instead
of requiring students to take dumbed-down ethics classes, they gave a damn about ethics themselves,
if they cared more about actually delivering the product they purport to be selling, rather than
giving mere lip service to it. Many universities are now delivering degrees that are effectively
equivalent to the indulgences sold by the Catholic church in the middle ages: expensive, but otherwise
meaningless, pieces of paper.
Today's college students may be ignorant, but they aren't stupid. They take the measure of an
institution pretty quickly. They can smell hypocrisy, and if they have to pay tens of thousands of
dollars a year for the dubious privilege of uninterrupted olfactory assault, they'll very likely
develop the moral equivalent of olfactory fatigue. The message that, sadly, is all too often driven
home to students today is that none of the traditional human values that educational institutions
purport to preserve and foster, including learning in the broadest sense, really matter. The message
they all to often receive now is that nothing really matters but money.
JKF? I didn't know that the historian John King Fairbank was assassinated.
roadrider
Then I guess you have solid evidence to account for the actions of Allen Dulles, David Atlee
Phillips, William Harvey, David Morales, E. Howard Hunt, Richard Helms, James Angleton and other
CIA personnel and assets who had
1) perhaps the strongest motives to murder Kennedy
2) the means to carry out the crime, namely, their executive action (assassination) capability
and blackmail the government into aiding their cover up and
3) the opportunity to carry out such a plan given their complete lack of accountability to
the rest of the government and their unmatched expertise in lying, deceit, secrecy, fraud.
Because if you actually took the time to research or at least read about their actions in this
matter instead of just spouting bald assertions that you decline to back up with any facts you
would find their behavior nearly impossible to explain other than having at, the very least, guilty
knowledge of the crime.
Ruby claimed he was injected with cancer in jail, which ultimately rendered his second trial
(after winning appeal overturning his death sentence) moot. It sounded crazy, but so did the
motive proffered at his first trial-- that he wanted to save Mrs. Kennedy the anguish...
that is such an amazing story.. i've yet to watch the video of Lyndon Johnson's swearing in
- where Marr states he's seen to be winking and smiling etc -
those who wish - Pick it up at around 12 minutes. actually in that lecture he may
well be showing videos of it - I wdn't know cos just listen to the audio.
Make a note of the names - rising stars in the I'm "left"
but I'm not a conspiracist gaggle - ist a standard gaggle -
Chomsky, Monbiot are in it ( to win it of course - their
fabled "socialist" kingdom" ) - yeah yeah its BritLand so
yeah why I care I suppose.
"... "The problem for early would - be neoclassical macroeconomists was that, strictly speaking, there was no microeconomic model of macroeconomics when they began their campaign. So they developed a neoclassical macro model from the foundation of the neoclassical growth model developed by Nobel laureate Robert Solow (Solow 1956) and Trevor Swan (Swan 2002). They interpreted the equilibrium growth path of the economy as being determined by the consumption and leisure preferences of a representative consumer, and explained deviations from equilibrium – which the rest of us know as the business cycle – by unpredictable 'shocks' to technology and consumer preferences. ..."
"... This resulted in a model of the macroeconomy as consisting of a single consumer, who lives for ever, consuming the output of the economy. Which is a single good produced in a single firm, which he owns and in which he is the only employee, which pays him both profits equivalent to the marginal product of capital and a wage equivalent to the marginal product of labor. To which he decides how much labor to supply by solving a utility function that maximizes his utility over an infinite time horizon, which he rationally expects and therefore correctly predicts. ..."
"... Paul Krugman is a quintessential neoclassical economist. Neoclassical economists threw the notion that economics should deal with empirical or factual reality overboard quite some time ago. ..."
"... Economists often invoke a strange argument by Milton Friedman that states that models do not have to have realistic assumptions to be acceptable - giving them license to produce severely defective mathematical representations of reality. ..."
"... Economists as a rule do not deny that their assumptions about human nature are highly unrealistic, but instead claim, following Friedman (1962, 1982), that the absence of realism does not diminish the value of their theory because it "works," in the sense that it generates valid predictions…. ..."
"... Most important, philosophers of science have almost universally rejected Friedman's position (Boland, 1979). It is very widely agreed that the purpose of a theory is to explain. Otherwise, [predictions] are unable to foretell under what conditions they will continue to hold or fail. ..."
"... With the advent of the Great Financial Crisis, which began in 2007 and continues to this day, the neoclassical models did fail. And they failed in the most spectacular way. ..."
"... Nevertheless, for those like Krugman who are in love with orthodox economic theory, when facts don't conform to theory, so much worse for the facts. ..."
"... It should be added that not everyone who rejects the orthodox, neoclassical theory of exogenous money creation and its "available funds" theory of banking, as Keen calls it, believes that debt matters. ..."
"... A very good example of this is the MMT school, which even though it rejects the orthodox theory of money creation, nevertheless discounts the importance of debt, or at least public debt. ..."
"... The distinction between private debt and public debt, however, is not a clear one. We all saw, for instance, the ease with which private debt was converted into public debt in the cases of Ireland and Spain in the wake of the GFC. ..."
"... The piece that VK posted by Keen was essentially a rejection of the macroeconomic theory that was formulated to replace Keynesian theory. ..."
"... The debate between these two economists on the role of banking and specifically the creation of credit is of fundamental importance in understanding the shortcomings of orthodox economic thinking – and why it was so ill-equipped to handle, let alone predict, the crash of 2008. ..."
"... However, because he has such an important platform, it matters more to many monetary economists (including the editor of this series) that he appears to lack a proper understanding of the nature of credit, and the role of banks in the economy. ..."
"... So yes debt is a big problem with a poorly regulated banking industry (financial industry really because of shadow banking). ..."
Beware Economics 101. The peer review mechanism has horribly failed.
When you read Krugman,
this is what he and our central bankers believe.
"The problem for early would - be neoclassical macroeconomists was that, strictly speaking,
there was no microeconomic model of macroeconomics when they began their campaign. So they developed
a neoclassical macro model from the foundation of the neoclassical growth model developed by Nobel
laureate Robert Solow (Solow 1956) and Trevor Swan (Swan 2002). They interpreted the equilibrium
growth path of the economy as being determined by the consumption and leisure preferences of a
representative consumer, and explained deviations from equilibrium – which the rest of us know
as the business cycle – by unpredictable 'shocks' to technology and consumer preferences.
This resulted in a model of the macroeconomy as consisting of a single consumer, who lives
for ever, consuming the output of the economy. Which is a single good produced in a single firm,
which he owns and in which he is the only employee, which pays him both profits equivalent to
the marginal product of capital and a wage equivalent to the marginal product of labor. To which
he decides how much labor to supply by solving a utility function that maximizes his utility over
an infinite time horizon, which he rationally expects and therefore correctly predicts.
The economy
would always be in equilibrium except for the impact of unexpected 'technology shocks' that change
the firm's productive capabilities (or his consumption preferences) and thus temporarily cause
the single capitalist/worker/consumer to alter his working hours.
Any reduction in working hours
is a voluntary act, so the representative agent is never involuntarily unemployed, he's just taking
more leisure. And there are no banks, no debt, and indeed no money in this model."
Prof. Steve Keen, Debunking Economics.
Dennis Coyne, 12/04/2015 at 6:11 pm
Hi VK,
No this is not what Krugman believes at all. There are some economists that think in these terms,
in the US it is primarily in the interior of the country, the economists on the east and west
coast, (this includes Krugman and many others) would not think in these terms at all.
Krugman gives assessments based on the representative agent models, with its no money, no debt,
no banks assumptions. Very linear models, no dynamic modeling.
Economic theory and modeling is stuck in the 19th century. Rest of the hard sciences, physics,
chemistry, atmospherics moved on with Poincare and later Lorenz to dynamic simulations.
The fractional reserve banking model taught in economics is absolutely empirically wrong. Because
banks have the power to create credit money, they can issue in excess.
Under the empirically correct credit money creation model, there can be an excessive build
up of debt. Hence the more than 250 sovereign and domestic govt debt crises since 1850.
Rune Likvern posted the link and I read the paper. US textbooks through 1990 covered
this exactly as in that paper, so it was a good refresher, but not different from what I had learned
in the past.
There can be excessive debt and banks can fail due to poor lending practices combined with
a severe recession. Nations can also default. The question is how much debt is too much debt.
In economics there are different opinions on this question. When I was studying economics the
focus was on public debt crowding out private debt when an economy was close to full employment.
Now there seems to be more focus on private debt, which nobody in economics used to worry about.
It may be that the lack of banking regulation and the rise of shadow banking has made this
more of a problem, I am out of date on the latest research.
U.S. Textbooks don't cover this at all. The assumption that Paul Samuelson used in his seminal
undergraduate textbook that millions have studied was the fractional reserve lending model which
is empirically false.
The whole of economics is empirically false, it would be a laughing stock if people looked
under the hood with its assumptions that are meant to preserve straight line thinking rather than
dealing with reality, which is highly non-linear and dynamic.
Private debt wasn't a concern in economics because they assumed away the role of banks to preserve
the equilibrium models. Once you incorporate reality into the models, which is what a true science
would do, you find that private debt levels matter.
What economists think: Saver lends to borrower. Saver loses purchasing power, borrower gains
purchasing power. Purchasing power hasn't changed in the economy. Just a shift
What really happens: Saver puts money in a bank, has access to his money anytime. Borrower
wants money, bank issues a credit and writes loan amount as asset. Purchasing power as a whole
increases across the economy as both saver and borrower now have money to buy goods and services
with.
That's how the economy grows – bank issuance of credit. And it can easily be in excess.
I tried to explain this to my father in law who is an attorney
specializing in finance and accounting. He simply could not accept it or even wrap his head around
it even after reading the Bank of England piece.
It is fraud plain and simple and the cost to humanity in both financial terms and lives lost
is huge.
Paul Krugman is a quintessential neoclassical economist. Neoclassical economists threw the
notion that economics should deal with empirical or factual reality overboard quite some time
ago.
Perhaps no one was more explicit in articulating this notion that science should discard
factual reality than Milton Friedman.
Any number of critics have pointed this out. For instance,
Economists often invoke a strange argument by Milton Friedman that states that models
do not have to have realistic assumptions to be acceptable - giving them license to produce
severely defective mathematical representations of reality.
–NASSIM NICHOLAS TALEB, The Black Swan
and
Economists as a rule do not deny that their assumptions about human nature are highly
unrealistic, but instead claim, following Friedman (1962, 1982), that the absence of realism
does not diminish the value of their theory because it "works," in the sense that it generates
valid predictions….
Most important, philosophers of science have almost universally rejected Friedman's
position (Boland, 1979). It is very widely agreed that the purpose of a theory is to explain.
Otherwise, [predictions] are unable to foretell under what conditions they will continue to
hold or fail.
AMITAI ETZIONI, The Moral Dimension
With the advent of the Great Financial Crisis, which began in 2007 and continues to this
day, the neoclassical models did fail. And they failed in the most spectacular way.
Nevertheless, for those like Krugman who are in love with orthodox economic theory, when
facts don't conform to theory, so much worse for the facts.
It should be added that not everyone who rejects the orthodox, neoclassical theory of exogenous
money creation and its "available funds" theory of banking, as Keen calls it, believes that debt
matters.
A very good example of this is the MMT school, which even though it rejects
the orthodox theory of money creation, nevertheless discounts the importance of debt, or at least
public debt.
The distinction between private debt and public debt, however, is not a clear one. We all
saw, for instance, the ease with which private debt was converted into public debt in the cases
of Ireland and Spain in the wake of the GFC.
Krugman does hold relatively mainstream views, but there are significant differences
of opinion within economics. Many economists reject Keynesian theory, Krugman does not. The
piece that VK posted by Keen was essentially a rejection of the macroeconomic theory that was
formulated to replace Keynesian theory. Krugman would make many of the exact same criticisms.
The "debt doesn't matter" theme is carried a little too far, nobody really argues this. The
argument is that when the economy is doing poorly due to low aggregate demand (during a severe
recession) and monetary policy is not effective because interest rates are near zero (so that
the federal funds rate cannot be lowered any further), cutting fiscal deficits is poor public
policy.
Are you unaware of the famous debate between Krugman and Keen, and what it is all about?
Perhaps this article by Ann Pettifor will help:
The debate between these two economists on the role of banking and specifically the
creation of credit is of fundamental importance in understanding the shortcomings of orthodox
economic thinking – and why it was so ill-equipped to handle, let alone predict, the crash
of 2008.
Many rightly applaud Paul Krugman for using his platform at the New York Times to defend
further fiscal stimulus in the US–against a hostile political crowd, not to mention the downright
opposition of neo-liberal economists –- and we commend him for that.
However, because he has such an important platform, it matters more to many monetary
economists (including the editor of this series) that he appears to lack a proper understanding
of the nature of credit, and the role of banks in the economy.
There are many of us who have studied beyond the introductory level. In my introductory
courses, I believe we were taught this correctly, but that was long ago, I know when I instructed
the introductory students as a grad student what I was teaching was essentially what I read in
the paper you cited. Perhaps the "textbooks" have improved over time, I haven't read an economics
textbook for many years.
Have you read any economics papers lately, perhaps there has been more progress than you think.
A fundamental problem with economics is that how we understand the workings of the economy can
affect the way people behave. People will always try to game the system and this then effects
the system. It is a difficult modelling problem not faced by chemists and physicists.
What economists think: Saver lends to borrower. Saver loses purchasing power, borrower
gains purchasing power. Purchasing power hasn't changed in the economy. Just a shift
Economists don't think this way at all. These kinds of lessons are often presented in introductory
economics courses to show how economists once thought things worked in 1803 when Say introduced
"Say's Law".
Then the economics professor goes on to explain how a modern economy actually works (which
we don't understand all that well.)
Generally speaking economic growth is considered a good thing, and banks lending to borrowers
that are likely to be able to repay the loan (not true leading up to the financial crisis due
to poor regulation and lending practices), is not a problem in a well regulated banking sector
(in the US this went away in the 1980s).
So yes debt is a big problem with a poorly regulated banking industry (financial industry
really because of shadow banking).
Debt is like a lot of things in life, too much or too little can be a bad thing.
The central bank can certainly influence the amount of lending by raising interest rates, as
long as inflation is moderate, there is not much reason to do so.
What is the service sector? Mostly software, restaurants, banks, construction companies,
retailers, doctors and hospitals.
Can an economy thrive if it doesn't make or move physical
things? Intuitively the answer is no, because most of the services mentioned above either
maintain the status quo (like healthcare and restaurants) or (like houses) consume rather
than build capital. As for banking, in its current incarnation it's almost certainly
a net negative, draining capital from productive uses and funneling it to trading desks and political
action committees.
The US, in short, is engaged in an experiment to see how long an economy can function with services
growing and manufacturing contracting. As with so many of today's monetary and fiscal
experiments, no one knows when definitive results will come in. But the data so far aren't encouraging.
Noplebian
History shows when the fiat currency system reaches it's end cycle, there is always a call
for war. This one however, will wipe out billions!
"The US, in short, is engaged in an experiment to see how long an economy can
function with services growing and manufacturing contracting."
Should read:
"The US, in short, is engaged in an experiment to see how long an economy can function with
services growing and manufacturing contracting while the MSM tells us how awesome everything
is."
toady
Another "oldy-but-a-goody". This "transition from a manufacturing to a services economy"
has been going on since before NAFTA, and it's now almost finished we'll finally get to see
what the Reagan-Bush1 voodoo economics hath wrought.
Good times!
Amish Hacker
In politics, "definitive results" do not exist. Causes and effects can be, and are, argued
and denied ad infinitum , in spite of overwhelming evidence to the contrary. For example,
Cheney & the neocons still claim they did the right thing in Iraq & Afghanistan, and proudly
boast that they would do the same thing again today. Keynesian economists will argue that they
made no mistakes over the last 8 years, we just didn't apply their prescriptions aggressively
enough. And so on.
In politics, confirmation bias is the leading cause of blindness.
The apparent decoupling turns out to be mostly a mirage. It is true that rich countries outsource
some of the more energy and materials intensive operations to poor countries, but if you count back
from consumption, the rich countries are essentially as energy and materials dependent as they ever
were. For fossil fuels, the coefficient is 90 percent…a 90 point increase in fossil fuels is needed
for a 100 point increase in GDP.
Part of what happens can perhaps be understood by thinking about beef imports. If England imports
beef from Africa, then there is a great deal of materials and energy consumed in Africa to produce
the beef. Only a small percentage of the resource used gets exported to England. If you start with
the steak in England and look back at the supply chain, you find that the consumption of the pound
of steak in England was responsible for the consumption of lots of energy and materials in Africa.
I think that 'decoupling' is not the same as energy efficiency. Suppose, for example, that we
look at the efficiency with which firewood is burned in an ordinary house. Back in the olden days,
the wood was burned in a fireplace, which is inefficient. Then Franklin invented the Franklin stove
and heating became more efficient in terms of calories of usable heat per cord of wood. But the stove
wasn't necessarily any less or more expensive than the fireplace. Since GDP essentially measures
cash outlay, the increased efficiency doesn't necessary have any direct impact on GDP.
Recently, we have begun to adjust GDP for 'hedonic factors'. Suppose, for example, that one has
an old radio with lots of static and poor sound quality. Then one buys a new radio with better sound
quality. But suppose that the price you pay for the new radio is the same as it was for the old radio.
GDP would be the same for both radios. But, recently, the US government has begun to make adjustments
for the quality of the sound.
Whether the hedonic adjustments make any sense depends on what sort of question you are trying
to answer. If you are asking 'will my radio company be able to pay our debts?', then all that matters
is your actual income. The fact that you had to improve the sound quality in order to remain competitive
is an ancillary fact. If you are not getting any more income, then paying your debts doesn't get
any easier.
In their book,
The Spirit Level: Why Greater Equality Makes Societies Stronger (link is external), Professors
Richard Wilkinson and Kate Pickett, present data taken from multiple credible sources that show
the gap between the poor and rich the greatest in the U.S. among all developed nations; child
well being is the worst in the U.S. among all developed nations; and levels of trust among people
in the U.S. among the worst of all developed nations.
The Subcommittee on International Organizations, Human Rights and Oversight of the U.S.
Congress' House Committee on Foreign Affairs stated, after examining the issue of the U.S.'s declining
image abroad, "the decline in international approval of U.S. leadership is caused largely by opposition
to the invasion of Iraq, U.S. support for dictators, and practices such as torture and rendition.
They testified that this opposition is strengthened by the perception that our decisions are made
unilaterally and without constraint by international law or standards-and that our rhetoric about
democracy and human rights is hypocritical."
The US ranks 114th out of 125 countries in international peace and security.
To those in power who believe that only strength counts, and that people are always self-interested,
I say "We tried it your way, and it didn't work. Let's try something new."
Hi Dennis,
I see up there little discussion about GDP and what it means.
Let's say:
Country A: use washable rags to clean kitchen counter-tops.
Country B: use paper towels to clean same kitchen counter-tops.
As result they both have clean
kitchen counter-tops but Country B has higher GDP due to use of paper towels.
So GDP means absolutely nothing or anything depending what you want to present.
GDP is like looking at the sunset and your mind is thinking that you are actually looking at the
sunset. But it takes 8 minutes for sunlight to reach the earth and that sun that we think we are
looking at is already gone. (Since this site is loaded with scientist they can correct me with
if that 8 minutes is more or less correct
)
Anyway, mostly GDP is used by some "smart" people we call economist to tell us some "story".
For example they tell us: "You see sunny boy that GDP is big number this year, bigger than one
from last year. So you should be content and happy. Not convinced? Don't worry we will "super
size" that GDP for you next year. Isn't your tummy already feeling full and content?"
This kind of storytelling is usually printed as financial news about GDP. Meaningless if you
ask me from the point of average citizen.
I have to go now because I have whole day of work planned for me by this economy and I will
catch you later tonight to see your thoughts. Another thing that crosses my mind is how come that
we work more or at least the same now when oil is at $40 compared to when oil was $100 last year?
Wasn't the official meme that use of oil as our biggest invention beside sliced bread, made our
life easier so we actually work less and spent more time with family & friends and doing odd staff
like canoeing
How come I don't feel that I did not get 60% discount due to price of oil in terms of work load
from the last year
Who is pocketing that 60%
How about employed folks who bought kiwi Leaf? Do they work less and have more time with family
and friends or they are paddling in the same hamster wheel we call economy?
I agree GDP is a poor measure of well being. Another example would be World War 2 where
a lot of output was created to destroy stuff (tanks, bombs, planes, ships, guns, etc), then stuff
was destroyed, cities and other infrastructure in Europe and Asia and then it was rebuilt leading
to a lot of economic growth. Were we better off? Probably not, especially the millions who died
and their families.
GDP has many problems, beyond paper towels and paper plates and other wasteful (in my opinion)
uses of resources.
I did a different chart using the human development index (HDI) from 1980 to 2013 which shows
World primary energy use per unit of HDI(a dimensionless number) has been increasing roughly linearly,
not decreasing as is the case for energy intensity.
The HDI is also far from perfect as a measure of human welfare, but probably better than GDP.
Many studies of the Eurozone crisis focus on peripheral European states' current account deficits,
or German neo-mercantilist policies that promoted export surpluses. However, German financialization
and input on the eurozone's financial architecture promoted deficits, increased systemic risk, and
facilitated the onset of Europe's subsequent crises.
Increasing German financial sector competition
encouraged German banks' increasing securitization and participation in global capital markets. Regional
liberalization created new marketplaces for German finance and increased crisis risk as current accounts
diverged between Europe's core and periphery. After the global financial crisis of 2008, German losses
on international securitized assets prompted retrenchment of lending, paving the way for the eurozone's
sovereign debt crisis. Rethinking how financial liberalization facilitated German and European financial
crises may prevent the eurozone from repeating these performances in the future.
After the 1970s, German banks' trading activity came to surpass lending as the largest share of
assets, while German firms increasingly borrowed in international capital markets rather than from
domestic banks. Private banks alleged that political subsidies and higher credit ratings for Landesbanks, public banks that insured household, small enterprise, and local banks' access
to capital, were unfair, and, in response, German lawmakers eliminated state guarantees for public
banks. Landesbanks, despite their historic role as stable, non-profit, providers of credit,
consequently had to compete with Germany's largest private banks for business. Changes in competition
restructured the German financial system. Mergers and takeovers occurred, especially in commercial
banks and Landesbanks. German financial intermediation ratios-total financial assets of
financial corporations divided by the total financial assets of the economy-increased. Greater securitization
and shadow banking relative to long-term lending increased German propensity for financial crisis,
as securities, shares, and securitized debt constituted increasing percentages of German banks' assets
and liabilities.
Throughout this period, Germany lacked a centralized financial regulatory apparatus. Only in 2002
did the country's central bank, the Bundesbank, establish the Bundenstalt für Finanzdienstleistungsaufsicht
(Federal Financial Supervisory Authority, known as BaFin), which consolidated the responsibilities
of three agencies to oversee the whole financial sector. However, neither institution could keep
pace with new sources of financial and economic instability. German banking changes continued apace
and destabilizing trends in banking grew.
German desire for financial liberalization at the European level, meanwhile, helped increase potential
systemic risk of European finance. Despite some European opposition to removing barriers to capital
and trade flows, Germany prevailed in setting these preconditions for membership in the European
economic union. Germany's negotiating power stemmed from its strong currency, as well as French,
Italian, and smaller European economies' desire for currency stability. Germany demanded an independent
central bank for the union, removal of capital controls, and an expansion of the tasks banks could
perform within the Economic and Monetary Union (EMU). The Second Banking Coordination Directive (SBCD)
mandated that banks perform commercial and investment intermediation to be certified within the EMU;
the Single Market Passport (SMP) required free trade and capital flows throughout the EMU. The SMP
and SBCD increased the scope of activity that financial institutions throughout the union were expected
to provide, and opened banks up to markets, instruments, and activities they could neither monitor
nor regulate, and hence to destabilizing shocks.
Intra-EMU lending and borrowing subsequently increased, and total lending and borrowing grew relative
to European countries' GDP from the early 1990s onward. Asymmetries emerged in capital flows between
Europe's core, particularly the UK, Germany, and the Netherlands, to Europe's newly liberalized periphery.
German banks lent increasing volumes to EMU member states, especially peripheral states. Though this
lending on a country-by-country basis was a small percentage of Germany's GDP, it constituted larger
percentages of borrowers' GDPs. In 2007, Germany lent 1.23% of its GDP to Portugal; this represented
17.68% of Portugal's GDP; in 2008, Germany lent 6% of its GDP to Ireland; this was 84% of Irish GDP.
Germany, the largest European economy, lent larger percentages of its GDP to peripheral EMU nations
relative to its lending to richer European economies. These flows, more potentially disruptive for
borrowers than for the lender, reflected lack of oversight in asset management. German lending helped
destabilize European financial systems more vulnerable to rapid capital inflows, and created conditions
for large-scale capital flight in a crisis.
Financial competition increased in Europe over this period. Financial merger activity first accelerated
within national borders, and later grew at supra-national levels. These movements increased eurozone
access to capital, but increased pressure for banks to widen the scope of the services and lending
that they provided. Rising European securitization in this period increased systemic risk for the
EMU financial system. European holdings of U.S.-originated asset-backed securities increased by billions
of dollars from the early 2000s until shortly before 2008. German banks were among the EMU's top
issuers and acquirers of such assets. As banks' holdings of these assets increased, European systemic
risk increased as well.
European total debt as a percentage of GDP rose in this period. Financial debt relative to GDP
grew particularly sharply in core economies; Ireland was the only peripheral EMU economy with comparable
levels of financial debt. Though government debt relative to GDP fell or held constant for most EMU
nations, cross-border acquisition of sovereign debt increased until 2007. German banks acquired substantially
larger portfolios of sovereign debt issued by other European states, which would not decrease until
2010. Only in 2009 did government debt relative to GDP increase throughout the eurozone, as governments
guaranteed their financial systems to minimize the costs of the ensuing financial crisis.
The newly liberalized financial architecture of the eurozone increased both the market for German
financial services and overall systemic risk of the European financial system; these dynamics helped
destabilize the German financial system and economy at large. Rising German exports of goods, services,
and capital to the rest of Europe grew the German economy, but divergence of current account balances
within the EMU exposed it to sovereign debt risk in peripheral states. Potential systemic risk changed
into systemic risk after the subprime mortgage crisis began. EMU economies would not have subsequently
experienced such pressure to backstop national financial systems or to repay sovereign loans had
German banks not lent so much or purchased so many sovereign bonds within the union. Narratives that
fail to acknowledge Germany's role in promoting the circumstances that underlay the eurozone crisis
ignore the destabilizing power of financial liberalization, even for a global financial center like
Germany.
susan the other, December 3, 2015 at 1:06 pm
This is very interesting. It describes just how the EU mess unfolded beginning in 1970 with
deregulation of the financial industry in the core. Big fish eat little fish. It is as if for
4 decades the banks in Germany compensated their losses to the bigger international lenders by
taking on the riskier borrowers and were able to do so because of German mercantilism and financial
deregulation. Like the German domestic banks loaned the periphery money with abandon, and effectively
borrowed their own profits by speculating on bad customers. As German corporations did business
with big international banksters, who lent at lower rates, other German banks resorted to buying
the sovereign bonds of the periphery and selling CDOs, etc. The German banks were as over-extended
looking for profit as consumers living on their credit cards. Deregulation enriched only the biggest
international banks. We could call this behavior a form of digging your own grave. In 2009 the
periphery saw their borrowing costs threatened and guaranteed their own financial institutions
creating the "sovereign debt" that the core then refused to touch. Hypocrisy ruled. Generosity
was in short supply. The whole thing fell apart. Deregulation was just another form of looting.
washunate, December 3, 2015 at 1:28 pm
German losses on international securitized assets prompted retrenchment of lending, paving
the way for the eurozone's sovereign debt crisis.
I agree with the general conclusion at the end that German financialization is part of the overall
narrative of EMU, but I don't follow this specific link in the chain of events as described. The
eurozone has a sovereign debt crisis because those sovereign governments privatized the profits
and socialized the losses of a global system of fraud. And if we're assigning national blame,
it's a system run out of DC, NY, and London a lot more than Berlin, Frankfurt, and Brussels.
Current and capital account imbalances cancel each other out in the overall balance of payments.
As bank lending decreases (capital account surplus shrinks) then the current account deficit shrinks
as well (the 'trade deficit'). The problem is when governments step in and haphazardly backstop
some of the losses – at least, when they do so without imposing taxes on the wealthy to a sufficient
degree to pay for these bailouts.
The OECD's Base Erosion and Profit Shifting (BEPS) initiative is an effort by the G20 to curb the
abuse of transfer pricing by multinationals.
Senator Hatch is not a fan:
Throughout this process we have heard concerns from large sectors of the business community that
the BEPS project could be used to further undermine our nation's competitiveness and to unfairly
subject U.S. companies to greater tax liabilities abroad. Companies have also been concerned about
various reporting requirements that could impose significant compliance costs on American businesses
and force them to share highly sensitive proprietary information with foreign governments. I expect
that we'll hear about these concerns from the business community and others during today's hearing.
Indeed we heard from some lawyer representing
The Software Coalition who was there to mansplain to us how BEPS is evil. I learned two startling
things. First – Bermuda must be part of the US tax base. Secondly, if Google is expected to pay taxes
in the UK, it will take all those 53,600 jobs which are mainly in California and move them to Bermuda:
in particular how the changes to the international tax rules as developed under BEPS will significantly
reduce the U.S. tax base and create disincentives for U.S. multinational corporations (MNCs) to
create R&D jobs in the United States
Yes – I find his testimony absurd at so many levels. Let's take Google as an example. When they say
foreign subsidiaries – think Bermuda. Over the past three year, Google's income has average $15.876
billion per year but its income taxes have only average $2.933 billion for an effective tax rate
of only 18.5%. How did that happen? Well – 55% of its income is sourced to these foreign subsidiaries
and the average tax rate on this income is only 6.5%. Nice deal! Google's tax model is not only easy
to explain but is also a very common one for those in the Software Coalition. While all of the R&D
is done in the U.S. and 45% of its sales are in the U.S. – U.S. source income is only 45% of worldwide
income. Very little of the foreign sourced income ends up in places like the UK even 11% of Google's
sales are to UK customers. Only problem is that income ends up on Ireland's books with the UK getting
a very modest amount of the profits. Now you might be wondering how Google got to the foreign taxes
to be only 6.5% of foreign sourced income since Ireland's tax rate is 12.5%. But think Double Irish
Dutch Sandwich and you'll get how the profits ended up in Bermuda as well as perhaps a good lunch!
But what about that repatriation tax you ask. Google's most recent 10-K proudly notes:
"We have not provided U.S. income taxes and foreign withholding taxes on the undistributed earnings
of foreign subsidiaries".
In other words, they are not paying that repatriation tax. Besides the Republicans want to eliminate.
Let's be honest – Congress has hamstringed the IRS efforts to enforce transfer pricing. The BEPS
initiative arose out of this failure. And now the Republicans in Congress are objecting to even these
efforts. And if Europe has the temerity of expecting its fair share of taxes, U.S. multinationals
will leave California and relocate in Bermuda? Who is this lawyer kidding?
Myrtle Blackwood
The development model in nation after nation is dependent upon global corporations. What is happening
is simply a byproduct of this.
Would the problem of transfer mythical corporate location and the resulting lost taxes be resolved
if taxes were based on point of revenue? Tax gross income where it is earned instead of taxing
profits where they are not earned.
"... So after the Fed created mini-crash, then a Santa Claus Bullcrap Rally, we move into year end and on to January with a smashing potential for a 10-20% rapid correction in the S P along with a Treasury market crashing in parallel and no buyers. ..."
Fascinating article Tyler. Because if the math is correct, which I believe it to be or
damned close, then the Fed is about to drain several hundred billion dollars from an illiquid
credit market leaving no bid at year end.
So after the Fed created mini-crash, then a Santa Claus Bullcrap Rally, we move into
year end and on to January with a smashing potential for a 10-20% rapid correction in the S&P
along with a Treasury market crashing in parallel and no buyers.
Shit could get real between the next two Fed meetings, that is for certain.
FireBrander
Bernanke did a little "draining" of his own; and brought down the global financial
system...
THEN "SAVED IT", AND HE WAS HAILED AS A FUCKEN HERO!
Yellen my just be trying to secure her spot on the cover of Time for "Saving Us Again".
Fish Gone Bad
In October of 2008 there was a fairly large drain of money and things got scary (https://research.stlouisfed.org/fred2/graph/?chart_type=line&height=600&...[1][id]=MULT&width=1000).
You need to distinguish "creative destruction" due to new technologies invented from "greed based" destruction
caused by financization and outsourcing... In both cases old job dissaper, but in case of
finanzition based destruction of jobs no new jobs are ever created. It's just plain vanilla wealth
transfer to upper 1% of the society.
The social instability that comes alongside creative destruction - or 'disruption' - is often justified
by the notion that unemployment effects are only temporary since in the long run a multitude of new
jobs (many of which we can't even imagine yet) will inevitably be created.
Only 0.5% of the US labor force is employed in industries that did not exist in 2000.
Even in Silicon Valley, only 1.8% of workers are employed in new industries
The majority of the 71 new 'tech' jobs relate to the emergence of digital technologies,
(such as online auctions, video and audio streaming and web design) but also include renewable
energy and biotech.
New jobs cluster in skilled cities, making economic activity increasingly concentrated
and contributing to growing regional inequalities.
This, in other words, is the reality of the new "zero to one" tech world, where moving fast and
breaking things (including jobs), then not worrying about the consequences until you're a billionaire
who can give his wealth away in one billion dollar tranches, is the acceptable norm. (Even though,
arguably, the accumulation of those billions in the first place is often the job-destroying problem.)
Dr. Frey adds the valuable commentary that:
"Because digital businesses require only limited capital investment, employment
opportunities created by technological change may continue to stagnate as economies become increasingly
digitized. Major economies like the US need to think about the implications for lower-skilled
workers, to ensure that vast swathes of people don't get left behind."
Very fair point.
Limited capital investment equals extremely low barriers to entry. This in turn equals absolutely
ruthless competition, which - somewhat ironically - leads to the "why should I bother investing in
anything at all since there's nothing in it for me in the long run" effect. The real-world equivalent,
if you will, of the Grossman Stiglitz Paradox.
As a consequence, faddy network effects - a.k.a who's first to benefit from natural monopoly formation
or old-fashioned populism by another name - increasingly mean everything, reducing successful entrepreneurial
enterprise to a simple lottery/gambling game or (at best) a highly politicised popularity contest,
wherein marketing spend stands equivalent to political campaigning outlay.
Except, whereas political campaigns pay off electorate loyalty with promises of better lives in
material terms, the most successful technology campaigns tend to do the opposite: pay off users for
network loyalty with the promises of better digital returns, at the same time as transferring a greater
share of material wealth to a tiny platform owning elite.
Indeed, because tech firms are mainly focused on redistributing existing wealth rather than creating
more of it, for them to profit, some share of real economy product must be snatched from those who
actually worked to produce it. That's Schumpeterian creative destruction in action, albeit at the
cost of producers who tend to share their profits with workforces through wages.
The lowest cost producer will always be the one with smallest human workforce.
All of which then sparks a dangerous race to the bottom focused on cutting out the most expensive
material input: the human.
What's worse, once that race starts, there's little to no incentive for anyone to invest in any
business which ever involves human capital again.
The irony is, without any beneficiary workforce within the new business structure, it's only capital
owners (or lucky billionaire charity cases) who get to benefit from the dividends created by the
system. Demand for products and services is destroyed. To wit, a vicious deflationary cycle begins,
which shrinks the pie rather than grows it.
Regarding the labour-destroying digital/tech trend, Frey and Berger's paper says specifically:
Relative to major corporations of the early computer revolution, the companies leading the
digital revolution have created few employment opportunities: while IBM and Dell still employed
431,212 and 108,800 workers respectively, Facebook's headcount reached only 7,185 in 2013.
To be blunt, that arguably means it's not looking good for three of the core Schumpeterian presumptions,
namely:
Technological disruption will eventually create jobs of equal merit elsewhere in the system
(i.e. unemployment is temporary).
Recessions lead to efficiency gains that create social well-being for all.
Successful innovation must be rewarded with a temporary monopoly if it's to continue incentivising
anyone to bear the risks of entrepreneurship.
It is, however, looking better for the Schumpeterian conclusion that eventually capitalism must
give way to socialism if it's to create a widespread commonwealth.
Why? Because, whilst it's never been easier, cheaper or less risky to grab yourself a ticket for
the 'monopoly reward' lottery - and thus more profitable when you do win - these cheap tickets are
only available to businesses redistributing existing wealth that's focused on contracting consumer
surplus as a whole.
In the digital tech era, that's at best an exercise in political-populism (marketing
spend to get consumers to support this platform rather than another, for as low a consumer surplus
cost as possible to the platform leader) and at worst an exercise in total utter randomness. Neither,
consequently, really justifies outsized rewards to any winning party.
To the contrary, if you're in the business of creating new value utilising real human workforces
or focused on creating new areas of demand, it's arguably never been more difficult, expensive or
risky to take a punt on success - and thus less profitable if you do win. And that's because the
very concept of rewarding a large workforce or consumer base with a steady, dependable and secure
consumer surplus is considered to be a fundamental competitive disadvantage.
Izabella Kaminska joined FT Alphaville in October 2008. Before that she worked as a producer at
CNBC, a natural gas reporter at Platts and an associate editor of BP's internal magazine.
"... "Firstly, Ukraine is an energy-deficient country and the tendency we observe today will continue and develop: gas production in Ukraine will decline and consumption will grow. We proceed from the assumption that the Ukrainian economy will develop successfully. The present-day level of gas consumption clearly shows that Ukraine has not solved all of its economic problems. In this regard, gas supplies to Ukraine will increase in the medium and long term. Secondly, if a merger takes place, we will load Ukraine's gas transmission system to the extent possible and it surely means additional income that is significant for the Ukrainian budget. At the same time, if the Ukrainian gas transmission system is loaded with some 95 billion cubic meters of gas per year, we know well that it may deliver 120 and even 125 billion cubic meters with a particular level of investments in modernization and reconstruction, of course. And if small investments are made in new compressor stations and pipeline loops, we may probably speak of 140 billion cubic meters of gas. However, we realize that European gas consumption will grow. According to our estimates, gas demand in Europe may grow up to 130-140 billion cubic meters of gas by the turn of 2020." ..."
"... Remember the story with biogas, wonderful – 20 per cent by 2020, and mass media start writing that it will enable escaping from dependence on Russia. Then we find out that biogas is there, together with food supply problems, etc. Then we observed the European Union's wonderful program – "20-20-20". I think, there's no need of deciphering it – everyone knows about it. And again mass media say that it will enable reducing dependence on Gazprom and Russia. The same thing is with shale gas. First, no one will cope with shale gas transportation, because it is too expensive, add transport – and it is already a business with no prospects. I have a plea for mass media – would you please stop frightening Europe, stop frightening everyone around with Russia and Gazprom. For Europe it is a real blessing that it has such a powerful neighbor with such conventional gas reserves. Exploration of non-conventionals [N.B.: Non-conventional energy resources] may end with no results, as experience of certain countries shows. So let's live in peace and friendship and contribute to strengthening Russia's contacts and ties with the European Union and Ukraine . ..."
Turkish Stream is now officially cancelled. All the eggs are now in the same basket: Nord Stream
II. Hopefully the US/UK/Baltics/Poland front will not be able to stop it. Because otherwise Russia
is stuck with Ukraine as a transit country.
Well, I don't think they want to stop it. They want the gas the same as before – they just want
it on their own terms. Brussels wants to exercise control over whose gas goes through the pipeline,
so that if they are have a "spat" with Russia, they can stop orders of Russian gas and bring some
at-this-moment-unknown supplier's gas through the same pipeline, probably Azerbaijan.
Read
this 2011 press conference with Gazprom; I found it while looking for a layman's explanation
of what the Third Energy Package actually entails. Because it appears what is most unappealing
to it from Gazprom's point of view is that it limits vital investment in gas futures, considering
it would substantially restrict long-term contracts. They could be happy with you today, buying
off your competitors tomorrow. According to Brussels, that's healthy competition which ensures
the customer gets the best price, while Gazprom naturally prefers to deal in long-term contracts
which lock the customer in, although they are usually willing to talk out a deal if it looks like
the customer is really unhappy because unhappy customers are bad for business, even in the gas
industry.
Right away, you notice that Europe accepts long-term contracts, but nonetheless takes the position
that long-term capacity supply orders upset the market. As Gazprom correctly points out, these
two views cannot reasonably coexist.
In 2011, Gazprom was still considering a joint venture with NaftoGaz Ukraine, and intended
to actually increase gas transit through Ukraine while simultaneously building South Stream. They
were also considering a merger, and Miller said if that came about, Ukrainian gas consumers would
pay the same prices as Russia. Look how far they are away from that now – funny old world, innit?
Here was Miller's vision, at the time, for a Gazprom-NaftoGaz merger:
"Firstly, Ukraine is an energy-deficient country and the tendency we observe today will
continue and develop: gas production in Ukraine will decline and consumption will grow. We
proceed from the assumption that the Ukrainian economy will develop successfully. The present-day
level of gas consumption clearly shows that Ukraine has not solved all of its economic problems.
In this regard, gas supplies to Ukraine will increase in the medium and long term.
Secondly, if a merger takes place, we will load Ukraine's gas transmission system to the extent
possible and it surely means additional income that is significant for the Ukrainian budget.
At the same time, if the Ukrainian gas transmission system is loaded with some 95 billion cubic
meters of gas per year, we know well that it may deliver 120 and even 125 billion cubic meters
with a particular level of investments in modernization and reconstruction, of course. And
if small investments are made in new compressor stations and pipeline loops, we may probably
speak of 140 billion cubic meters of gas. However, we realize that European gas consumption
will grow. According to our estimates, gas demand in Europe may grow up to 130-140 billion
cubic meters of gas by the turn of 2020."
You can see, I'm sure, why Brussels didn't like it. Under the Third Energy Package, the operator
of the gas transit system will be elected by the European Union on a tender basis. You can see,
I'm sure, why Gazprom didn't like that. If the merger between Gazprom and NaftoGaz Ukraine had
come about, Ukrainians would have paid Russian domestic prices, in a word, forever.
What Europe's position boils down to is it wants a system whereby its suppliers do not own
anything of the transit system, and the operator could be anyone depending on who sucks up to
Europe the most, so that it can make its suppliers fight with one another and be assured of the
cheapest prices. Until that magical sugar-daddy supplier appears that can provide steady and sustained
competition to Russia, Europe is not in a very good bargaining position. But you bet that would
change fast if the western alliance could get rid of Assad, partition Syria and get a Qatari gas
pipeline laid across it.
Here's a poignant reminder of what might have been, which serves to point up who are the real
troublemakers:
"Remember the story with biogas, wonderful – 20 per cent by 2020, and mass media start
writing that it will enable escaping from dependence on Russia. Then we find out that biogas
is there, together with food supply problems, etc. Then we observed the European Union's wonderful
program – "20-20-20". I think, there's no need of deciphering it – everyone knows about it.
And again mass media say that it will enable reducing dependence on Gazprom and Russia. The
same thing is with shale gas. First, no one will cope with shale gas transportation, because
it is too expensive, add transport – and it is already a business with no prospects.
I have a plea for mass media – would you please stop frightening Europe, stop frightening
everyone around with Russia and Gazprom. For Europe it is a real blessing that it has such
a powerful neighbor with such conventional gas reserves. Exploration of non-conventionals [N.B.:
Non-conventional energy resources] may end with no results, as experience of certain countries
shows. So let's live in peace and friendship and contribute to strengthening Russia's contacts
and ties with the European Union and Ukraine."
See above. It is time for Russia to lay down the law. Russia can go without the $25 billion per
year of lost revenues. But whole EU economies will crash into epic depressions without this energy
supply. In other words, the EU is looking at TRILLIONS of DOLLARS in economic damage. The Brussels
Uncle Scam cocksuckers will have to justify their actions. Russia does not have to since it is
the vendor. If you are not happy, then shop the fuck elsewhere, idiots.
"... A paper published earlier this year in Proceedings of the National Academy of Sciences proposes that even the relative decoupling we claim to have achieved is an artefact of false accounting. ..."
"... GDP is about as decoupled from energy about as much as a dog's tail is decoupled from his ass. ..."
"... I'm with Ron on this one. If for example GDP units are produced at a ratio of 1:1 for every unit of energy consumed then a graph representing this trend could perhaps have 2 superimposed lines. If efficiency gains then begin to create 2 units of GDP for every unit of energy consumed then the 2 lines on the graph will diverge. There is no decoupling. ..."
"... Javier's suggestion about debt is not correct. Really, really not correct. Debt is just accounting for various kinds of ownership and obligations. If this were the old Soviet Union, construction would happen based on a central plan, and there would be no debt at all, but there would still be GDP. ..."
"A paper published earlier this year in Proceedings of the National Academy of Sciences proposes
that even the relative decoupling we claim to have achieved is an artefact of false accounting.
It points out that governments and economists have measured our impacts in a way that seems irrational.
Here's how the false accounting works. It takes the raw materials we extract in our own countries,
adds them to our imports of stuff from other countries, then subtracts our exports, to end up
with something called "domestic material consumption". But by measuring only the products shifted
from one nation to another, rather than the raw materials needed to create those products, it
greatly underestimates the total use of resources by the rich nations.
For instance, if ores are mined and processed at home, these raw materials, as well as the
machinery and infrastructure used to make finished metal, are included in the domestic material
consumption accounts. But if we buy a metal product from abroad, only the weight of the metal
is counted. So as mining and manufacturing shift from countries such as the UK and the US to countries
like China and India, the rich nations appear to be using fewer resources. A more rational measure,
called the material footprint, includes all the raw materials an economy uses, wherever they happen
to be extracted. When these are taken into account, the apparent improvements in efficiency disappear."
VK, precisely. The US has been in a net-exergetic deficit in debt-money-based terms per capita
since the mid- to late 1960s to mid-1970s to mid-1980s, having compensated by increasing to an
unprecedented level to date debt to wages and GDP.
Moreover, the BEA-determined industry requirement costs as the basis of estimated gross and
real value-added output (what we refer to as GDP), adjusted for our net-exergetic deficit in debt-money
terms, the US has been in recession/"slow-motion depression" since Q4 2000-Q1 2001, and the world
since 2005-08.
Senior BEA, BLS, Commerce, White House economic advisors, CIA, NSA, military intelligence,
and Pentagon planners all know this in varying degrees as it relates to their imperatives and
prerogatives.
However, the mass public and most political leaders are utterly unaware, or in the case of
the latter, have no incentive to know or to share with the public what they know because they
will not be able to raise a nickel thereafter for reelection if they do share.
He told me that he and his colleagues had conducted a similar analysis, in this case of
the UK's energy use and greenhouse gas emissions, "and we find a similar pattern". One of his
papers reveals that while the UK's carbon dioxide emissions officially fell by 194m tonnes between
1990 and 2012, this apparent reduction is more than cancelled out by the CO2 we commission through
buying stuff from abroad. This rose by 280m tonnes in the same period.
GDP is about as decoupled from energy about as much as a dog's tail is decoupled from his ass.
I'm with Ron on this one. If for example GDP units are produced at a ratio of 1:1 for every unit
of energy consumed then a graph representing this trend could perhaps have 2 superimposed lines.
If efficiency gains then begin to create 2 units of GDP for every unit of energy consumed then
the 2 lines on the graph will diverge. There is no decoupling.
Only a divergence due to more units
of GDP produced per unit of energy consumed. When somebody can create units of GDP and consume
no energy at all then we will have decoupling. Coupling and decoupling are all or none terms/states
of being. You're either coupled or your decoupled. Any arguments to the contrary are pedantic
and uninformed.
Look up the meaning of decouple it is reduce or eliminate the effect of one part of
a circuit on another. In this context the appropriate meaning is reduce.
Doesn't really matter, nobody thinks that energy inputs can be eliminated, that would be absurd.
The problem is solved by looking at World output and World primary energy use.
Energy intensity for the World has improved, though during the Chinese rapid expansion from
2000-2010, the progress stopped for a decade as energy was not used very efficiently in China
over that period, since 2010 the progress has continued. Energy intensity is energy per unit of
GDP produced.
Chart below for 1965 to 2014 using World Bank(from FRED), UN, and BP data.
Left vertical axis is in metric tons of oil equivalent (toe) per millions of 2005$ of real
GDP (M2005$).
That graph shows several things mixed that have co-evolved independently, so not
many conclusions can be extracted.
-It reflects improvements in energy usage, meaning we are able to extract more economic yield
per unit of energy. This is the only real efficiency improvement.
-It reflects increase in debt, that is reflected in GDP but does not use energy. If I borrow
money GDP increases yet no energy is used.
-It reflects increase in tertiary economy at the expense of primary and secondary economies.
We pay more for services and less for resources and goods.
We don't know the contribution of each to that graph (at least I don't), but given the magnitudes
involved I would guess that the real efficiency improvement is small. This is supported by how
the graph reacts to recessions (not the Chinese expansion as you claim), indicating that the main
factor is economic, not energetic.
Now we know that debt has a limit, and once debt saturation is reached the economy, and specially
the tertiary sector would be very badly affected. If that happens we might very well see that
graph turn around and energy intensity increase.
GDP only increases if your money is spent on goods or services. It is output
of goods and services. On a World level the debts and liabilities balance, so if I save my money
and lend it to you, I spend less and you spend more. You should review your economics. At a World
level, the debt has no effect, assuming we don't have ant interstellar debts. There was a World
recession from 2000 to 2010? I hadn't heard about that.
Yes services might have increased, if that is what people want to spend their money on, then
the share of services in the economy will increase. I don't have figures on the "non-service economy".
Part of this increase reflects women entering the labor pool in greater numbers, some of the work
cleaning the house or taking care of the garden are now part of GDP when before they were taken
care of by the family. We may not have good data for the World on this effect.
I think I do understand. If I go to the bank and ask for a 200,000 $ mortgage loan,
that money is created from thin air, and when I go and pay for the house, GDP jumps by 200,000
$, so yes, increasing debt increases GDP as soon as the debt money is used. Since no oil was used
to create the money, it counts as a reduction in oil intensity. Of course if I return the money
to the bank the operation is reversed (they do keep the interests), but since on average debt
is always expanding, except during crisis periods, oil intensity is always decreasing, except
during crisis periods. Debt that is used to buy stocks or companies or to extract oil from the
ground is the same.
In most cases the debt will come first if the home is purchased with financing. It
is possible to build a home using savings, in which case there would be no debt.
So the debt is not a requirement for GDP, just creating a new house, car, or other good or
service.
Would GDP be lower if there were no debt, of course!
As long as debt grows at reasonable rates (similar to GDP growth at full employment), when
there is a recession debt will initially grow faster than GDP and then will slow down until GDP
growth catches up and surpasses the debt rate of growth.
I am curious. Do you think what Javier is saying is correct? Energy intensity has decreased
because Debt to GDP ratios have increased? I am pretty sure Javier is not right, but you are very
knowledgeable about economics. Perhaps you can explain it to me, if I am mistaken.
If all GDP was created with no debt (all of it was based on savings and income with no new
borrowing) in year 1. And in year 2 50% of income was borrowed from banks to create the same level
of GDP, would that mean in year 2 we have 150% of the first year because of the debt?
Javier's suggestion about debt is not correct. Really, really not correct. Debt is just
accounting for various kinds of ownership and obligations. If this were the old Soviet Union,
construction would happen based on a central plan, and there would be no debt at all, but there
would still be GDP.
Let's say there two houses on an island, and 2 residents, 1 in each house. One owns both houses,
the other rents from the 1st. Then the renter borrows from the owner, and buys the house he/she
lives in. Their monthly payment was rent, now it's a mortgage payment. The renter is now leveraged.
But, has anything "real" changed? No. Same amount of wealth, same amount of income, with different
kinds of ownership, and different obligations (the renter now has to fix his own roof!).
You should read up on national income accounting. Debt does not really come into
play, and more or less debt says absolutely nothing about the energy intensity of GDP.
The chart I created is primary energy in metric tons of oil equivalent divided by real GDP in
millions of 2005$. Debt plays no role.
Try the following link for a detailed introduction to national income accounting:
I still disagree. It is well known that the increase in debt has a positive effect on
GDP, while the total outstanding debt can become a drag on GDP if too high. It is difficult to
sustain that debt plays no role in GDP in light of the evidence.
For example China has had a phenomenal rate of growth accompanied by the highest rate of debt
growth that the world has seen.
I think it is easy to understand.
Country A finances everything with savings and profits without increasing debt and sees
an increase in GDP of 2%.
Country B finances half of the goods and services with an increase in debt and sees an
increase in GDP of 2%.
Both countries use the same oil so both report the same oil intensity. However country B has
brought half of the wealth used to increase the GDP from the future without bringing any future
oil. That wealth will have to be repaid eventually, detracting from future GDP but at that point
no oil will be recovered.
So in reality country B is reporting half of its real oil intensity. With present wealth it
would have grown GDP by only 1% yet it has spent the same amount of oil than A.
Net effect is that debt reduces oil intensity when it is created and it increases oil intensity
when it is payed. We have not seen that yet because we have not paid any debt yet. Debt is always
increasing.
First we need the GDP level of countries A and B, not just their growth rate. If we only talk
about the incremental increases in GDP and energy use for each country it makes a little more
sense.
So in reality country B is reporting half of its real oil intensity. With present wealth
it would have grown GDP by only 1% yet it has spent the same amount of oil than A.
What you say above is incorrect.
For simplicity I will assume if output grows by 2%, that energy use also grows by 2%, I will further
assume each country has the same GDP, we will say it is $100 million before the 2% growth in your
example.
If country B does not take on any debt and its GDP grows by 1%, then its energy use will also
grow by 1% (not by 2%) as the energy use is proportional to GDP. So the energy intensity would
remain the same. There is no reason for it to change, it depends on technology and the structural
features of the economy (proportion of agriculture, manufacturing, and services).
Another basic fact of economics is that the loans taken out by a business are to take advantage
of a business opportunity and they will tend to lead to higher growth, so your example is flawed.
If countries A and B are of similar size and similar levels of development (twins as it were),
then if country A and country B both shunned any borrowing they will both grow at the same rate,
say 2% and have the same energy intensity (energy use also grows by 2%). Let's now assume both
countries are the same except that country A's culture is such that they think debt is bad, but
country B does not have the same aversion to debt.
Country B borrows at 2% interest to take advantage of an investment opportunity which will have
a rate of return of 4%, so country B grows faster than country A at 3% and its energy use also
grows at 3% (energy intensity remains the same). The extra income earned is used to pay back the
debt and the individual businesses come out ahead earning a net profit of 2% after paying back
the interest. This is how rational businesses operate, they borrow money to make money.
I also have lots of problems with your example, so let's take a step back to look at
the big picture.
That an increase on debt increases GDP is not in doubt. It is not only supported by evidence,
but the basis for an entire economic theory that supports fighting recessions with debt-based
stimulus.
So the question is if an increase in debt increases also GDP without oil consumption as to
reduce oil-intensity. The answer is a resounding yes. Financial services are proportional to debt
increase. Net interest expenses in the financial sector are seen as production and value added
and are added to GDP. Any service charged by financial companies also increases GDP, and none
of this economic activities uses oil, and very little energy.
I believe that a significant part of oil intensity reduction has come from the financialization
of the economy linked to debt-increase, and therefore oil intensity is a fake measure of oil decoupling.
If you look at energy-intensity you see the same phenomenon as with oil. It seems that we are
decoupling from energy because we are moving towards a fake economy based on financial instruments.
Finanzialization also appears linked to raising inequality as it effect is to increase the wealth
only of owners of financial instruments.
I do not doubt that some oil and energy efficiency is real, after all it is a process that
has been going on forever since the first oven was built to cook. But I seriously doubt that it
is a process significant enough to solve an energy deficit problem which is what peak oil is going
to bring. And to me oil intensity is a fake measure of increases in oil efficiency, that I do
not doubt are real but much overstated.
Gail Tverberg has a lot more to say about decoupling GDP growth from energy growth in her article
at TOD for anybody interested in the matter:
Yes the financial sector has increased to a small degree from 4% of GDP to 8% based
on the chart you posted (which is only for the United States rather than the World).
This has probably increased to some degree (more or less than the US is unknown) at the World
level as well. This might explain a very small slice of the decrease in energy intensity, but
I doubt it accounts for most of the change.
I agree with you that changes in the structure of the World economy (higher proportion of services)
has probably decreased energy intensity, but I doubt that accounts for all of the change. The
bottom line is that the World economic system is becoming more service oriented with services
accounting for a larger share of GDP. At some point, services may reach some maximum level, in
percentage terms, beyond which they cannot go. I don't know where that level is, debt levels will
also reach some maximum level (in percentage terms) beyond which they cannot rise (maybe total
debt of 300% to 350% of GDP at a World level as a potential maximum).
When those points are reached growth may be limited by how much more efficiently we can use
energy and how quickly we can ramp up alternative energy as fossil fuel output declines. There
is much that is unknown about the future.
Note that you keep talking about oil, the chart shows primary energy (all forms of
energy used by the economic system.)
Can you explain why country B in your example uses the same amount of energy whether it grows
at 1% or 2%. One would expect that the energy use would be proportional to GDP, as that is what
the World data shows.
That is not what I said or meant. Country B by increasing GDP 1% through an increase
in debt is in essence bringing GDP from the future to the present. That borrowed GDP is using
present energy.
The financial sector has increased from 2% to 8%, a 4x increase. This is not small peanuts.
Specially considering that only a minor part of the financial transactions are considered towards
GDP. Probably only Luxembourg and perhaps Switzerland and other banking paradises have a bigger
share.
So in reality country B is reporting half of its real oil intensity. With present wealth
it would have grown GDP by only 1% yet it has spent the same amount of oil than A.
You say above without the borrowing country B would grow by 1% (why does it grow less than
country A?) but it uses the same amount of oil as country A, why if it grows more slowly?
Look closely at your chart in 1970 (when energy intensity started to decline) it
was 4% and the most recent points on the chart are about 8.4%. I used the data from your chart
(even though it is for the US rather than the World) and did an exponential trend from 1970 to
2010 for 4% to 8% and then extended to 2014 (8.5%) for financial GDP of World economy (probably
not correct, but this is an illustration). Then I found the Energy intensity of the non-financial
sector by assuming the financial sector has zero energy inputs (I expect they are low, this is
an approximation). The Non-Financial Energy intensity is in the chart below.
Finally, Aggregate Demand is increased when there is more debt, but consider the Aggregate
supply of goods produced to meet that demand. Whether the aggregate demand is because of private
or public debt or not does not change the amount of energy needed to produce the supply of goods
and services, it only changes how much demand there will be for those goods and services. I really
cannot make it any simpler than that. Oh one more thing, do you think the energy needed to build
a car (total energy embodied in all processes used to create the car and its components) changes
if someone pays cash for the car vs financing the car?
" This article explains how the majority of money in the modern economy is created by commercial
banks making loans.
Money creation in practice differs from some popular misconceptions - banks do not act simply
as intermediaries, lending out deposits that savers place with them, and nor do they 'multiply
up' central bank money to create new loans and deposits."
Yes that is correct. The banks create money by lending and borrowers destroy money
as they pay back their loans. The money supply is controlled by the Central Bank buying and selling
bonds.
The debt is only a problem if it grows too quickly. If the rate of debt growth slows or the
rate of GDP growth increases there will not be a problem. There are differing views on how much
debt is too much.
Yes I did. Under normal circumstances the supply of money is primarily influenced by
the interest rate that is paid by commercial banks for money borrowed from the central bank. When
the economy is in a severe recession and this interest rate falls to the "effective lower bound"
(about 0.5%), the central bank loses its ability to increase the supply of money through lower
interest rates.
Under these circumstances the central bank will buy assets (government bonds) to increase the
money supply, it does not sell assets to reduce the money supply, it simply raises the interest
rate it charges the commercial banks.
Thanks for that link, it is a nice review of how central banks influence the supply
of money by setting the interest rate which banks must pay on money borrowed from the central
bank, which feeds through to interest rates throughout the economy and affects saving and borrowing
through market interest rates set by banks.
I would encourage Javier to read that link as it addresses many misconceptions about money.
You are comparing apples to oranges. GDP is determined using a price, or market, theory of value. So you are comparing a value determined using a market theory of value to a value determined
using an intrinsic theory of value - the toe of energy.
If you want to compare apples to apples, then you have to compare GDP to the market value of
the energy used.
If we are concerned the energy constraints will limit real GDP, then the amount of
energy consumed per unit of GDP produced is very relevant in my view.
It is not a comparison, it is a measure of energy intensity and how it has changed over time.
See
Well again, Dennis, a valid comparison is one which compares dollars and cents to dollars and
cents, not dollars and cents to toe.
There was a time (1970 to 2010) when the EIA published
the total amount spent in the United States on energy. I have plotted the ratio of total spent
on energy to total nominal GDP for those years. This is a true measure of "energy intensity,"
as it compares apples to apples, and does not omit the price of energy as your graph does.
I have added YOY growth in real GDP (calculated using constant 2009 dollars).
I don't want to draw too many conclusions from the graph, but it paints a far bleaker picture
than your graph does. When energy intensity goes over .08 - as it did in 1974 and 2008 - then
the economy began having convulsions.
The period from 1983 to 2006 is what is known as "the Great Moderation." It is also a period
of low and generally declining energy intensity. When energy intensity began increasing again,
as it did in 1999, surpassing .08 in 2006, then this marked the end of the Great Moderation. Is
this mere coincidence?
Botton line: In my opinion not only is the quantity of energy (measured in toe) important to
the performance of the economy, but the price of that energy is also important.
Using your graph, which makes no allowance for the price of energy, it is easy to see how you
have come to believe that the economy is decoupling from energy.
It is not a comparison of money spent, energy intensity is defined as energy
consumed per unit of output (measured in dollars) as there are many different goods and services
and their monetary value is measured in constant dollars.
The difficulty with using price is that there are many different forms of energy (oil, coal,
natural gas, nuclear, hydro, solar, wind, geothermal, and biofuels) which are included in the
"primary energy" category. Note that your chart shows only one country not the world. I would
present a chart for the World if I had it, I am using the data I have for primary energy divided
by real GDP. I think it is useful because it is energy contraints we are concerned about, currently
some forms of energy (fossil fuels especially) have very low prices so in monetary terms money
spent on Energy divided by real GDP would be quite low.
Energy prices are quite volatile so I like the Energy intensity measure better as it shows
energy needed to produce a unit of GDP, which has in fact declined since 1970 by about 30%(or
an average annual decrease of about 0.8% per year).
I suppose price doesn't matter as long as one can get somebody else to pick up
the tab.
For instance, we can compare a new $40,000 Chevy Bolt ev to a new $20,000 Honda HRV. There's
no way the Bolt can compete on price. But if you can get somebody else to pick up the tab for
the Bolt? Well then, no sweat!
As part of its COP21 coverage, CBS did a puff piece on their Evening News last night about
how EVs are sweeping Norway.
They interviewed one fellow who said he "had done the math" and will be able to drive his new
EV "for free."
So I did a little bit more digging, and sure 'nuf, it looks like he's right.
According to the Wall Street Journal, Norway currently has 54,000 EVs on the road. Last
year their owners received $540,000 in various forms of rebates, tax breaks and other perks from
the Norwegian state. That's a cool $10,000 per car per year. So at that clip, it would only take
4 years to recover the cost of a $40,000 EV. And then after that one can enjoy almost free driving,
all on the government's tab.
But it looks like there's trouble in paradise. The WSJ says the government give-a-ways are
set to end. The day of reckoning is still up in the air, but the latest date for phasing out the
government largess is 2020. So the Norwegian government is taking the punch bowl away. The EV
crowd, of course, isn't taking this horrible injustice lying down:
Christina Bu, secretary-general of the lobbying group Norwegian Electric Vehicle Association,
said the 25,000-member association has been stalking political parties and government officials
to ensure the main incentives remain in place, at least until 2020.
"If you cut all the incentives overnight, sales will plummet," she said.
Weaning buyers from such purchase incentives could add new headwinds to sales of vehicles
already undercut by cheap fuel prices in some markets. In the U.S., the state of Georgia halted
its $5,000 tax credit on July 1. Electric cars were about 2% of purchases in the state in 2014,
estimates Washington-based think tank Keybridge Research LLC. It forecasts a 90% decline, or 8,700
fewer sales annually, as a result of the loss.
Do you have the price of primary energy from 1965 to 2014? I would be happy to do
the chart you would like, but I don't know the appropriate price of energy, which has many different
forms and prices throughout the World.
I agree price matters, as does the amount of energy available to purchase (which is what is
in my chart).
The original study in question was asking about whether an economy can grow without increasing
it's inputs of oil, steel, etc.*
That's a very different question than whether an economy will be hurt by a sudden increase
in the price of a key commodity, like oil. If the price of oil spikes, that can create a shock
for the economy (e.g., people wait to see what happens with prices before they buy their next
vehicle, and that delay causes a recession), but an increase in prices doesn't mean energy consumption
has gone up.
-----------------
* (it can, of course, but that's separate issue from whether our societies have chosen
to do so).
I am far from convinced that GDP growth is a good way of measuring progress in a society. Let's
take an example from the UK economy. (btw I am not worried about the genders here, I would happily
be a house husband if my wife's earning potential was close to mine).
Today, nearly 70% of women of working age work. Families need both incomes to meet a reasonable
standard of living. As a result, a large majority of UK children grow up in families with both
parents working. Many parents end up sending young children to child minders and crčches so that
they can work. This employs a lot of people, mostly women. More wealthy families then employ house
cleaners and gardeners and handymen etc. to clean, garden and repair their homes that they don't
have time to do themselves. Poorer people do without. This employs a lot more people. All the
working women and the people employed by the working women pay taxes which means that people end
up working more hours to afford to pay someone else to do these jobs than it would take to do
the jobs themselves. Unless your own rate of pay is significantly higher than the people you pay
to do the jobs, you would be financially better off doing it yourself. The government and the
economists are delighted because tax take and GDP rise. All these extra people in useful employment
driving around from low skilled job to to low skilled job, consuming extra resources, especially
fossil fuels, when they would be a lot less stressed, more free time and financially better off,
just doing all these activities for themselves.
It is a major mistake to professionalise low skilled domestic work. All it does is free up
time for the rich and increases government tax take. Society as a whole is worse off.
I agree GDP is by no means a perfect measure, just a measure that is available at
the World level. There are other measures such as the social progress index, but this is not available
at the World level. There is also the United Nations Human Development Index(HDI), but again these
measures are not published at the World level (or I couldn't find it). Actually I found some World
data for the HDI from 1980 to 2013. The measure is not perfect see link below for data:
Human Development Index (HDI): A composite index measuring average achievement in three
basic dimensions of human development-a long and healthy life, knowledge and a decent standard
of living. See Technical note 1 (http://hdr.undp.org/en)
for details on how the HDI is calculated.
Chart below with World Primary energy (ktoe) divided by World HDI from 1980 to 2013. Based
on the HDI, more energy is needed to improve well being and GDP is not a good measure of human
welfare.
There is also an index for HDI that takes account of inequality, but the index (called IHDI)
is only available from 2010 to 2013.
Massive open online courses (MOOCs) are often characterized as remedies to educational disparities
related to social class. Using data from 68 MOOCs offered by Harvard and MIT between 2012 and
2014, we found that course participants from the United States tended to live in more-affluent
and better-educated neighborhoods than the average U.S. resident. Among those who did register
for courses, students with greater socioeconomic resources were more likely to earn a certificate.
Furthermore, these differences in MOOC access and completion were larger for adolescents and young
adults, the traditional ages where people find on-ramps into science, technology, engineering,
and mathematics (STEM) coursework and careers. Our findings raise concerns that MOOCs and similar
approaches to online learning can exacerbate rather than reduce disparities in educational outcomes
related to socioeconomic status.
Lambert Strether, December 3, 2015 at 3:17 pm
That's not a bug. It's a feature.
jrs, December 3, 2015 at 5:40 pm
Well that's pretty much the same charge that could be leveled against most higher
education. It makes disparities worse, maybe less so community colleges, I don't know.
cwaltz, December 3, 2015 at 6:16 pm
I wonder how much of that is due to inability to access the web in neighborhoods that are
less affluent?
An online course isn't going to help me if mom or dad can't afford to pay for internet.
Bob Haugen, December 3, 2015 at 8:06 pm
Most education in the world now, whether in classrooms or MOOCs, is oriented toward
improving the personal capital of the upwardly striving. There is no "make yourself a better
citizen" or "improve your community" curriculum.
likbez, December 3, 2015 at 10:47 pm
"Most education in the world now, whether in classrooms or MOOCs, is oriented toward
improving the personal capital of the upwardly striving."
Very true. Thank you !
This is the essence of neoliberal transformation of the university education.
"... ...It might seem counterintuitive that lack of access to credit results in delinquency-seemingly a problem of "too much debt." But in fact, lack of access to credit and delinquency are two sides of the same coin. Nearly everyone needs access to credit markets to meet basic economic needs, and if they can't get loans through competitive, transparent financial networks, poor people are more likely to be subjected to exploitative credit arrangements in the form of very high rates and other onerous terms and penalties, including on student loans. That disadvantage interacts with and is magnified by their lack of labor market opportunities. The result is exactly what we see across time and space: high delinquency rates for those with the least access to credit markets. ..."
The geography of student debt is very different than the geography of delinquency. Take the Washington, D.C. metro region. In
zip codes with high average loan balances (western and central Washington, D.C.), delinquency rates are lower. Within the District
of Columbia, median income is highest in these parts of the city. Similar results–low delinquency rates in high-debt areas–can be
seen for Chicago, as well. (See Figure 1.)
...What explains this relationship? There appear to be two possible, and mutually consistent, theories. First, although graduate
students take out the largest student loans, they are able to carry large debt burdens thanks to their higher salaries post-graduation.
Second, the rise in the number of students borrowing relatively small amounts for
for-profit colleges has augmented the cumulative debt load, but because these borrowers face poor labor market outcomes and lower
earnings upon graduation (if they do in fact graduate),
their
delinquency rates are much higher. This is further complicated by the fact that these for-profit college attendees generally
come from lower-income families who may not be able to help with loan repayments.
The inverse relationship between delinquency and income is not surprising, especially when considering that problems of credit
access have disproportionately affected poor and minority populations in the past.
...It might seem counterintuitive that lack of access to credit results in delinquency-seemingly a problem of "too much debt."
But in fact, lack of access to credit and delinquency are two sides of the same coin. Nearly everyone needs access to credit markets
to meet basic economic needs, and if they can't get loans through competitive, transparent financial networks, poor people are more
likely to be subjected to exploitative credit arrangements in the form of very high rates and other onerous terms and penalties,
including on student loans. That disadvantage interacts with and is magnified by their lack of labor market opportunities. The result
is exactly what we see across time and space: high delinquency rates for those with the least access to credit markets.
...For user-friendliness, we assign each of these student debt scale variables a qualitative category. If average loan balance
on the map is "somewhat high," for example, then it means that a zip code's average loan balance is between 25 and 35 percent higher
than the national average of $24,271. Similarly, if the delinquency reads "very low," it corresponds to a scale level between 0.067
and 0.091.
Figure 6 summarizes the relationship between each of the scale variables' levels and their qualitative description.
Americans are,
compared
with populations of other countries, particularly enthusiastic about the idea of meritocracy, a system
that rewards merit (ability
+ effort) with success. Americans are
more likely to believe that people are rewarded for their intelligence and skills and are less
likely to believe that family wealth plays a key role in getting ahead. And Americans' support for
meritocratic principles has
remained
stable over the last two decades despite growing economic inequality, recessions, and the fact
that there is
less mobility in the United States than in most other industrialized countries.
This strong
commitment to meritocratic ideals can lead to suspicion of efforts that aim to support particular
demographic groups. For example,
initiatives designed to recruit or provide development opportunities to under-represented groups
often come under attack as "reverse discrimination." Some companies even
justify
not having diversity policies by highlighting their commitment to meritocracy. If a company evaluates
people on their skills, abilities, and merit, without consideration of their gender, race, sexuality
etc., and managers are objective in their assessments then there is no need for diversity policies,
the thinking goes.
But is this true? Do commitments to meritocracy and objectivity lead to more fair workplaces?
Emilio J. Castilla, a professor
at MIT's Sloan School of Management, has explored how meritocratic ideals and HR practices like pay-for-performance
play out in organizations, and he's come to some unexpected conclusions.
In one company study,
Castilla examined almost 9,000 employees who worked as support-staff at a large service-sector company.
The company was committed to diversity and had implemented a merit-driven compensation system intended
to reward high-level performance and to reward all employees equitably.
But Castilla's analysis revealed some very non-meritocratic outcomes. Women, ethnic minorities,
and non-U.S.-born employees received a smaller increase in compensation compared with white men,
despite holding the same jobs, working in the same units, having the same supervisors, the same human
capital, and importantly, receiving the same performance score. Despite stating that "performance
is the primary bases for all salary increases," the reality was that women, minorities, and those
born outside the U.S. needed "to work harder and obtain higher performance scores in order to receive
similar salary increases to white men."
"... ...It might seem counterintuitive that lack of access to credit results in delinquency-seemingly a problem of "too much debt." But in fact, lack of access to credit and delinquency are two sides of the same coin. Nearly everyone needs access to credit markets to meet basic economic needs, and if they can't get loans through competitive, transparent financial networks, poor people are more likely to be subjected to exploitative credit arrangements in the form of very high rates and other onerous terms and penalties, including on student loans. That disadvantage interacts with and is magnified by their lack of labor market opportunities. The result is exactly what we see across time and space: high delinquency rates for those with the least access to credit markets. ..."
The geography of student debt is very different than the geography of delinquency. Take the Washington, D.C. metro region. In
zip codes with high average loan balances (western and central Washington, D.C.), delinquency rates are lower. Within the District
of Columbia, median income is highest in these parts of the city. Similar results–low delinquency rates in high-debt areas–can be
seen for Chicago, as well. (See Figure 1.)
...What explains this relationship? There appear to be two possible, and mutually consistent, theories. First, although graduate
students take out the largest student loans, they are able to carry large debt burdens thanks to their higher salaries post-graduation.
Second, the rise in the number of students borrowing relatively small amounts for
for-profit colleges has augmented the cumulative debt load, but because these borrowers face poor labor market outcomes and lower
earnings upon graduation (if they do in fact graduate),
their
delinquency rates are much higher. This is further complicated by the fact that these for-profit college attendees generally
come from lower-income families who may not be able to help with loan repayments.
The inverse relationship between delinquency and income is not surprising, especially when considering that problems of credit
access have disproportionately affected poor and minority populations in the past.
...It might seem counterintuitive that lack of access to credit results in delinquency-seemingly a problem of "too much debt."
But in fact, lack of access to credit and delinquency are two sides of the same coin. Nearly everyone needs access to credit markets
to meet basic economic needs, and if they can't get loans through competitive, transparent financial networks, poor people are more
likely to be subjected to exploitative credit arrangements in the form of very high rates and other onerous terms and penalties,
including on student loans. That disadvantage interacts with and is magnified by their lack of labor market opportunities. The result
is exactly what we see across time and space: high delinquency rates for those with the least access to credit markets.
...For user-friendliness, we assign each of these student debt scale variables a qualitative category. If average loan balance
on the map is "somewhat high," for example, then it means that a zip code's average loan balance is between 25 and 35 percent higher
than the national average of $24,271. Similarly, if the delinquency reads "very low," it corresponds to a scale level between 0.067
and 0.091.
Figure 6 summarizes the relationship between each of the scale variables' levels and their qualitative description.
Americans are,
compared
with populations of other countries, particularly enthusiastic about the idea of meritocracy, a system
that rewards merit (ability
+ effort) with success. Americans are
more likely to believe that people are rewarded for their intelligence and skills and are less
likely to believe that family wealth plays a key role in getting ahead. And Americans' support for
meritocratic principles has
remained
stable over the last two decades despite growing economic inequality, recessions, and the fact
that there is
less mobility in the United States than in most other industrialized countries.
This strong
commitment to meritocratic ideals can lead to suspicion of efforts that aim to support particular
demographic groups. For example,
initiatives designed to recruit or provide development opportunities to under-represented groups
often come under attack as "reverse discrimination." Some companies even
justify
not having diversity policies by highlighting their commitment to meritocracy. If a company evaluates
people on their skills, abilities, and merit, without consideration of their gender, race, sexuality
etc., and managers are objective in their assessments then there is no need for diversity policies,
the thinking goes.
But is this true? Do commitments to meritocracy and objectivity lead to more fair workplaces?
Emilio J. Castilla, a professor
at MIT's Sloan School of Management, has explored how meritocratic ideals and HR practices like pay-for-performance
play out in organizations, and he's come to some unexpected conclusions.
In one company study,
Castilla examined almost 9,000 employees who worked as support-staff at a large service-sector company.
The company was committed to diversity and had implemented a merit-driven compensation system intended
to reward high-level performance and to reward all employees equitably.
But Castilla's analysis revealed some very non-meritocratic outcomes. Women, ethnic minorities,
and non-U.S.-born employees received a smaller increase in compensation compared with white men,
despite holding the same jobs, working in the same units, having the same supervisors, the same human
capital, and importantly, receiving the same performance score. Despite stating that "performance
is the primary bases for all salary increases," the reality was that women, minorities, and those
born outside the U.S. needed "to work harder and obtain higher performance scores in order to receive
similar salary increases to white men."
All this neoliberal talk about "maximizing shareholder value" is designed to hide a
redistribution mechanism of wealth up. Which is the essence of neoliberalism.
It's all about executive pay. "Shareholder value" is nothing then a ruse for
getting outsize bonuses but top execs. Stock buybacks is a form of asset-stripping,
similar to one practiced by buyout sharks, but practiced by internal management team.
Who cares if the company will be destroyed if you have a golden parachute ?
Notable quotes:
"... By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street . ..."
"... IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. ..."
"... Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R D and capital expenditures. They're all doing it. ..."
"... Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period. ..."
"... This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion. ..."
"... Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery. ..."
"... Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining. ..."
"... But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered. ..."
"... Me thinks Wolf is slightly barking up the wrong tree here. What needs to be looked at is how buy backs affect executive pay. "Shareholder value" is more often than not a ruse? ..."
"... Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s). ..."
"... On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement? ..."
"... buybacks *can* be asset-stripping and often are, but unless you tie capital allocation decisions closer to investment in the business such that they're mutually exclusive, this is specious and a reach. No one invests if they can't see the return. It would be just as easy to say that they're buying back stock because revenue is slipping and they have no other investment opportunities. ..."
"... Perhaps an analysis of the monopolistic positions of so many American businesses that allow them the wherewithal to underinvest and still buy back huge amounts of stock? If we had a more competitive economy, companies would have less ability to underinvest. Ultimately, I think buybacks are more a result than a cause of dysfunction, but certainly not always bad. ..."
"... One aspect that Reuters piece mentions, but glosses over with a single paragraph buried in the middle, is the fact that for many companies there are no ( or few) reasons to spend money in other ways. If capex/r d doesn't give you much return, why not buy out the shareholders who are least interested in holding your stock? ..."
"... Dumping money into R D is always risky, although different industries have different levels, and the "do it in-house" risk must be weighed against the costs of buying up companies with "proven" technologies. Thus, R D cash is hidden inside M A. M A is up 2-3 years in a row. ..."
By Wolf Richter, a San Francisco based executive,
entrepreneur, start up specialist, and author, with extensive international
work experience. Originally published at
Wolf Street.
Magic trick turns into toxic mix.
Stocks have been on a tear to nowhere this year. Now investors are
praying for a Santa rally to pull them out of the mire. They're counting on
desperate amounts of share buybacks that companies fund by loading up on
debt. But the magic trick that had performed miracles over the past few
years is backfiring.
And there's a reason.
IBM has blown $125 billion on buybacks since 2005, more than the $111
billion it invested in capital expenditures and R&D. It's staggering under
its debt, while revenues have been declining for 14 quarters in a row. It
cut its workforce by 55,000 people since 2012. And its stock is down 38%
since March 2013.
Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in
the past decade, compared to $82 billion in R&D and $18 billion in capital
spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on
R&D and capital expenditures. They're all doing it.
"Activist investors" – hedge funds – have been clamoring for it. An
investigative report by Reuters, titled
The Cannibalized Company, lined some of them up:
In March, General Motors Co acceded to a $5 billion share buyback to
satisfy investor Harry Wilson. He had threatened a proxy fight if the
auto maker didn't distribute some of the $25 billion cash hoard it had
built up after emerging from bankruptcy just a few years earlier.
DuPont early this year announced a $4 billion buyback program – on top
of a $5 billion program announced a year earlier – to beat back activist
investor Nelson Peltz's Trian Fund Management, which was seeking four
board seats to get its way.
In March, Qualcomm Inc., under pressure from hedge fund Jana Partners,
agreed to boost its program to purchase $10 billion of its shares over
the next 12 months; the company already had an existing $7.8 billion
buyback program and a commitment to return three quarters of its free
cash flow to shareholders.
And in July, Qualcomm announced 5,000 layoffs. It's hard to innovate when
you're trying to please a hedge fund.
CEOs with a long-term outlook and a focus on innovation and investment,
rather than financial engineering, come under intense pressure.
"None of it is optional; if you ignore them, you go away," Russ Daniels,
a tech executive with 15 years at Apple and 13 years at HP, told Reuters.
"It's all just resource allocation," he said. "The situation right now is
there are a lot of investors who believe that they can make a better
decision about how to apply that resource than the management of the
business can."
Nearly 60% of the 3,297 publicly traded non-financial US companies
Reuters analyzed have engaged in share buybacks since 2010. Last year, the
money spent on buybacks and dividends exceeded net income for the first time
in a non-recession period.
This year, for the 613 companies that have reported earnings for fiscal
2015, share buybacks hit a record $520 billion. They also paid $365 billion
in dividends, for a total of $885 billion, against their combined net income
of $847 billion.
Buybacks and dividends amount to 113% of capital spending among companies
that have repurchased shares since 2010, up from 60% in 2000 and from 38% in
1990. Corporate investment is normally a big driver in a recovery. Not this
time! Hence the lousy recovery.
Financial engineering takes precedence over actual engineering in the
minds of CEOs and CFOs. A company buying its own shares creates additional
demand for those shares. It's supposed to drive up the share price. The
hoopla surrounding buyback announcements drives up prices too. Buybacks also
reduce the number of outstanding shares, thus increase the earnings per
share, even when net income is declining.
"Serving customers, creating innovative new products, employing workers,
taking care of the environment … are NOT the objectives of firms," sais Itzhak
Ben-David, a finance professor of Ohio State University, a buyback
proponent, according to Reuters. "These are components in the process that
have the goal of maximizing shareholders' value."
But when companies load up on debt to fund buybacks while slashing
investment in productive activities and innovation, it has consequences for
revenues down the road. And now that magic trick to increase shareholder
value has become a toxic mix. Shares of buyback queens are getting hammered.
Citigroup credit analysts looked into the extent to which this is
happening – and why. Christine Hughes, Chief Investment Strategist at
OtterWood Capital, summarized the Citi report this way: "This
dynamic of borrowing from bondholders to pay shareholders may be coming to
an end…."
Their chart (via OtterWood Capital) shows that about half of the
cumulative outperformance of these buyback queens from 2012 through 2014 has
been frittered away this year, as their shares, IBM-like, have swooned:
Mbuna, November 21, 2015 at 7:31 am
Me thinks Wolf is slightly barking up the wrong tree here. What needs to be
looked at is how buy backs affect executive pay. "Shareholder value" is more
often than not a ruse?
ng, November 21, 2015 at 8:58 am
probably, in some or most cases, but the effect on the stock is the same.
Alejandro, November 21, 2015 at 9:19 am
Interesting that you mention ruse, relating to "buy-backs"…from my POV,
it seems like they've legalized insider trading or engineered (a) loophole(s).
On a somewhat related perspective on subterfuge. The language of
"affordability" has proven to be insidiously clever. Not only does it reinforce
and perpetuate the myth of "deserts", but camouflages the means of embezzling
the means of distribution. Isn't distribution, really, the only rational
purpose of finance, i.e., as a means of distribution as opposed to a means of
embezzlement?
Jim, November 21, 2015 at 10:42 am
More nuance and less dogma please. The dogmatic tone really hurts what could
otherwise be a fine but more-qualified position.
"Results of all this financial engineering? Revenues of the S&P 500
companies are falling for the fourth quarter in a row – the worst such spell
since the Financial Crisis."
Eh, no. No question that buybacks *can* be asset-stripping and often
are, but unless you tie capital allocation decisions closer to investment in
the business such that they're mutually exclusive, this is specious and a
reach. No one invests if they can't see the return. It would be just as easy to
say that they're buying back stock because revenue is slipping and they have no
other investment opportunities.
Revenues are falling in large part because these largest companies derive an
ABSOLUTELY HUGE portion of their business overseas and the dollar has been
ridiculously strong in the last 12-15 months. Rates are poised to rise, and the
easy Fed-inspired rate arbitrage vis a vis stocks and "risk on" trade are
closing. How about a little more context instead of just dogma?
John Malone made a career out of financial engineering, something like 30%
annual returns for the 25 years of his CEO tenure at TCI. Buybacks were a huge
part of that.
Perhaps an analysis of the monopolistic positions of so many American
businesses that allow them the wherewithal to underinvest and still buy back
huge amounts of stock? If we had a more competitive economy, companies would
have less ability to underinvest. Ultimately, I think buybacks are more a
result than a cause of dysfunction, but certainly not always bad.
NeqNeq, November 21, 2015 at 11:44 am
One aspect that Reuters piece mentions, but glosses over with a single
paragraph buried in the middle, is the fact that for many companies there are
no ( or few) reasons to spend money in other ways. If capex/r&d doesn't give
you much return, why not buy out the shareholders who are least interested in
holding your stock?
Dumping cash into plants only makes sense in the places where the market is
growing. For many years that has meant Asia (China). For example, Apple gets
66% (iirc) of revenue from Asia, and that is where they have continued
investing in growth. If demand is slowing and costs are rising, and it looks
like both are true, why would you put even more money in?
Dumping money into R&D is always risky, although different industries have
different levels, and the "do it in-house" risk must be weighed against the
costs of buying up companies with "proven" technologies. Thus, R&D cash is
hidden inside M&A. M&A is up 2-3 years in a row.
"... As a rising economist at Harvard and at the World Bank, Summers argued for privatization and deregulation in many domains, including finance. Later, as deputy secretary of the treasury and then treasury secretary in the Clinton administration, he implemented those policies. Summers oversaw passage of the Gramm-Leach-Bliley Act, which repealed Glass-Steagall, permitted the previously illegal merger that created Citigroup, and allowed further consolidation in the financial sector. He also successfully fought attempts by Brooksley Born, chair of the Commodity Futures Trading Commission in the Clinton administration, to regulate the financial derivatives that would cause so much damage in the housing bubble and the 2008 economic crisis. He then oversaw passage of the Commodity Futures Modernization Act, which banned all regulation of derivatives, including exempting them from state antigambling laws. ..."
"... Over the past decade, Summers continued to advocate financial deregulation, both as president of Harvard and as a University Professor after being forced out of the presidency. During this time, Summers became wealthy through consulting and speaking engagements with financial firms. Between 2001 and his entry into the Obama administration, he made more than $20-million from the financial-services industry. (His 2009 federal financial-disclosure form listed his net worth as $17-million to $39-million.) ..."
"... In 2005, at the annual Jackson Hole, Wyo., conference of the worlds leading central bankers, the chief economist of the International Monetary Fund, Raghuram Rajan, presented a brilliant paper that constituted the first prominent warning of the coming crisis. Rajan pointed out that the structure of financial-sector compensation, in combination with complex financial products, gave bankers huge cash incentives to take risks with other peoples money, while imposing no penalties for any subsequent losses. Rajan warned that this bonus culture rewarded bankers for actions that could destroy their own institutions, or even the entire system, and that this could generate a full-blown financial crisis and a catastrophic meltdown. When Rajan finished speaking, Summers rose up from the audience and attacked him, calling him a Luddite, dismissing his concerns, and warning that increased regulation would reduce the productivity of the financial sector. (Ben Bernanke, Tim Geithner, and Alan Greenspan were also in the audience.) ..."
"... Over the past 30 years, the economics profession-in economics departments, and in business, public policy, and law schools-has become so compromised by conflicts of interest that it now functions almost as a support group for financial services and other industries whose profits depend heavily on government policy. The route to the 2008 financial crisis, and the economic problems that still plague us, runs straight through the economics discipline. And its due not just to ideology; its also about straightforward, old-fashioned money. ..."
"... Prominent academic economists (and sometimes also professors of law and public policy) are paid by companies and interest groups to testify before Congress, to write papers, to give speeches, to participate in conferences, to serve on boards of directors, to write briefs in regulatory proceedings, to defend companies in antitrust cases, and, of course, to lobby. This is now, literally, a billion-dollar industry. The Law and Economics Consulting Group, started 22 years ago by professors at the University of California at Berkeley (David Teece in the business school, Thomas Jorde in the law school, and the economists Richard Gilbert and Gordon Rausser), is now a $300-million publicly held company. Others specializing in the sale (or rental) of academic expertise include Competition Policy (now Compass Lexecon), started by Richard Gilbert and Daniel Rubinfeld, both of whom served as chief economist of the Justice Departments Antitrust Division in the Clinton administration; the Analysis Group; and Charles River Associates. ..."
"... I think it is interesting that Summers led the financial deregulation efforts of the Clinton administration and then made a bundle on Wall Street. I think that should be taken into account when evaluating his discussions of economics. ..."
"... It is difficult to get a man to understand something when his salary depends upon his not understanding it. ..."
The Obama administration recently announced that Larry Summers is resigning as director of
the National Economic Council and will return to Harvard early next year. His imminent departure
raises several questions: Who will replace him? What will he do next? But more important, it's
a chance to consider the hugely damaging conflicts of interest of the senior academic economists
who move among universities, government, and banking.
Summers is unquestionably brilliant, as all who have dealt with him, including myself, quickly
realize. And yet rarely has one individual embodied so much of what is wrong with economics, with
academe, and indeed with the American economy. For the past two years, I have immersed myself
in those worlds in order to make a film, Inside Job, that takes a sweeping look at the financial
crisis. And I found Summers everywhere I turned.
Consider: As a rising economist at Harvard and at the World Bank, Summers argued for privatization
and deregulation in many domains, including finance. Later, as deputy secretary of the treasury
and then treasury secretary in the Clinton administration, he implemented those policies. Summers
oversaw passage of the Gramm-Leach-Bliley Act, which repealed Glass-Steagall, permitted the previously
illegal merger that created Citigroup, and allowed further consolidation in the financial sector.
He also successfully fought attempts by Brooksley Born, chair of the Commodity Futures Trading
Commission in the Clinton administration, to regulate the financial derivatives that would cause
so much damage in the housing bubble and the 2008 economic crisis. He then oversaw passage of
the Commodity Futures Modernization Act, which banned all regulation of derivatives, including
exempting them from state antigambling laws.
After Summers left the Clinton administration, his candidacy for president of Harvard was championed
by his mentor Robert Rubin, a former CEO of Goldman Sachs, who was his boss and predecessor as
treasury secretary. Rubin, after leaving the Treasury Department-where he championed the law that
made Citigroup's creation legal-became both vice chairman of Citigroup and a powerful member of
Harvard's governing board.
Over the past decade, Summers continued to advocate financial deregulation, both as president
of Harvard and as a University Professor after being forced out of the presidency. During this
time, Summers became wealthy through consulting and speaking engagements with financial firms.
Between 2001 and his entry into the Obama administration, he made more than $20-million from the
financial-services industry. (His 2009 federal financial-disclosure form listed his net worth
as $17-million to $39-million.)
Summers remained close to Rubin and to Alan Greenspan, a former chairman of the Federal Reserve.
When other economists began warning of abuses and systemic risk in the financial system deriving
from the environment that Summers, Greenspan, and Rubin had created, Summers mocked and dismissed
those warnings. In 2005, at the annual Jackson Hole, Wyo., conference of the world's leading central
bankers, the chief economist of the International Monetary Fund, Raghuram Rajan, presented a brilliant
paper that constituted the first prominent warning of the coming crisis. Rajan pointed out that
the structure of financial-sector compensation, in combination with complex financial products,
gave bankers huge cash incentives to take risks with other people's money, while imposing no penalties
for any subsequent losses. Rajan warned that this bonus culture rewarded bankers for actions that
could destroy their own institutions, or even the entire system, and that this could generate
a "full-blown financial crisis" and a "catastrophic meltdown."
When Rajan finished speaking, Summers rose up from the audience and attacked him, calling him
a "Luddite," dismissing his concerns, and warning that increased regulation would reduce the productivity
of the financial sector. (Ben Bernanke, Tim Geithner, and Alan Greenspan were also in the audience.)
Soon after that, Summers lost his job as president of Harvard after suggesting that women might
be innately inferior to men at scientific work. In another part of the same speech, he had used
laissez-faire economic theory to argue that discrimination was unlikely to be a major cause of
women's underrepresentation in either science or business. After all, he argued, if discrimination
existed, then others, seeking a competitive advantage, would have access to a superior work force,
causing those who discriminate to fail in the marketplace. It appeared that Summers had denied
even the possibility of decades, indeed centuries, of racial, gender, and other discrimination
in America and other societies. After the resulting outcry forced him to resign, Summers remained
at Harvard as a faculty member, and he accelerated his financial-sector activities, receiving
$135,000 for one speech at Goldman Sachs.
Then, after the 2008 financial crisis and its consequent recession, Summers was placed in charge
of coordinating U.S. economic policy, deftly marginalizing others who challenged him. Under the
stewardship of Summers, Geithner, and Bernanke, the Obama administration adopted policies as favorable
toward the financial sector as those of the Clinton and Bush administrations-quite a feat. Never
once has Summers publicly apologized or admitted any responsibility for causing the crisis. And
now Harvard is welcoming him back.
Summers is unique but not alone. By now we are all familiar with the role of lobbying and campaign
contributions, and with the revolving door between industry and government. What few Americans
realize is that the revolving door is now a three-way intersection. Summers's career is the result
of an extraordinary and underappreciated scandal in American society: the convergence of academic
economics, Wall Street, and political power.
Starting in the 1980s, and heavily influenced by laissez-faire economics, the United States
began deregulating financial services. Shortly thereafter, America began to experience financial
crises for the first time since the Great Depression. The first one arose from the savings-and-loan
and junk-bond scandals of the 1980s; then came the dot-com bubble of the late 1990s, the Asian
financial crisis; the collapse of Long Term Capital Management, in 1998; Enron; and then the housing
bubble, which led to the global financial crisis. Yet through the entire period, the U.S. financial
sector grew larger, more powerful, and enormously more profitable. By 2006, financial services
accounted for 40 percent of total American corporate profits. In large part, this was because
the financial sector was corrupting the political system. But it was also subverting economics.
Over the past 30 years, the economics profession-in economics departments, and in business,
public policy, and law schools-has become so compromised by conflicts of interest that it now
functions almost as a support group for financial services and other industries whose profits
depend heavily on government policy. The route to the 2008 financial crisis, and the economic
problems that still plague us, runs straight through the economics discipline. And it's due not
just to ideology; it's also about straightforward, old-fashioned money.
Prominent academic economists (and sometimes also professors of law and public policy) are
paid by companies and interest groups to testify before Congress, to write papers, to give speeches,
to participate in conferences, to serve on boards of directors, to write briefs in regulatory
proceedings, to defend companies in antitrust cases, and, of course, to lobby. This is now, literally,
a billion-dollar industry. The Law and Economics Consulting Group, started 22 years ago by professors
at the University of California at Berkeley (David Teece in the business school, Thomas Jorde
in the law school, and the economists Richard Gilbert and Gordon Rausser), is now a $300-million
publicly held company. Others specializing in the sale (or rental) of academic expertise include
Competition Policy (now Compass Lexecon), started by Richard Gilbert and Daniel Rubinfeld, both
of whom served as chief economist of the Justice Department's Antitrust Division in the Clinton
administration; the Analysis Group; and Charles River Associates.
In my film you will see many famous economists looking very uncomfortable when confronted with
their financial-sector activities; others appear only on archival video, because they declined
to be interviewed. You'll hear from:
Martin Feldstein, a Harvard professor, a major architect of deregulation in the Reagan administration,
president for 30 years of the National Bureau of Economic Research, and for 20 years on the boards
of directors of both AIG, which paid him more than $6-million, and AIG Financial Products, whose
derivatives deals destroyed the company. Feldstein has written several hundred papers, on many
subjects; none of them address the dangers of unregulated financial derivatives or financial-industry
compensation.
Glenn Hubbard, chairman of the Council of Economic Advisers in the first George W. Bush administration,
dean of Columbia Business School, adviser to many financial firms, on the board of Metropolitan
Life ($250,000 per year), and formerly on the board of Capmark, a major commercial mortgage lender,
from which he resigned shortly before its bankruptcy, in 2009. In 2004, Hubbard wrote a paper
with William C. Dudley, then chief economist of Goldman Sachs, praising securitization and derivatives
as improving the stability of both financial markets and the wider economy.
Frederic Mishkin, a professor at the Columbia Business School, and a member of the Federal
Reserve Board from 2006 to 2008. He was paid $124,000 by the Icelandic Chamber of Commerce to
write a paper praising its regulatory and banking systems, two years before the Icelandic banks'
Ponzi scheme collapsed, causing $100-billion in losses. His 2006 federal financial-disclosure
form listed his net worth as $6-million to $17-million.
Laura Tyson, a professor at Berkeley, director of the National Economic Council in the Clinton
administration, and also on the Board of Directors of Morgan Stanley, which pays her $350,000
per year.
Richard Portes, a professor at London Business School and founding director of the British
Centre for Economic Policy Research, paid by the Icelandic Chamber of Commerce to write a report
praising Iceland's financial system in 2007, only one year before it collapsed.
And John Campbell, chairman of Harvard's economics department, who finds it very difficult
to explain why conflicts of interest in economics should not concern us.
But could he be right? Are these professors simply being paid to say what they would otherwise
say anyway? Unlikely. Mishkin and Portes showed no interest whatever in Iceland until they were
paid to do so, and they got it totally wrong. Nor do all these professors seem to make policy
statements contrary to the financial interests of their clients. Even more telling, they uniformly
oppose disclosure of their financial relationships.
The universities avert their eyes and deliberately don't require faculty members either to
disclose their conflicts of interest or to report their outside income. As you can imagine, when
Larry Summers was president of Harvard, he didn't work too hard to change this.
Now, however, as the national recovery is faltering, Summers is being eased out while Harvard
is welcoming him back. How will the academic world receive him? The simple answer: Better than
he deserves.
While making my film, we wrote to the presidents and provosts of Harvard, Columbia, and other
universities with detailed questions about their conflict-of-interest policies, requesting interviews
about the subject. None of them replied, except to refer us to their Web sites.
Yeah, after an economist has had one job in the government; one job in the banking system; and
one teaching job he should be required to stop working as an economist.
RGC said in reply to EMichael...
I think it is interesting that Summers led the financial deregulation efforts of the Clinton administration
and then made a bundle on Wall Street. I think that should be taken into account when evaluating
his discussions of economics.
EMichael said in reply to RGC...
Of course it should.
At the same time this is not taking anything into account, this is about
"subverting" economics.
Can you make a case that the only reason Summers made a "bundle" working on Wall Street is
because of the financial deregulation efforts he made? Last time I looked he did not have a vote
on the legislation.
RGC said in reply to EMichael...
I think this is especially troubling for the economics profession:
"Over the past 30 years,
the economics profession-in economics departments, and in business, public policy, and law schools-has
become so compromised by conflicts of interest that it now functions almost as a support group
for financial services and other industries whose profits depend heavily on government policy.
The route to the 2008 financial crisis, and the economic problems that still plague us, runs straight
through the economics discipline. And it's due not just to ideology; it's also about straightforward,
old-fashioned money."
EMichael said in reply to RGC...
Cause no economists actually believed in any of the policies that caused all of those things nor
did any economist fail to vote for the policies adopted.
RGC said in reply to EMichael...
Upton Sinclair:
"It is difficult to get a man to understand something when his salary depends
upon his not understanding it."
Tom aka Rusty said in reply to RGC...
As Hemingway and F. SCott Fitzgerald exchanged in their writings (the reputed face-to-face conversation
may not have happened):
The rich are different.
Yes, they have more money.
Combine elite and rich and you get a toxic combination.
I think it is perfectly clear that a secular policy of increasing private indebtedness is not
indefinitely extendable. Sure, if we had printed money in the past and kept monetary policy relatively
tight (or otherwise managed the international financial system so that large persistent balance of
payments deficits were not tolerated) we wouldn't have got in the mess we are in. But once we are
there just trying to get over-indebted people to take on more debt doesn't seem like a winning strategy.
1. asset taxes are tricky things to run (many assets aren't traded and the prices of other assets
are very volatile). And there is the problem of offshore ownership and offshore assets, so it requires
international co-operation.
2. This takes a very closed economy view of things - the trade deficit might end up affecting the
trade balance and hence the flow of assets into and out of the country, and eventually also the terms
of trade. You should think through how such a policy would work in say - Luxembourg.
reason:
EMichael
You see no increase in private indebtedness - when do you mean? If you mean now - then yes - that
is exactly why the economy is so sluggish. Where is the increase in demand going to come from if
the country is running a trade deficit, is not increasing its borrowing and is committed to reducing
its government deficit?
"... I can only add, that our economic system already redistributes income upward to capital and management, whose contribution to productivity is far below what they are paid. ..."
"... That's the idea of neoliberal transformation of society that happened since 80th or even earlier. Like John Kenneth Galbraith noted "Trickle-down theory is the less than elegant metaphor that if one feeds the horse enough oats, some will pass through to the road for the sparrows" ..."
"... "The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil." John Kenneth Galbraith, The Great Crash of 1929 ..."
"... Just as was the case with his work on financial instability, Hyman Minsky's analysis of the problems of poverty and inequality in a capitalist economy, as well as his understanding of the political dysfunctions that would result from treating these problems in the wrong way, were prophetic. See this piece by Minksy's student L. Randall Wray, especially Section 2: http://www.levyinstitute.org/pubs/wp_515.pdf ..."
"... it is unjust to tell the poor that they must change before they will be entitled to work-whether it is their skills set or their character that is the barrier to work... Minsky always argued that it is preferable to "take workers as they are," providing jobs tailored to the characteristics of workers, rather than trying to tailor workers to the jobs available before they are allowed to work ..."
"... Further, NIT (and other welfare programs) would create a dependent class, which is not conducive to social cohesion (Minsky 1968). Most importantly, Minsky argued that any antipoverty program must be consistent with the underlying behavioral rules of a capitalist economy (Minsky no date, 1968, 1975a). One of those rules is that earned income is in some sense deserved. ..."
"... This misreads the politics. People who are disconnected from the job market very easily get disconnected from the political process. They don't vote. ..."
"... The problem in thinking here is the equilibrium paradigm. Equilibrium NEVER exists. If there is a glut the price falls below the marginal cost/revenue point, if the seller is desperate enough it falls to zero! Ignoring disequilibrium dynamics means this obvious (it should be obvious) point is simply ignored. The assumption of general equilibrium leads to the assumption of marginal productivity driving wages. You are not worth what you produce, you are worth precisely what somewhat else would accept to do your job. ..."
"... Never say never. There some stationary points at which equilibrium probably exists for a short period of time. But as the whole system has positive feedback loop built-in and is unstable by definition. So you are right in a sense that disequilibrium is the "normal" state of such a system and equilibrium is an exception. ..."
"... And the problem is more growth, is more growth is a trick we cannot always do in a finite resource technologically sophisticated world. (At least not growth as it is currently seen.) We need to start thinking in much longer term time scales. Saying that we have enough oil for 30 years, is not optimistic - it is an imminent crisis - or do we want our grandchildren to see the end of the world? ..."
"then more growth will simply lead to even more inequality."
Which is exactly what we have seen for the past 40 years, Great analysis
here. I can only add, that our economic system already redistributes
income upward to capital and management, whose contribution to productivity
is far below what they are paid.
ikbez -> DrDick...
"then more growth will simply lead to even more inequality."
That's the idea of neoliberal transformation of society that happened
since 80th or even earlier. Like John Kenneth Galbraith noted "Trickle-down
theory is the less than elegant metaphor that if one feeds the horse enough
oats, some will pass through to the road for the sparrows"
And another relevant quote:
"The sense of responsibility in the financial community for the community
as a whole is not small. It is nearly nil." John Kenneth Galbraith, The
Great Crash of 1929
anne -> likbez...
"The sense of responsibility in the financial community for the community
as a whole is not small. It is nearly nil." John Kenneth Galbraith, The
Great Crash of 1929
Just as was the case with his work on financial instability, Hyman
Minsky's analysis of the problems of poverty and inequality in a capitalist
economy, as well as his understanding of the political dysfunctions that
would result from treating these problems in the wrong way, were prophetic.
See this piece by Minksy's student L. Randall Wray, especially Section 2:
http://www.levyinstitute.org/pubs/wp_515.pdf
The centerpiece of Minsky's preferred approach was based on a government
commitment to "tight full employment". He believed that neither human capital
investment, economic growth, nor redistribution would be sufficient on their
own to address the problem.
As part of the critique of the human capital approach, Minsky argued
that:
"it is unjust to tell the poor that they must change before they
will be entitled to work-whether it is their skills set or their character
that is the barrier to work... Minsky always argued that it is preferable
to "take workers as they are," providing jobs tailored to the characteristics
of workers, rather than trying to tailor workers to the jobs available
before they are allowed to work (Minsky 1965, 1968, 1973)."
Minsky accurately foresaw the way in which a welfare approach to poverty,
as opposed to a full employment approach, would politically divide working
people among themselves:
"Further, NIT (and other welfare programs) would create a dependent
class, which is not conducive to social cohesion (Minsky 1968). Most
importantly, Minsky argued that any antipoverty program must be consistent
with the underlying behavioral rules of a capitalist economy (Minsky
no date, 1968, 1975a). One of those rules is that earned income is in
some sense deserved."
"With the perspective of the 1980s and 1990s now behind us, it is hard
to deny Minsky's arguments-President Reagan successfully turned most Americans
against welfare programs and President Clinton finally "eliminated welfare
as we know it." According to Minsky, a successful antipoverty program will
need to provide visible benefits to the average taxpayer."
We can note that this political problem has only gotten worse, as can
be seen from the deepening ugliness of our domestic politics, and the poll
results that MacGillis cites.
Minsky also understood the unhealthy political and economic dynamics
of an undirected aggregate demand approach to poverty, and promoted, following
ideas of Keynes, a measure of socialized investment and direct job creation:
"Minsky feared that using demand stimulus to reduce poverty would
necessarily lead to "stop-go" policy. Expansion would fuel inflation,
causing policy makers to reverse course to slow growth in order to fight
inflation (Minsky 1965, 1968). Because wages (and prices) in leading
sectors would rise in expansion, but could resist deflationary pressures
in recession, there would be an upward bias to rising wages in those
sectors. However, in the lagging sectors, wage increases would come
slowly-only with adequate tightening of labor markets -- and could be
reversed in recession. Hence, Minsky argued that a directed demand policy
would be required-to raise demand in the lagging sectors and for low
wage and unemployed workers. For this reason, he concluded that a direct
job creation program would be required."
All this adds up to a more activist role for the government sector.
As for people betraying their own economic interests, this phenomenon
was aptly described in "What's the matter with Kansas" which can actually
be reformulated as "What's the matter with the USA?". And the answer he
gave is that neoliberalism converted the USA into a bizarre high demand
cult. There are several characteristics of a high demand cult that are applicable.
Among them:
"The group is preoccupied with making money."
"Questioning, doubt, and dissent are discouraged or even punished."
"Mind-numbing techniques (for example: meditation, chanting, speaking
in tongues, debilitating work routines) are used to suppress doubts
about the group or its leader(s)." Entertainment and, especially sport
events in the US society serves the same role.
"The group's leadership dictates – sometimes in great detail – how
members should think, act, and feel." Looks like this part of brainwashing
is outsourced to economy departments ;-)
"The group is elitist, claiming a special, exalted status for itself,
its leader(s), and members (for example the group and/or the leader
has a special mission to save humanity)."
"The group has a polarized, "we-they" mentality that causes conflict
with the wider society."
"The group's leader is not accountable to any authorities (as are,
for example, clergy with mainstream denominations)."
"The group teaches or implies that its supposedly exalted ends justify
means (for example: collecting money for bogus charities) that members
would have considered unethical before joining."
"The group's leadership induces guilt feelings in lower members
for the lack of achievement in order to control them."
"Members are expected to devote inordinate amounts of time to the
group."
"Members are encouraged or required to live and/or socialize only
with other group members."
It is very difficult to get rid of this neoliberal sect mentality like
is the case with other high demand cults.
cm -> likbez...
What has any of this to do with human capital? "Capital" is basically
a synonym for productive capacity, with regard to what "productive" means
in the socioeconomic system or otherwise the context that is being discussed.
E.g. social or political capital designates the ability (i.e. capacity)
to exert influence in social networks or societal decision making at the
respective scales (organization, city, regional, national etc.), where "productive"
means "achieving desired or favored outcomes for the person(s) possessing
the capital or for those on whose behalf it is used".
Human capital, in the economic domain, is then the combined capacity
of the human population in the domain under consideration that is available
for productive endeavors of any kind. This includes BTW e.g. housewives
and other household workers whose work is generally not paid, but you better
believe it is socially productive.
likbez -> cm...
"Human capital, in the economic domain, is then the combined capacity
of the human population in the domain under consideration that is available
for productive endeavors of any kind. This includes BTW e.g. housewives
and other household workers whose work is generally not paid, but you
better believe it is socially productive."
This is not true. The term "human capital" under neoliberalism has different
semantic meaning: it presuppose viewing a person as a market actor.
No, its driven by racism. White trash will take with one hand, then walk
right into a voting both and screw themselves because they think they sticking
it to blacks, mexicans, gays, etc.
Syaloch -> kthomas...
Racism is certainly part of it, but it's really more fundamental than
that.
"This disposition to admire, and almost to worship, the rich and the
powerful, and to despise, or, at least, to neglect persons of poor and mean
condition, though necessary both to establish and to maintain the distinction
of ranks and the order of society, is, at the same time, the great and most
universal cause of the corruption of our moral sentiments. That wealth and
greatness are often regarded with the respect and admiration which are due
only to wisdom and virtue; and that the contempt, of which vice and folly
are the only proper objects, is often most unjustly bestowed upon poverty
and weakness, has been the complaint of moralists in all ages."
What is racism if not an expression of resentment?
bakho said...
This misreads the politics. People who are disconnected from the
job market very easily get disconnected from the political process. They
don't vote. The people who do have jobs and are worried about keeping
them and being paid too little are voting against the "losers" who they
see as parasites. Never mind that the Malefactors of Great Wealth are the
true parasites. Elections in the US are won or lost on voter turnout.
The Rage said...
I guess it depends on what kind of economy you want.
Growth of all kinds is not good. The 2001-2007 "growth" was badly constructed.
I think America itself is in a bad rut....and has been since 1974. That
itself will not be popular. The consensus belief was everything was rosy
up until 2001. That is lie. They used to have a saying "nothing really happens
on the X-files anymore". It really applies to America since 1974. It goes
beyond "inequality".
I mean, we could have 3% wage growth in 2016 and 4% wage growth in 2017.
That doesn't mean a damn thing for a economy's health. The infrastructure
is bad. It shows up in pop culture apathy.
pgl -> The Rage...
"The 2001-2007 "growth" was badly constructed."
Glenn Hubbard might quarrel with this. He was well constructed for George
W. Bush's base - rich people.
On the whole - great comment!!!
cm -> The Rage...
The Y2K/dotcom boom unraveled in 2000, but not all at once. It is difficult
to impossible to disentagle the boundary between dotcom bust, 9/11 and the
prolonged reaction to it, and the start of the Bush presidency (and the
top policymaking figures that came with that, I don't want to necessarily
tie it to Bush himself).
At the same time, the global rollout of the internet, telecommunication,
(start of) commodity videoconferencing, broadband and realtime data exchange,
etc. enabled the outsourcing and offshoring of large and growing segments
of blue and white collar jobs, and much increased fungibility of variously
skilled labor altogether.
On that foundation, a lot of things will appear as badly constructed.
Or from a different angle, given that foundation, how would you arrange
for things to be well constructed?
likbez -> cm...
I would view 9/11 as a perfect cure for dot-com bust. Soon after invasion
of Iraq stock market returned to almost precrash levels. War is the health
of stock market. And since probably 1998 nobody cared about real economy
anyway.
Also housing boom started around this period as conscious, deliberate
effort of Fed to blow the bubble to cure the consequences of the crash at
all costs and face the day of reckoning later (without Mr. Greenspan at
the helm)
reason said...
The problem in thinking here is the equilibrium paradigm. Equilibrium
NEVER exists. If there is a glut the price falls below the marginal cost/revenue
point, if the seller is desperate enough it falls to zero! Ignoring disequilibrium
dynamics means this obvious (it should be obvious) point is simply ignored.
The assumption of general equilibrium leads to the assumption of marginal
productivity driving wages. You are not worth what you produce, you are
worth precisely what somewhat else would accept to do your job.
Lafayette -> reason...
I could not agree more. A Market-Economy is a dynamic in constant disequilibrium,
changing positively and negatively around a mean. The mean is very rarely
an "equilibrium".
likbez -> reason...
Never say never. There some stationary points at which equilibrium
probably exists for a short period of time. But as the whole system has
positive feedback loop built-in and is unstable by definition. So you are
right in a sense that disequilibrium is the "normal" state of such a system
and equilibrium is an exception.
reason said...
And the problem is more growth, is more growth is a trick we cannot
always do in a finite resource technologically sophisticated world. (At
least not growth as it is currently seen.) We need to start thinking in
much longer term time scales. Saying that we have enough oil for 30 years,
is not optimistic - it is an imminent crisis - or do we want our grandchildren
to see the end of the world?
Mr. Long stated that the credit cycle is now changing, taking its signals from the business cycle.
This was agreed upon by Mr. Laggner who in his own words said:
"We're at the end of the credit cycle, the whole mal-investment in shale oil...tens of billions
of dollars in lost wealth"
For the future, Mr. Laggner anticipates a massive series of defaults, resulting from huge deflationary
pressures and a tightening by the market place, which is basically an unintended result of constant
intervention. We are looking at corporate bond defaults, sovereign defaults which will send shockwaves
into the currency system.
"... Is what you're saying here is that, by extending a lot of credit, the financial sector allowed households to maintain consumption in the face of a permanent decline in income (at least relative to expectation)? That's an important part of the story, I agree. ..."
"... the FIRE sector in particular, are parasitic on the economy. ..."
"... Perhaps financialization isn't so much a thing-in-itself as the mechanism through which wealth concentrates in periods of slow growth? ..."
"... As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts." ..."
"... Did Cuba, Venezuela, Argentina and North Korea do better than the financialized economies of the world? Did the hand of the State in Russia, China and other countries secure better outcomes than the global financial sector in countries that allowed it to operate (albeit with heavy regulation)? ..."
"... The financial system can engage in usury, lending money with no connection to productive investment, by simply creating a parasitic claim on income. There are straightforward ways of doing this: credit cards with high rates of interest or payday lending. There are slightly more complicated approaches: insurance that by design doesn't pay off for the nominal beneficiary. ..."
"... "The biggest economic policy decision of the last thirty years has been the decision to de-socialise a lot of previously socially insured risks and transfer them back to the household sector (in their various capacities as workers, homeowners and consumers of healthcare). The financial sector was obviously the conduit for this policy decision." ..."
"... My feeling (based on nothing but intuition) is that the answer is (d). The government is a tool of moneyed interests. I know, it sounds awfully libertarian, but it is what it is. And I can't foresee any non-catastrophic end to it. ..."
The financialization of the global economy has produced a hugely costly financial sector, extracting
returns that must, in the end, be taken out of the returns to investment of all kinds. The costs
were hidden during the pre-crisis bubble era, but are now evident to everyone, including potential
investors. So, even massively expansionary monetary policy doesn't produce much in the way of
new private investment.
This isn't an original idea. The Bank of International Settlements put out a paper earlier this year
arguing that financial sector growth
crowds out real growth. But how does this work and what can be done about it? I'm still organizing
my thoughts on this, so what I have are some ideas rather than a fully formed argument.
First, if the financial sector is unproductive, how can it be so large and profitable in a market
economy?
There are a few possible explanations
(a) As in the official theory of efficient markets, the financial sector is actually earning its
keep by allocating capital to the most productive investments, and by spreading and managing risk.
I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles
and busts.
(b) Tax evasion: the global financial sector allows corporations to greatly reduce their tax liabilities.
Most of the savings in tax is captured in the financial sector itself, but the amount flowing to
corporations is sufficient to offset the high costs of the modern financial sector, relative to (for
example) old-style bank finance and simple corporate structures financed by debt and equity
(c) Volatility: the financialization of the economy has produced greatly increased volatility (in
exchange rates, asset prices and so on). The financial sector amplifies and profits from this volatility,
partly through
regulatory arbitrage, and partly through entrenched and systematic fraud as in the
LIBOR and
Forex scandals.
(d) Political capture: The financial sector controls political outcomes in both traditional ways
(political donations, highly revolving door jobs for future and former politicians) and through the
ideology of market liberalism, which is perfectly designed to support policies supporting the financial
sector, while discrediting policies traditionally sought by other parts of the corporate sector,
such as protection for manufacturing industry. The shift to private finance for infrastructure, discussed
in the previous post is part of this. The construction part of the infrastructure sector (which was
always private) has suffered from the reduced flow of projects, but the finance part (previously
managed through government bonds) has
benefited massively.
The result of all this is that the financial sector benefits from an evolutionary strategy similar
to that of an Australian eucalypt forest. Eucalypts are both highly flammable (they generate lots
of combustible oil) and highly fire resistant. So eucalypt forests are subject to frequent fires
which kill competing species, and allow the eucalypts to extend their range.
dsquared 11.29.15 at 1:24 pm
Surely the answer is "risk transfer". The biggest economic policy decision of the last thirty years
has been the decision to de-socialise a lot of previously socially insured risks and transfer them
back to the household sector (in their various capacities as workers, homeowners and consumers of
healthcare). The financial sector was obviously the conduit for this policy decision. Their role
is to provide insurance to the rest of society and this is what they did – in fact, they provided
too much of it, with too little capital which is why they went bust, and why their bankruptcy was
so disastrous (there's nothing worse than an insurer bankruptcy, because it hits you with a big loss
at exactly the worst time). I think c) above is particularly unconvincing, as the biggest stylised
feature of the period of financialisation was the Great Moderation – in fact, the financial sector
stored up volatility that would otherwise have been experienced by other people, including the intermediation
of some genuinely historically massive imbalances associated with the industrialisation of China,
and stored it up until it couldn't hold any more and exploded.
I also don't think LIBOR and FX
fit into that pattern at all very well either. Financial systems have two kinds of problem, which
is why they often have two kinds of regulators. They have prudential problems and conduct problems.
Both LIBOR and FX were old-fashioned profiteering and cartel arrangements, which could happen in
any industry (hey let's talk about drug pricing and indeed university tuition some time). In actual
fact, as I wrote a while ago, it's only LIBOR that can really be considered a scandal – FX was very
much more a case of customers who wanted the benefits of tight regulation but didn't want to pay
for them, and were lucky enough to find a political moment in which the time was right for an otherwise
very unpromising case.
In other words, the answer to all your questions is "leverage". That's why financial systems grew
so fast, that's why they're associated with poor economic performance, and that's why they tend to
show up in periods of secular stagnation – a secular stagnation is almost defined as a period during
which people try to maintain their standard of living by borrowing. Of course, if the financial sector
had been required to hold enough equity capital in the first place, it would never have grown so
big in the first place, and we could all be enjoying the thirteenth year of the post-dot-com bust[1]
in relative contentment.
[1] I am never going to shut up about this. The real estate bubble was a policy-created bubble.
It was blown up in real time and intentionally, by a Federal Reserve which wanted to cushion the
blow of the tech bust. If the financial sector had refused to finance it, the financial sector would
have been trying to run a monetary policy directly opposed to that of the central bank.
I agree that risk transfer is a big deal. On the other hand, it's not obvious that the financial
sector did a lot to insure households against most of the additional risk, or that the Great Moderation
corresponded to a reduction in the volatility faced by households. On the first point, despite massive
financial innovation since 1980, the set of financial instruments easily available to households
hasn't changed all that much. Most obviously, there's no insurance against bad employment and wage
outcomes and home equity insurance hasn't really happened either.
Is what you're saying here
is that, by extending a lot of credit, the financial sector allowed households to maintain consumption
in the face of a permanent decline in income (at least relative to expectation)? That's an important
part of the story, I agree.
The secular stagnation framing of the question leads me to think more about why investment hasn't
responded to monetary policy rather than directly about households.
Yeah, that's my point – the massive extension of credit to households was the financial sector's
role in the big policy shift. At the end of the day, although we might with the benefit of hindsight
agree that "subprime mortgages with no income verification at teaser rates" were a pretty stupid
product that should never have been offered, they were a brand new financial product that had never
been offered to households before! Even the example you mention – "insurance against bad employment
and wage outcomes" – was sort of sold, albeit that what I'm referring to here is Payment Protection
Insurance in the UK, which sort of underlines that it wasn't done well or responsibly.
I guess
my argument here is that it's the combination of deregulation and stagnation that was necessary to
create the 2000s policy disaster. But if we hadn't had the bad products we got, we'd have had something
else go wrong, probably outside the regulated sector. Because the high debt levels were a policy
goal (or at least, were the inevitable and forseeable consequence of trying to do demand management
without fiscal policy), and as I keep saying in different contexts, you can't get to a stupid debt
ratio by only doing sensible things.
The secular stagnation framing of the question leads me to think more about why investment
hasn't responded to monetary policy rather than directly about households.
Isn't the answer to this just the definition of a Keynesian recession? Investment hasn't responded
to monetary policy because there's no interest rate at which it makes sense to produce goods that
can't be sold.
Capital generally, and the FIRE sector in particular, are parasitic on the economy. They provide
some minimal benefits if kept strongly in check, but quickly become destructive if allowed to grow
unchecked, as they have now.
Dumb outsider thought, turning Eggplant @6 upside down: What about r > g? Perhaps financialization
isn't so much a thing-in-itself as the mechanism through which wealth concentrates in periods of
slow growth?
"But if we hadn't had the bad products we got, we'd have had something else go wrong, probably outside
the regulated sector."
A more sophisticated version of the widely debunked theory that Fannie and
Freddie blew up the housing sector by giving loans to poor people. Rule 1: It's never ever the bankers'
fault. Rule 2: see Rule 1. At least d-squared has been consistent…
Which direction is financialization heading? It looks to be decreasing. The mutual fund industry
is in terminal decline, losing market share to ETFs. There are fewer financial advisors today than
in 2008, yet the number of millionaires has increased. Stock trading has broken a 40 year trend of
increasing volumes. Electronic and exchange trading of bonds and derivatives is increasing, driving
down margins. Bots have driven human traders out of jobs (Dark Pools has a good account of this).
Banks are earnings low single digit returns in their trading divisions, which suggests they will
be shut down if things don't improve. It looks like finance is doing a good job of shrinking itself,
with a little help from Elizabeth Warren.
There were several issues and arguments posed in the OP. I'm addressing this:
"First, if the financial
sector is unproductive, how can it be so large and profitable in a market economy?
There are a few possible explanations
(a) As in the official theory of efficient markets, the financial sector is actually earning its
keep by allocating capital to the most productive investments, and by spreading and managing risk.
I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles
and busts."
D-squared response is of course it's the risk transfer. That flat out contradicts JQ, but d-squared
is a master of the straight face. And then he proceeds - "there has been a decision to desocilaize";
"the financial sector was obviously the conduit for this policy decision"; and "the real estate bubble
was a policy-created bubble."
So JQ, here's your answer of FIRE's ascendancy from an insider: You know me and my friends were
standing around just doing nothin' and then these policy guys come around. Next thing ya know, we've
doubled our share of GDP and put our bosses in the top 0.01%. Who woulda known? Crazy shit, huh?
Hey and if anyone asks, tell 'um "risk transfer." And if they press, tell 'um "secular stagnation."
In fact, tell 'um frickin' anything. It just wasn't our fault.
I know that I shall have to read John Kay's Other People's Money at some point.
I am wondering what people make of the old the then Marxist Hilferding's concept of promoters' profit
as a way to understand some financial sector activity. I posted this here a few years back.
Here's his example, and I am trying to figure out to the extent that it throws light on the recent
activity of Wall Street.
Start with an industrial firm with a capital of 1,000,000 marks that makes a profit of 150,000
marks with the average profit of 15 percent.
With an interest rate of 5% straight capitalization of income of 150,000 marks will have an estimated
price of 3,000,000 marks (150,000/.05=3,000,000 marks)
A deduction of 20,000 marks for the various administration costs and directors fees would make
the actual payment to shareholders 130,000 rather 150,000 marks
A risk premium of, say, 2% would be added to a fixed safe rate of interest of 5% in estimating
the actual stock price
So what, then, is the stock price (130,000/.07)? 1,857,143 or roughly 1,900.000 marks
This 900,000 is free after deducting the initial investment of 1,000,000 marks
The balance of 900, 000 marks appears as promoters' profit which arises from the conversion of
profit-bearing capital into interest bearing capital.
In 1910, Hilferding called this promoters profit, an economic category sui generis; it is earned
by the promoter by selling of stocks or the securitizing of income on the capital market.
For Hilferding the investment bank, which promotes the conversion of profit-bearing to interest-bearing
capital, claims the promoters profit.
The analysis seems pertinent to the securitization process today, and I would love to hear Henwood's
and others' thoughts about this.
As Roubini and Mihm have pointed out, we have seen the securitization of mortgages, consumer loans,
student loans, auto loans, airplane leases, revenues from forests and mines, delinquent tax liens,
radio tower loans, boat loans, state revenues, the royalties of rock bands!
We have seen, in their words, an explosion in the selling of future income of dependable projected
revenue streams such as rents or interest payments on mortgage payments as securities.
That securitization been driven by investors' quest for yield lift given the low rate of interest,
itself the result of the global savings glut and Fed policy.
And it seems that Wall Street, with the connivance of the credit agencies, was able to appropriate
value from the purchasers of securities by understating the risk premia.
The risk premium and promoters' profit are inversely correlated so there is a strong incentive
to understate the former. This is what Hilferding did not say, but seems worth emphasizing today.
I sincerely do not understand your point here. I'm not arguing, just asking for clarification:
(a) As in the official theory of efficient markets, the financial sector is actually earning its
keep by allocating capital to the most productive investments, and by spreading and managing risk.
I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles
and busts.
For one thing, I don't see that the two bubbles and one bust of 1996 – 2015 are self-evidently
worse than the more numerous bubbles and busts of 1976 – 1995. You might say the 2008 brush with
Great Depression outweighs the hyperinflation and multiple deep recessions of the earlier era, but
certainly the Internet and housing bubbles were more productive and less threatening than the commodity,
Japan, emerging debt and other bubbles. Anyway, it's a close enough comparison that someone could
certainly keep a straight face while saying that in the last 20 years financial volatility inflicted
less real economic damage than in the preceding 20 years.
But the bigger issue is no one claims the financial system encourages steady growth. Creative
(bubble) destruction (bust) is the rule. It is command economies that outlaw bubbles and busts–and
inflation and unemployment–at the cost of unproductive employment, empty shelves, stifled innovation,
loss of freedom and other consequences.
If you want to argue that the financial system did not earn its profits in the last 20 years,
it seems to me you have to argue that economic growth was slow, or that more people in the world
are in poverty today, or that there was not enough innovation; not that the ride was too volatile.
Did Cuba, Venezuela, Argentina and North Korea do better than the financialized economies of the
world? Did the hand of the State in Russia, China and other countries secure better outcomes than
the global financial sector in countries that allowed it to operate (albeit with heavy regulation)?
It is certainly possible to argue that we could have had more growth and innovation and poverty
reduction; and less volatility; with some third way that's better than both our current financial
system and the alternatives practiced in the world today. But that point is not so obvious that any
defender of the global financial system must be joking.
Why do you think the booms and busts of the last 20 years are such a clear and damning indictment
of the financial system that the point needs no further elaboration?
The financial system can engage in usury, lending money with no connection to productive investment,
by simply creating a parasitic claim on income. There are straightforward ways of doing this: credit
cards with high rates of interest or payday lending. There are slightly more complicated approaches:
insurance that by design doesn't pay off for the nominal beneficiary.
There are really complicated
ways of doing this: derivatives, for example, which blow up (and as an added bonus, undermine the
informational efficiency of financial markets).
I keep thinking of Piketty's r > g: the ever-accumulating pile of money rising like a slow, but
unstoppable tide. It has to be invested or "invested" - that is, it can buy the assembly of resources
into productive capital assets that represent financial claims on the additional income generated
by business innovation and expansion . . . OR . . . it can be used to finance the parasitic and predatory
manipulations of an emergent neo-feudalism.
Where the secular stagnation thesis is not pure apologetic fraud, I would interpret it as saying,
there are currently few opportunities to invest in additional productive "real" capital stock. For
technological reasons, the new systems require much less capital than the old systems, so when an
old telephone company replaces its expensive copper wire with fiber optics and cellphone towers,
it may be able to fund a large part of the transition out of current cash-flow, even while maintaining
the value of the bonds that once represented investment in a mountain of copper, but are now just
rentier claims on an obsolete world.
In the brave new world, a handful of companies, who have lucked into commercial positions with
high rents, throw off a lot of cash. So, the Apples and Intels do not need to be allocated new capital,
but their distribution of cash to people who don't need it, is generating a lot of demand for "financial
product". The rest of the business world is just trying to manage a slow decline, able to throw off
modest amounts of cash, desperate to find sources of political power that might yield reliable rents,
but without opportunities to innovate that would actually require net investment in excess of current
cashflows from operations.
So, the financial system is just responding to this enlarged demand for non-productive investment
in financial products that generate return from parasitic extraction.
In the interest of parasitic extraction, the financial system pursues the politics of neoliberal
privatization as a means of generating financial products to satisfy demand.
re volatility, the thing you really want to worry about is liquidity. Pre-crash banks could warehouse
risk and so provide liquidity. One consequence was volatility was recorded because liquid markets
allowed prices to be observed.
Regulators have observed the conflict of interest caused by banks
providing a financial service but also participating in the markets with their own money, and have
acted to restrict banks from holding risk for proprietary trading (the Volcker rule). This is fine,
but there has been a noticeable decrease in liquidity in what were once deep markets. The EURCHF
un-pegging in Jan this year is a good example of reduced liquidity resulting in a massive move. There
may well be more of this to come.
"The biggest economic policy decision of the last thirty years has been the decision to de-socialise
a lot of previously socially insured risks and transfer them back to the household sector (in their
various capacities as workers, homeowners and consumers of healthcare). The financial sector was
obviously the conduit for this policy decision."I can't tell if you are arguing with John or agreeing
with him. Is this agreement with his d) [the political capture explanation]? I don't know very much
about the deep history of financial regulation, but I'm fairly certain that most voters have never
put desocialization of risk in their top 5 concerns. Is it possible that the financial sector was
the obvious conduit because they were among the important authors of the ideas?
In my opinion, finance had a passive role in the build
up of the crisis.
Others have said similar things uptread, however this is my opinion:
1) the wage share of GDP depends largely on political choices; since the late seventies there
has been a trend of a falling wage share more or less everywhere, as countries with a lower wage
share are more competitive on the world market.
2) a falling wage share means a rising profit share, and "capitalists" tend to reinvest part of their
profits, so a falling wage share caused a worldwide saving glut.
3) this worldwide saving glut caused an increased financialisation and a bubbling up of the price
of some assets, particularly those assets whose supply is inelastic (for example, the value of distribution
chains or of famous consumer brands).
4) this in turn causes an increased volatility of financial markets, and worse financial crises.
This situation is what we perceive as a secular stagnation, and IMHO depends mostly on a low worldwide
wage share.
Unfortunately, I have no idea of how to reach an higher wage share, and I don't think "the market"
has any mechanism to push up said wage share.
Bruce,
What you are saying makes sense to me. Steven Pressman has also raised the question of how r is to
be maintained with "an abundance of capital and its need for high rates of return." (Understanding
Piketty's Capital in the Twenty First Century).
It's almost as if Piketty in his criticism of the rentier has a rentier's disregard for how the returns
are actually to be made. To the extent that he considers production it is through marginal productivity
theory. Piketty claims that marginal rate of substitution of capital for labor will remain above
unity (and too bad Piketty dismissed the Cambridge Capital critique because Ian Steedman has used
Sraffian theory to show the possibilities of high profits in even a fully automated economy).
Of course as Pressman implies, this "technical" view may blind us to the higher exploitation that
may be necessary for returns to continue to remain high as capital becomes more abundant. Pressman
also implies that Piketty also does not consider how finance can make higher rates of return by making
higher-interest loans to weaker parties while having them absorb most of the risk (this would be
your second kind of investment).
" I don't know very much about the deep history of financial regulation, but I'm fairly certain that
most voters have never put desocialization of risk in their top 5 concerns."
Of course not, but
there are actors here other than "the public" and "the banks". In this case, I'm pretty sure Daniel
is referring to the destruction of unionized middle class jobs with pensions and cheap-to-the-worker
health insurance, which was carried out by their employers. While I doubt I could pick a bank owner
out of a lineup filled out with captains of industry, they aren't actually interchangeable.
"Of course, if the financial sector had been required to hold enough equity capital
in the first place, it would never have grown so big in the first place, and we could all be enjoying
the thirteenth year of the post-dot-com bust[1] in relative contentment."
Secular stagnation to me just means not enough macro (monetary/fiscal) policy to keep up aggregate
demand for full employment and target inflation.
Monetary and fiscal policy is being blocked by politics partly because filthy rich financiers
are buying their way into politics:
The question about Dsquare's alternate history I would have is: what is the response of fiscal
and monetary policy to the "domestication" of the financial sector via higher capital requirements
and leverage regulations, etc.?
If fiscal and monetary policy keeps the economy at a high-pressure level with full employment
and rising wages, I don't see why secular stagnation is a problem.
But politics is blocking fiscal and monetary policy. Professor Quiggin talks of "massive" monetary
policy, but it wasn't massive given the need. (It was massive compared to past recoveries.) It was
big enough to avoid deflation despite unprecedented fiscal austerity. It wasn't big enough to hit
their inflation target in a timely matter.
My feeling (based on nothing but intuition) is that the answer is (d). The government is a tool of
moneyed interests. I know, it sounds awfully libertarian, but it is what it is. And I can't foresee
any non-catastrophic end to it.
"... Most forecasters are barely familiar with what happened in the past. Based on what they say and write, it is apparent they often do not understand what is occurring here and now. Why would anyone imagine that they have the slightest clue about the future? ..."
"... This is not my opinion, but a simple statistical fact: The data overwhelmingly show that the skill set of the predictive pundits is no better than a coin toss. ..."
"... Course some of these 'predictions' are just some ones ideology. Course none of then ever seem to be punished when they fail. ..."
My Sunday Washington Post Business Section
column is out. This morning, we look at the annual forecasting foolishness so prevalent in the
media.
By now, you know the drill: A bunch of analysts make their annual predictions, and of course,
they are utterly useless. Here's an excerpt from the column:
"It's that time of year again when the mystics peer deep into their tea leaves, entrails and
crystal balls to divine what's ahead.
Which means it's also time for my annual reminder: These folks cannot tell the future. Ignore
them.
Most forecasters are barely familiar with what happened in the past. Based on what they say
and write, it is apparent they often do not understand what is occurring here and now. Why would
anyone imagine that they have the slightest clue about the future?
This is not my opinion, but a simple statistical fact: The data overwhelmingly show that the
skill set of the predictive pundits is no better than a coin toss. The odd person gets these forecasts
about the economy and stock markets right each year, but the lack of any sort of consistent winners
and losers means that, mathematically, it is a random outcome."
I speak with numerous experts about the subject, including:
-James O'Shaughnessy (author of the classic "What Works on Wall
Street," and CIO of O'Shaughnessy Asset Management
-Morgan Housel, a columnist for the Motley Fool
-Michael Johnston (Poseidon Financial. author of "A Visual History of Market
Crash Predictions" and "The Not-So-Surprising Truth About Gold Bugs.")
-Laszlo Birinyi (researcher and market historian)
-David Rosenberg (chief economist and strategist at Gluskin
Sheff)
Course some of these 'predictions' are just some ones ideology. Course none of then
ever seem to be punished when they fail. Like the folks who predicted the end of the US
economy that was supposed to happen back in September, you will notice they now predict it
will be in 2016 (which of course means they will just keep changing the year when that doesnt
happen) eithe
"... neoclassical economics cannot establish the definition/measurement of "capital" without first knowing marginal productivity of capital; but they cannot establish the definition/measurement of marginal productivity of capital without first establishing "capital". ..."
"... ironically, it is conceivable that the entire neoclassical case for invisible hand can be reconstructed based on labor theory of value; after all, Ricardo did that ..."
"... But since then there has been lots of development among the more enlightened mainstream economists that have basically established that market failures are both devastating and universal. This is serious, because this means, in fact, in their heart, they know the invisible hand argument is invalid. Stiglitz came close to admit it in some interviews. ..."
"... Whatever is/was their internal system, both the Soviet Union and China are a part of the capitalist world system and therefore both of them are obligated to pursue economic growth. ..."
"... What you are saying/suggesting presents a profound misunderstanding of open, dissipative complex systems/structures – which we (our society, our economy – indeed our entire world ) are. ..."
"... Such systems cannot be in a permanent thermodynamic equilibrium – controlled plateau, or "sustainability" if we will (which you seem to be wishing/suggesting). They are utterly and totally dependent on ever-expanding energy/resource "consumption" and they ALWAYS and without exception collapse (hint: A.Bartlet)! Indeed, if physics and mathematics is to be trusted, they must collapse! ..."
Hi Dennis, I wrote a long reply to your question on labor theory of value. But somehow after I
posted it, it appears to have disappeared. I am trying to re-post it here
Dennis:
Hi Dennis, thanks for bringing this up. This is definitely not about energy. But since you
mentioned this here, let me give you some of my thought.
First, regarding neoclassical economics, the debate between two Cambridges pretty much destroyed
the logical foundation of neoclassical economics. Because neoclassical economics cannot establish
the definition/measurement of "capital" without first knowing marginal productivity of capital;
but they cannot establish the definition/measurement of marginal productivity of capital without
first establishing "capital".
So neoclassical economics is involved in circular reasoning, and without a meaningful concept
of capital, the rest of the system collapses.
The above is mostly theoretical. It does not necessarily undermine one's faith in the efficiency
of a market economy (ironically, it is conceivable that the entire neoclassical case for invisible
hand can be reconstructed based on labor theory of value; after all, Ricardo did that)
But since then there has been lots of development among the more enlightened mainstream
economists that have basically established that market failures are both devastating and universal.
This is serious, because this means, in fact, in their heart, they know the invisible hand argument
is invalid. Stiglitz came close to admit it in some interviews.
Why does it matter? Consider the current environmental crisis. It is conceivable that we will
fail to stop climate change and the emerging climate catastrophes will bring down human civilization.
From the neoclassical perspective, this is because the market prices for fossil fuels are wrong.
Can this be corrected by government intervention? From the neoclassical perspective, to do this,
the government needs to know the correct prices and even if the government does know the correct
prices, there is still the implementation problem (principal-agent problem, people will find ways
to outmaneuver government, etc). If the government does not know the correct prices or cannot
implement, then we cannot correct market failures. If, on the other hand, the government does
know the correct prices and can implement, why not have socialist planning?
Compare this to socialism. Of course one needs to be reminded of the Soviet environmental disasters.
But the Soviet environmental failures were almost nothing compared to the contemporary Chinese
environmental crisis (and I need to remind people that China's current environmental crisis has
happened after China's capitalist transition). Whatever is/was their internal system, both
the Soviet Union and China are a part of the capitalist world system and therefore both of them
are obligated to pursue economic growth.
Although this has not happened in history, but it is definitely conceivable that a socialist
economy can be structured to be based on zero or negative growth. But this cannot be said of capitalism.
In fact the strongest economic argument against socialism is that the socialist economies did
not grow rapidly enough (even though Cuba succeeded in delivering higher life expectancy than
the United States and for some years Cuba was considered the only country that met the principle
of sustainable development by the living planet report). Therefore, the question is, if it turns
out that capitalism cannot provide sustainability for human civilization, what social system can
deliver sustainability while meeting population's basic needs?
Now, about labor theory of value. There are two different questions here. One has to do with
the labor theory of value as a theory to explain the long-term equilibrium prices in a competitive
market economy and the other has to do with what Marx called the theory of surplus value.
About the theory of surplus value, it needs to be reminded that Marx's theory of surplus value
or exploitation is not moralistic but based on observed economic facts (although it could be used
for moralistic purposes). All it says is no more than this: in a capitalist economy, a workers
has to work longer than the social labor time embodied in the commodities consumed by the worker
himself (or the worker's family) and in this sense, the capitalist profit (surplus value) derives
from the worker's surplus labor. This is factually true.
Of course, as you said, a similar quantitative relationship can be established for other production
inputs. Say, the total energy consumed in a society will have to be greater than the energy input
used for energy production (people here are of course familiar with EROEI, which has to be greater
than 1 for society to function). Based on this, one could argue that not only the workers are
exploited but energy is also "exploited".
But if one really wants to extend the concept of "exploitation" here (which I don't think makes
sense), what is being "exploited" is energy BUT NOT energy owners (even less the owners of capital
goods consuming energy).
In any case, the concept of "exploitation" or surplus value has to be used in a context of
social relations. It makes sense that the workers can take over the means of production and appropriate
their own surplus value (or products of their surplus labor). But it is obviously nonsense to
say that the energy input can somehow appropriate the "surplus energy" consumed in other energy
consumption processes.
Finally, about the long-term equilibrium prices. It can be easily established that in "simple
commodity production" (pre-capitalist market economy, where the producers own their means of production),
market prices tend to fluctuate around ratios that are in proportion to the total labor embodied
in commodities (including both direct labor and indirect labor embodied in means of production).
The problem has to do with "prices of production" or the equilibrium prices in capitalism (you
are probably aware that this is known as the "transformation problem" in the Marxist literature).
All the difficulty comes from the fact that in capitalism, the direct labor time ("live labor")
is further divided into necessary labor (the labor time it takes for the worker to replace his
value of labor power) and surplus labor. In fact, knowing the production coefficients, a unique
set of equilibrium prices and the equilibrium profit rate can be solved from a set of past labor
(indirect labor), necessary labor, and surplus labor for each commodity. Thus, a definite set
of mathematical relations can be established between the prices and the labor variables (although
it's no longer simple proportionality; but I think it does not matter)
Of course the Neo-Sraffians would like to emphasize that you can take any other important input
(say, energy) and establish a similar set of relationship between prices and say, past energy,
necessary energy, and surplus energy. But, as I said, energy cannot be a player in social relations.
In any case, labor theory of value plays an insignificant role in modern Marxist economics
(I personally still think labor theory of value is valid but it no longer provides important insights).
You will not find labor theory of value in my book. But I hope you will still find it intellectually
interesting (and a little provocative).
Hi Minqi Li,
I read your reply to Dennis and found it cogent, however I do have a problem with the standard
neoclassical economic viewpoint and as I have stated many times I find the standard capitalist
and communist economic models to be less than useful systems with which to address our current
global dilemmas. I am of the school of thought that we have to invent completely new ways of thinking
and acting. There are some people who have embarked on this journey. I think this group best embodies
my current thinking about what kinds of systems we need to develop. Some of these ideas are already
taking hold in China too.
The concept of 循环经济 or recycling economy is actually what China
borrowed from the West. Chinese economists started talking about it in the 1990s. The practice
is not as radical as it sounds. The primary intention has not been so much about saving the environment
as accelerating capital accumulation by saving costs.
Although in some cases it has had some beneficial "side effects"
I agree that we need completely new thinking and practice that go beyond the 20th century.
I am of the school that zero (if not negative) economic growth is necessary for sustainability.
The question is what kind of economic system can deliver it.
"…I am of the school that zero (if not negative) economic growth is necessary for sustainability.
The question is what kind of economic system can deliver it…."
What you are saying/suggesting presents a profound misunderstanding of open, dissipative
complex systems/structures – which we (our society, our economy – indeed our entire world ) are.
Such systems cannot be in a permanent thermodynamic equilibrium – controlled plateau, or
"sustainability" if we will (which you seem to be wishing/suggesting).
They are utterly and totally dependent on ever-expanding energy/resource "consumption" and they
ALWAYS and without exception collapse (hint: A.Bartlet)!
Indeed, if physics and mathematics is to be trusted, they must collapse!
-So, when you say:
"…The question is what kind of economic system can deliver it…", you are looking for the wrong,
non-existing thing.
I agree in principle, but it is clear that societies can be built that are stable
for hundreds to thousands of years until conditions diverge too much from those that allowed their
formation. Hunter-gatherer societies were economically and socially stable in many parts of the
world for most of the Holocene, so in principle it is theoretically possible to build a stable
society that takes from the environment not much more than what can be renewed or recycled or
last for a very long time. Animals and plants do it all the time, but of course their numbers
are checked by the environment. And of course it would have little to do with current industrial
civilization that is completely unsustainable.
Hunter-Gatherers were stable ONLY for nature kept a "big stick" over their head every time they
multiplied more than they should have…but as Ron has said multiple times: we are clever and have
bypassed that (or so we think…).
Theoretically- as you say- yes!
Practically: NO!
"…We will kill them all…"
~ Ron Patterson
-And lastly, all this is mute for we ALREADY have passed the tipping point, or the point of
no return- if you will.
I agree with the idea that trying to achieve a zero growth economy is the only path towards
sustainability.
Two points:
First the concept of the 'Circular Economy' goes far beyond simple recycling.
It incorporates systems and design thinking at a fundamental level in all aspects of the economy,
government,and social systems. It thinks of the economy as an ecosystem. It borrows heavily from
how nature builds sustainable systems. It is also very important to understand that it is not
just a greenwashing. It is about a deep and fundamental process change.
Second: At our current juncture 'Perfect' is the enemy of good enough!
We need to move forward with all aspects of the 'Circular Economy' We don't have time to design
and build a perfect system, We are in a situation where we know that our current ways of doing
things are not sustainable so we have to push ahead with imperfect solutions and learn as we go.
Best Hopes!
BTW, Petro is only technically correct here:
-What you are saying/suggesting presents a profound misunderstanding of open, dissipative
complex systems/structures – which we (our society, our economy – indeed our entire world ) are.
Without throwing the baby of ecosystem thermodynamics 101 out with the bath water, I repeat
my point 'Perfect' is the enemy of good enough. Ecosystems are relatively speaking stable and
have been for long periods of time. Nature has been tweaking them for 3.8 billion years. We on
the other hand have managed to really screw things up in just a few thousand years.
We need to go back and learn how nature does design
If we went back to when nature was
in balance, to the point to where we were no longer destroying the ecosystem, then we would be
back to only a few million Homo sapiens on earth.
While it is true that humans are a part of nature, it is also true that cancer is a part of
nature.
We need to go back and learn how nature does design
If we went back to when nature
was in balance,
Ron, that totally misses the point!
Yes, the ultimate goal would be to have sustainable systems in place. However, we are not in
a position to go back to anything. We need to go forward. The point I was making is that we can
learn from the way nature creates sustainable ecosystems and apply those lessons to our own systems.
This is why I wanted to make crystal clear that I'm not talking about greenwashing or anything
'Green' in the old hippie commune model.
Basically nature uses multiple interconnected circular systems simultaneously on various scales
from the microscopic to gigantic. Think of the multiple ecosystems on a single tree in a rainforest.
The mosses and lichens fungi living on the bark of the tree. All the insect communities, ants,
beetles, arachnids, etc, that depend on that. The tree itself using sunlight through photosynthesis,
breathing, producing O2,transporting water and recycling nutrients, the carbon and nitrogen cycles
and so on. The top of the tree is colonized with with completely different specialized ecosystems
covered with epiphytes. Tree frogs and lizards living in the water filled pools created in the
base of bromeliads. The birds and snakes living in the canopy. The large and small mammals living
in various niches within all those ecosystems, the detrivores and bacteria and fungi that recycle
all the nutrients from the organisms that die, etc… etc… and we are talking just one tree in a
forest. This is the kind of integrated systems design that we need to emulate in our cities and
businesses.
We humans, on the other hand, have built linear consumptive nonintegrated systems. These systems
are extremely wasteful. Linear systems only work when resources limits are nonexistent. We no
longer have the luxury of continuing with such systems. We need to learn how nature practically
eliminates waste by emulating a model where waste streams are resource inputs and everything is
reused there is practically no waste in a functioning stable ecosystem.
We need to learn how nature practically eliminates waste by emulating a model where waste streams
are resource inputs and everything is reused there is practically no waste in a functioning stable
ecosystem.
I totally understand your point Fred, but you are simply missing the big picture.
When you say "we" just who are you talking about? Obviously if you are talking about fixing the
terrible mess we find ourselves in, then "we" has to mean "we humans", all of us. And when you
do that you are talking absolute nonsense.
Individuals can change but human nature cannot change. "We" will go on behaving in the future
exactly as we have behaved in the past. The mass of humanity is consuming the natural resources
like a drunken sailor going through his rich uncle's inheritance. And I don't mean just fossil
resources, I mean all resources, all nature's bounty. And we are taking it from all the other
creatures who are less clever than we are.
And "we" will continue to do so until it is gone, and all the other creatures are gone also.
wimbi, 11/13/2015 at 10:50 pm
A simple engineer's suggestion for basis of new economics, based on conversation with wiser
ones elsewhere.
Proper economic structure is that which maximizes the number of options available for future
choices.
Same as, minimize irreversibility; same as second law of thermo. Or, don't mess things up for
the next guy.
Examples of violations of basic rule- kill the coral, next guy has less fish ; burn the oil,
next guy has a smaller hunk of planet at bearable temps.
Example of application of basic rule – go to solar for energy, and stick within bounds of
activity thereby set.
NB- another fundamental flaw of capitalism– like stars growing in a dust cloud where more
massive ones grab mass faster than littler ones, ending up with big one gobbling it all.
Bigger capitalists grab more resources faster than smaller ones, ending up with big ones
getting it all.
And, very serious consequence – gross maldistribution of resource relative to individual
ability to use resource wisely.
"... those of us who warned of the housing bubble and predicted that the resulting downturn would be hard to reverse saw the weak growth as a 100 percent predictable problem from a shortfall in aggregate demand. There was no source of demand to replace the construction and consumption demand driven by the bubble. ..."
"... We later get the strange statement: Simply put, companies are running out of workers, customers or both. In either case, economic growth suffers. ..."
"... Actually, these are two very different stories that need to be considered separately. Suppose companies dont have enough customers. This is a story of inadequate demand. How do we solve it? Spend money. The private sector can do it, the government can do it, counterfeiters can do it. In this story, more demand will create more supply. The only obstacle to generating the demand is our own stupidity. (We can also all decide to work fewer hours, since we are producing more than we need, we should be able to all work less and still meet our needs.) ..."
"... The story of too few workers is a story of inadequate supply. We have needs that we just cant meet because there is no one to do them. The problem with this story is that it only focuses on half of the equation, and by far the less important half. The ability of the working population to meet the needs of the total population depends on both the size of the workforce relative to the whole population and also its productivity. The productivity portion of the story swamps the population portion of the story. ..."
WSJ Goes Long on the Hard to Get Good Help Story by Dean Baker Published: 23 November 2015
The usually astute Greg Ip gets derailed in a high production values piece that tries to tell
us that our problems stem from not having enough kids. For those left scratching their heads while
sitting in traffic jams or standing in over-crowded subway cars, the basic story is that we somehow
don't have enough workers to do all the work. (Where are those damn robots when we need them?)
Anyhow, the piece starts out quickly on the wrong foot:
"Ever since the global financial crisis, economists have groped for reasons to explain why
growth in the U.S. and abroad has repeatedly disappointed, citing everything from fiscal austerity
to the euro meltdown. They are now coming to realize that one of the stiffest headwinds is also
one of the hardest to overcome: demographics."
Umm no, those of us who warned of the housing bubble and predicted that the resulting downturn
would be hard to reverse saw the weak growth as a 100 percent predictable problem from a shortfall
in aggregate demand. There was no source of demand to replace the construction and consumption
demand driven by the bubble.
And, I don't recall being at all troubled by slower aggregate growth, the issue was that we
were seeing insufficient growth to fully employ the population. The United States and many other
wealthy countries have seen a sharp decline in the employment to population ratio. This is true
even when we look at the employment to population ratio for prime age (ages 25-54) workers. This
is down by three full percentage points from its pre-recession peak and by more than four percentage
points from its 2000 peak. It is pretty hard to explain the drop in the percentage of people working
by demographics.
We later get the strange statement: "Simply put, companies are running out of workers, customers or both. In either case, economic
growth suffers."
Actually, these are two very different stories that need to be considered separately. Suppose
companies don't have enough customers. This is a story of inadequate demand. How do we solve it?
Spend money. The private sector can do it, the government can do it, counterfeiters can do it.
In this story, more demand will create more supply. The only obstacle to generating the demand
is our own stupidity. (We can also all decide to work fewer hours, since we are producing more
than we need, we should be able to all work less and still meet our needs.)
The story of too few workers is a story of inadequate supply. We have needs that we just can't
meet because there is no one to do them. The problem with this story is that it only focuses on
half of the equation, and by far the less important half. The ability of the working population
to meet the needs of the total population depends on both the size of the workforce relative to
the whole population and also its productivity. The productivity portion of the story swamps the
population portion of the story.
Here's what I wrote in response to a Washington Post piece on China earlier in the month.
"To see why this is not true, we will take a very simple story where we contrast a country
with moderate productivity growth and no demographic change with a country rapid productivity
growth and a rapid aging of its population. The figure below shows the basic story.
[graph]
"We assume that in 1985 there are five workers to every retiree in both the Washington Post
and China story. If we set output per worker in 1985 equal to 100, then the amount of output per
worker and retiree in 1985 is 83.3 (five sixths of the output per worker). We then allow for different
rates of productivity growth and population growth over the next three decades.
"In the China scenario, we have 5.0 percent annual productivity growth. This is somewhat slower
than the actual rate of growth of output per worker over the last three decades, but it is still
sufficient to make the point. The calculation assumes the ratio of workers to retirees falls to
just two to one, a sharper decline than has actually been the case.
"In the Washington Post scenario, we assume a moderate 2.0 percent rate of productivity growth,
roughly the average rate for the U.S. economy over the last three decades. To make the case extreme
in the other direction, it is assumed there is no change in the ratio of workers to retirees so
that in 2015 the ratio is still five to one.
"As should be obvious, in the high productivity case output per worker is far higher in 2015
than in the Washington Post scenario. Output per worker reaches 432.2 in 2015 in the China scenario,
compared to just 181.1 in the Washington Post scenario.
"Because of the extraordinary differences in output per worker, China is still much better
capable of supporting its retired population in 2015 than a country following the Washington Post
scenario. Its output per person is equal to 288.1 in 2015. This means that both its workers and
retirees can enjoy an income that is 188.1 percent higher in 2015 than it was in 1985. By contrast,
in the Washington Post scenario output per person in 2015 is just 150.9 in 2015, meaning that
its workers and retirees can only enjoy an income that is on average 50.9 percent higher than
in 1985.
"In this case, it should be evident that China will have a much easier time supporting its
retirees than a country that had enjoyed just moderate productivity growth and no demographic
change. It is also worth noting that some demographic change was inevitable. Regardless of what
policies China had pursued it was going to see an aging of its population, which would have meant
a decline in the ratio of workers to retirees.
"These numbers also overstate the benefits of the Washington Post scenario for two other reasons.
The numbers treat retirees as the only dependents. Of course there are also children. The ratio
of children to workers would be far larger in the Washington Post scenario than in the China scenario.
Incorporating children into the calculation would further increase the gap in the change in output
per person between the two scenarios.
"The other difference is that the Washington Post scenario of more rapid population growth
would imply much greater strains on China's natural resources. The country would require much
more food and water and emit a much larger amount of greenhouse gases into the atmosphere. This
would further reduce the standard of living in the Washington Post scenario relative to the China
scenario shown here.
In short, China is actually extraodinarily well-prepared for the aging of its population. It
should in principle have no problem generating enough output so that both its workers and retirees
can enjoy much higher standards of living in ten years than they do today. (This does require
setting up a good public pension system.) Countries with a slower rate of aging but worker productivity
growth will find this more difficult.
In keeping with the confusion throughout the piece we also get the complaint that builders
are suffering from a shortage of labor:
"For example, home builders are simultaneously suffering from shrinking demand since the homeownership
rate is declining, and from labor shortages as the baby boomers retire."
A shortage of labor would imply construction workers' wages are rising rapidly. They aren't.
[graph]
There is some uptick in the rate of nominal wage growth, but it remains below 3.0 percent annually,
which is well below pre-recession levels. In short, not much evidence of a shortage here.
Just to repeat, the question we have to ask is whether the problem is a shortage of demand
or supply. If the problem is demand, then we can easily deal with it. If the problem is supply
then we have to explain why in the era of computerization and robots we aren't seeing productivity
growth. If the economy is broken and unable to sustain productivity growth, this is the real problem.
Getting more people to make our cities and natural spaces more crowded is not the solution.
"... In the real world most credit today is spent to buy assets already in place, not to create new productive capacity. Some 80 percent of bank loans in the English-speaking world are real estate mortgages, and much of the balance is lent against stocks and bonds already issued. ..."
"... Debt-leveraged buyouts and commercial real estate purchases turn business cash flow (ebitda: earnings before interest, taxes, depreciation and amortization) into interest payments. Likewise, bank or bondholder financing of public debt (especially in the Eurozone, which lacks a central bank to monetize such debt) has turned a rising share of tax revenue into interest payments. ..."
"... even government tax revenue is diverted to pay debt service ..."
"... Contemporary evidence for major OECD economies since the 1980s shows that rising capital gains may indeed divert finance away from the real sector's productivity growth (Stockhammer 2004) and more generally that 'financialization' (Epstein 2005) has hurt growth and incomes. Money created for capital gains has a small propensity to be spent by their rentier owners on goods and services, so that an increasing proportion of the economy's money flows are diverted to circulation in the financial sector. Wages do not increase, even as prices for property and financial securities rise – just the well-known trend that we have seen in the Western world since the 1970s, and which persists into the post-2001 Bubble Economy. ..."
Incorporating the Rentier Sectors into a Financial Model
Wednesday, September
12, 2012
by Dirk Bezemer and Michael Hudson
As published in the World Economic Association's World Economic Review Vol #1.
.......
2. Finance is not The economy
In the real world most credit today is spent to buy assets already in place, not to create
new productive capacity. Some 80 percent of bank loans in the English-speaking world are real estate
mortgages, and much of the balance is lent against stocks and bonds already issued.
Banks lend to buyers of real estate, corporate raiders, ambitious financial empire-builders, and
to management for debt-leveraged buyouts. A first approximation of this trend is to chart the share
of bank lending that goes to the 'Fire, Insurance and Real Estate' sector, aka the nonbank financial
sector. Graph 1 shows that its ratio to GDP has quadrupled since the 1950s. The contrast is with
lending to the real sector, which has remained about constant relative to GDP. This is how our debt
burden has grown.
Graph 1: Private debt growth is due to lending to the FIRE sector: the US, 1952-2007
Source: Bezemer (2012) based on US flow of fund data, BEA 'Z' tables.
What is true for America is true for many other countries: mortgage lending and other household
debt have been 'the final stage in an artificially extended Ponzi Bubble' as Keen (2009) shows for
Australia. Extending credit to purchase assets already in place bids up their price. Prospective
homebuyers need to take on larger mortgages to obtain a home. The effect is to turn property rents
into a flow of mortgage interest. These payments divert the revenue of consumers and businesses from
being spent on consumption or new capital investment. The effect is deflationary for the economy's
product markets, and hence consumer prices and employment, and therefore wages. This is why we had
a long period of low cpi inflation but skyrocketing asset price inflation. The two trends are linked.
Debt-leveraged buyouts and commercial real estate purchases turn business cash flow (ebitda: earnings
before interest, taxes, depreciation and amortization) into interest payments. Likewise, bank or
bondholder financing of public debt (especially in the Eurozone, which lacks a central bank to monetize
such debt) has turned a rising share of tax revenue into interest payments.
As creditors recycle
their receipts of interest and amortization (and capital gains) into new lending to buyers of real
estate, stocks and bonds, a rising share of employee income, real estate rent, business revenue and
even government tax revenue is diverted to pay debt service. By leaving less to spend on goods and
services, the effect is to reduce new investment and employment.
Contemporary evidence for major
OECD economies since the 1980s shows that rising capital gains may indeed divert finance away from
the real sector's productivity growth (Stockhammer 2004) and more generally that 'financialization'
(Epstein 2005) has hurt growth and incomes. Money created for capital gains has a small propensity
to be spent by their rentier owners on goods and services, so that an increasing proportion of the
economy's money flows are diverted to circulation in the financial sector. Wages do not increase,
even as prices for property and financial securities rise – just the well-known trend that we have
seen in the Western world since the 1970s, and which persists into the post-2001 Bubble Economy.
It is especially the case since 1991 in the post-Soviet economies, where neoliberal (that is,
pro-financial) policy makers have had a free hand to shape tax and financial policy in favor of banks
(mainly foreign bank branches). Latvia is cited as a neoliberal success story, but it would be hard
to find an example where rentier income and prices have diverged more sharply from wages and the
"real" production economy.
The more credit creation takes the form of inflating asset prices – rather than financing purchases
of goods and services or direct investment employing labor – the more deflationary its effects are
on the "real" economy of production and consumption. Housing and other asset prices crash, causing
negative equity. Yet homeowners and businesses still have to pay off their debts. The national income
accounts classify this pay-down as "saving," although the revenue is not available to the debtors
doing the "saving" by "deleveraging."
The moral is that using homes as what Alan Greenspan referred to as "piggy banks", to take out
home-equity loans, was not really like drawing down a bank account at all. When a bank account is
drawn down there is less money available, but no residual obligation to pay. New income can be spent
at the discretion of its recipient. But borrowing against a home implies an obligation to set aside
future income to pay the banker – and hence a loss of future discretionary spending.
3. Towards a model of financialized economies
Creating a more realistic model of today's financialized economies to trace this phenomenon requires
a breakdown of the national income and product accounts (NIPA) to see the economy as a set of distinct
sectors interacting with each other. These accounts juxtapose the private and public sectors as far
as current spending, saving and taxation is concerned. But the implication is that government budget
deficits inflate the private-sector economy as a whole.
In the case of the US (using the
NBER business cycle dates), in the post-WWII period expansions have lasted from 12 months in
the expansion ending in 1981to 120 months in the expansion ending in 2001. The current expansion
is already 77 months long, longer than the previous expansion of 2001-2007.
... ... ...
And this second reading the chart reminds us of the risk that we are facing if the next
recession is somewhere in the near future and monetary policy has not had the time to go back to
normal, to go back to levels of short term rates that allow for a decrease in these rates that is
consistent with what we have seen in previous recession. And entering the next recession in
Europe or the U.S. with interest rates that are too close to zero does not sound like a good idea
and in addition there is a lot of uncertainty given that we have not seen such a case in the
recent business cycles.
"... Every year, in the backwaters of America, that economy seems to put out fewer and fewer chairs. ..."
"... Not pull the wool over our eyes. But they both do defend and rely on a mainstream neoliberal, New Keynesian models of the economy which I think paint a very inadequate picture of the way our economy actually functions and is woefully inadequate as a guide for policy action - especially of the kinds that are urgently needed in 2015. ..."
"... I dont think Krugman and DeLong are the forces of evil. I just think the United States is in much worse shape then they seem prepared to come to grips with, and is in need of much more radical social and economic change then they seem willing to propose or entertain. They are stuck in the past and weighed down by defunct orthodoxies and theoretical abstractions. ..."
"... Most of my general criticisms of economists, by the way, are aimed at macroeconomists. I listened to a lecture by Robert Schiller the other day about his new book, and thought it sounded like great stuff. I think there is lots of great empirical work going on based on nuanced and up-to-date theories of human behavior. The macro guys often claim - on the basis of some kind of anti-reductionist credo - that their grand uniform economic theories of everything can float free of any foundation in theories of the actual behavior of actual human beings. But the theories are in practice based on analogies from individual or firm behavior to macro behavior, and the behavioral models on which they are based are extremely crude. ..."
"... But basically, I think my main axe to grind is that these economists are just not sufficiently appalled by the moral horrors of the social world we live in. There is a general lack of zeal. ..."
"... Sadly, it is also the case that the Democrats have backed way off economic issues since the late 1970s. At the time they suffered a massive fundraising disadvantage and wanted to attract big money donors (still Hillarys position). ..."
Harold Pollack (the beginning of the post talks about a recent column in the NY Times noting that
"The people who most rely on the safety-net programs secured by Democrats are, by and large, not
voting against their own interests by electing Republicans. Rather, they are not voting, period,"
and how that has turned blues states red):
What's the matter with Kentucky?: ...Viewed from afar, one might think that categories such
as "deserving poor" or "disabled" are reasonably clear-cut. Viewed up-close, things seem much
more fuzzy. Many people who rely on public aid straddle the boundaries between deserving and undeserving,
disabled and able-bodied. Many of us know people who receive various public benefits, and who
might not need to rely on these programs if they made better choices, if they learned how to not
talk back at work, if they had a better handle on various self-destructive behaviors, if they
were more willing to take that crappy job and forego disability benefits, etc.
It's easy, even
viewing our own friends and relatives, to confuse cause and effect regarding more intimate barriers.
A sad reality of psychiatric disorders is that the very symptoms which inflict mental pain on
the sufferer can make themselves felt to others in ways that undermine empathy and personal relationships.
Across the Thanksgiving dinner table, you see these human frailties and failures more intensely
and with greater granularity than the labor economist could possibly see running cold data at
the Census Bureau. But operating at high altitude, the labor economist sees structural issues
you can't see from eye level.
There have always been vulnerable people, whose troubles arise from an impossible-to-untangle
mixture of bad luck, destructive behaviors, and difficult personal circumstance. That economist
can't see why your imperfect cousin can't seem to get it together to hold a basic job. She can
see that your cousin is being squeezed out by an unforgiving musical-chairs economy. Every
year, in the backwaters of America, that economy seems to put out fewer and fewer chairs.
"Supporters of expanded social provision must find better ways to engage poor people, to get out
their votes."
Of course Republicans are doing everything they can to keep poor people from voting.
cm -> pgl...
Also in the US, elections seem to always (?) take place on work days, whereas e.g. in Germany
the happen on Sundays as a rule. Of course one can vote by mail, but that requires a pretty stable
and reliable mailing address ...
pgl -> cm...
In the South the Republicans loathe the idea that voting might occur on Sundays. Seems they fear
those black mega churches turning out the vote.
cm -> pgl...
I was thinking more of people being unable to (or "preferring" not to) miss work, and not being
able to show up for work as well as vote on the same day.
Do you think that people don't have
enough willpower to sustain their decision to vote from Sunday to Tuesday? Or that they would
vote only under the social pressure from the church group?
pgl -> cm...
I'm just saying let them vote when they can. As in your first sentence here.
Number 6 said...
The US is a militarist-imperialist, rentier-socialist, friendly fascist (for now) corporate-state
for the top 0.001-1% to ~10% (the best gov't the money of the top 0.001-1% can buy) and a moronocracy
for the rest of us, i.e., "no representation without taxation".
What is needed is 'Merikans for Moronocracy (or Morons for a New 'Merika) for us morons in
red AND blue states to write in our own names for CEO of the fascist corporate-state. Imagine
tens of millions of us unaffiliated morons writing in Joe Moron for POTUS and Jane Moron for Veep
(or switch for your gender-specific or non-specific preference, or not).
Surely, none of us could do any worse for the bottom 90%+ than the Establishmet top 0.001%'s
"choices" over the past 30-40+ years, or the current lot of Dame Hilbillary, The Donald, Crazy
Carson, et al. (Of course, Bernie Sanders speaks to the values and objectives of the vast majority
of 'Merikans who are actually democratic socialists but have been propagandized for at least a
century or more not to know it.)
Alan Abramowitz * reads the latest Washington Post poll and emails:
"Read these results ** and tell me how Trump doesn't win the Republican nomination? I've been
very skeptical about this all along, but I'm starting to change my mind. I think there's at least
a pretty decent chance that Trump will be the nominee.
"Here's why I think Trump could very well end up as the nominee:
"1. He's way ahead of every other candidate now and has been in the lead or tied for the lead
for a long time.
"2. The only one even giving him any competition right now is Carson who is even less plausible
and whose support is heavily concentrated among one (large) segment of the base-evangelicals.
"3. Rubio, the great establishment hope now, is deep in third place, barely in double digits
and nowhere close to Trump or Carson.
"4. By far the most important thing GOP voters are looking for in a candidate is someone to
'bring needed change to Washington.'
"5. He is favored on almost every major issue by Republican voters including immigration and
terrorism by wide margins. The current terrorism scare only helps him with Republicans. They want
someone who will "bomb the shit" out of the Muslim terrorists.
"6. There is clearly strong support among Republicans for deporting 11 million illegal immigrants.
They don't provide party breakdown here, but support for this is at about 40 percent among all
voters so it's got to be a lot higher than that, maybe 60 percent, among Republicans.
"7. If none of the totally crazy things he's said up until now have hurt him among Republican
voters, why would any crazy things he says in the next few months hurt him?
"8. He's very strong in several of the early states right now including NH, NV and SC. And
he could do very well on 'Super Tuesday' with all those southern states voting. I can't see anyone
but Trump or Carson winning in Georgia right now, for example, most likely Trump.
"9. And as for the idea of the GOP establishment ganging up on him and/or uniting behind another
candidate like Rubio, that's at least as likely to backfire as to work. And even if it works,
what's to stop Trump from then running as an independent?"
Indeed. You have a party whose domestic policy agenda consists of shouting "death panels!,"
whose foreign policy agenda consists of shouting "Benghazi!," and which now expects its base to
realize that Trump isn't serious. Or to put it a bit differently, the definition of a GOP establishment
candidate these days is someone who is in on the con, and knows that his colleagues have been
talking nonsense. Primary voters are expected to respect that?
The reason may well be that there is a vast group of voters who consistently vote against their
better interests, because their mindset is conservative, though they are actually middle class
or lower. - Kansas appears to be a great example. These people do not think things through but
vote on their gut (conservative they think) instincts. Education has a great deal to do with that
voting decision. Thus we seem to see a blue collar worker with a median income take positions
similar to that of the 1%. Curious but educational level is the likely answer. Such voters are
also much more susceptible to propaganda based on tainted or false information which is circulated
freely by many of the talking heads on radio and TV. Note that the Republicans work assiduously
to discourage and restrict voting by gerrymandering, rules, voting days and sometimes requiting
ID. - Democracy in America is a theoretical concept now.
cm said...
The Musical Chairs happens not only in the backwaters. It happens in and around the major job
centers too. Nor is it only a matter of no job vs. some job, also how well the job is paid, working
conditions, full time vs. part time, predictable work hours or on call (and only on-premises hours
paid), etc.
It also doesn't just affect people with various "problems". There is the meme that
when you are good you will always find a job, but that only works when employers are actually
hiring. And the unstated part is that the job will be at your level of skill/ability. In "tech",
and probably most "high skilled" fields, employers have a rather strong preference for an unbroken
career in the field, you are basically defined by the "lowest" work you have done recently.
Dan Kervick -> Peter K....
"Kervick on the other hand tells us everyday that Krugman and DeLong are trying to pull
the wool over our eyes on behalf of an evil neoliberal consensus."
Not pull the wool over our eyes. But they both do defend and rely on a mainstream neoliberal,
New Keynesian models of the economy which I think paint a very inadequate picture of the way our
economy actually functions and is woefully inadequate as a guide for policy action - especially
of the kinds that are urgently needed in 2015.
I don't think Krugman and DeLong are the forces of evil. I just think the United States
is in much worse shape then they seem prepared to come to grips with, and is in need of much more
radical social and economic change then they seem willing to propose or entertain. They are stuck
in the past and weighed down by defunct orthodoxies and theoretical abstractions.
Maybe in their hearts they really do grasp the magnitude of the problems, but just think
the political environment is not hospitable to an honest airing of the alternatives. Maybe they
are scared like everyone else.
But until prominent, established intellectuals with high profiles begin to come forward with
bolder alternatives to late 20th century thinking, the America that is being crushed underfoot
by an out-of-control capitalist leviathan is going to have to face a lot of unwelcome headwinds
in their drive for liberating progressive change.
Syaloc -> Dan Kervick...
So basically you're calling for a return to a more institutional form of economics led by figures
like John Kenneth Galbraith?
Dan Kervick -> Syaloc...
Yes, a more concrete, detailed, institution-based picture of the economic world, with more attention
to history, other branches of social science, moral philosophy, cultural criticism, etc. - as
well as just a bit more street smarts. Macroeconomists seem to have siloed themselves in self-contained
theoretical world, where engagement with the human sciences of power and control, and the moral
implications of those fields of study, are ignored.
Most of my general criticisms of economists,
by the way, are aimed at macroeconomists. I listened to a lecture by Robert Schiller the other
day about his new book, and thought it sounded like great stuff. I think there is lot's of great
empirical work going on based on nuanced and up-to-date theories of human behavior. The macro
guys often claim - on the basis of some kind of anti-reductionist credo - that their grand uniform
economic theories of everything can float free of any foundation in theories of the actual behavior
of actual human beings. But the theories are in practice based on analogies from individual or
firm behavior to macro behavior, and the behavioral models on which they are based are extremely
crude.
But basically, I think my main axe to grind is that these economists are just not sufficiently
appalled by the moral horrors of the social world we live in. There is a general lack of zeal.
djb said...
a lot of it , I am sure, has to do with the "there is no difference between democrats and republicans"
constant brainwashing
which helps the republicans big time
DrDick -> djb...
Sadly, it is also the case that the Democrats have backed way off economic issues since the
late 1970s. At the time they suffered a massive fundraising disadvantage and wanted to attract
big money donors (still Hillary's position).
djb -> DrDick...
still republicans are way worse especially now
DrDick said in reply to djb...
True, but for the poor, it is quite obvious that no one really gives a damn about them. Why
should they vote when all they get is bailouts for banksters and the TPP? Right now, Sanders is
the only one talking about programs that would really help them and he is a long shot (and I am
a Sanders supporter).
Avraam Jack Dectis said...
.
A good economy compensates for much social dysfunction.
A bad economy moves people toward the
margins, afflicts those near the margins and kills those at the margins.
This is what policy makers should consider as they pursue policies that do not put the citizen
above all else.
cm -> Avraam Jack Dectis...
"A good economy compensates for much social dysfunction."
More than that, it prevents the worst
of behaviors that are considered an expression of dysfunction from occurring, as people across
all social strata have other things to worry about or keep them busy. Happy people don't bear
grudges, or at least they are not on top of their consciousness as long as things are going well.
This could be seen time and again in societies with deep and sometimes violent divisions between
ethnic groups where in times of relative prosperity (or at least a broadly shared vision for a
better future) the conflicts are not removed but put on a backburner, or there is even "finally"
reconciliation, and then when the economy turns south, the old grudges and conflicts come back
(often not on their own, but fanned by groups who stand to gain from the divisions, or as a way
of scapegoating).
"... The typical political reaction to financial crises is as follows: votes for far-right parties increase strongly, government majorities shrink, the fractionalisation of parliaments rises and the overall number of parties represented in parliament jumps. ..."
"... In the light of modern history, political radicalization, declining government majorities and increasing street protests appear to be the hallmark of financial crises. As a consequence, regulators and central bankers carry a big responsibility for political stability when overseeing financial markets. Preventing financial crises also means reducing the probability of a political disaster. ..."
"... If you look at the Republican Party and, especially, Republican candidates, now it is not the question of radicalization, but the question of sanity that arises. They are so completely detached from reality that Marxists look like "hard core" realists in comparison with them. ..."
"... The whole party looks like an extreme and bizarre cult that intends to take over the country: another analogy with Marxists. Like Marx quipped: History repeats itself, first as tragedy, second as farce. ..."
"... Democrats are not that different either. With Sanders representing probably the only candidates which can be classified as "center-left" in European terms. For all practical reasons Hillary is a center-right, if not far-right (and as for foreign policy agenda she is definitely far right) candidate. ..."
"... So the key question is about sanity of the US society under neoliberalism, not some form of "radicalization". ..."
Given that honesty in politics and government is relative, I wonder if relatively honest politics
and relatively honest regulation of financial systems prevents financial crises.
She says she would break up the mega banks ... if needed. It is needed - so no hedging on this
issue.
JohnH -> pgl...
Once again pgl shows how gullible he is...believing what Hillary says not what she has done.
What has she done? Well, Wall Street made her a millionaire.
Second, she announced her run for Senator from New York (Wall Street) immediately after Bill
did Wall Street the mother of all favors...ending Glass-Steagall. In his naivete, pgl certainly
believes that there was no quid pro quo!!!
Of course, pgl believes lots of silly things...like his claim that Obama never proposed and
signed off on austerity in 2011...or that he has proposed cutting Social Security...or that trickle
down monetary policy hasn't overwhelmingly benefited the 1%.
I wonder when somebody will finally get to sell him the Brooklyn Bridge [better act now, pgl,
get a really cheap loan while you still can!!!]
JohnH -> JohnH...
pgl thinks that Obama NEVER proposed cutting Social Security's! What a rube!
The political aftermath of financial crises: Going to extremes
By Manuel Funke, Moritz Schularick, and Christoph Trebesch
Implications
The typical political reaction to financial crises is as follows: votes for far-right parties
increase strongly, government majorities shrink, the fractionalisation of parliaments rises and
the overall number of parties represented in parliament jumps. These developments likely
hinder crisis resolution and contribute to political gridlock. The resulting policy uncertainty
may contribute to the much-debated slow economic recoveries from financial crises.
In the light of modern history, political radicalization, declining government majorities
and increasing street protests appear to be the hallmark of financial crises. As a consequence,
regulators and central bankers carry a big responsibility for political stability when overseeing
financial markets. Preventing financial crises also means reducing the probability of a political
disaster.
anne -> anne...
What strikes me, is that the political response to the short-lived international financial
crisis but longer lived recession was quite restrained in developed countries. Leadership changes
struck me as moderate, even moderate in beset Greece as the political stance of Syriza which looked
to be confrontational with regard to the other eurozone countries quickly became accepting.
European developed country governments have been and are remarkably stable. Japan has been
stable. There is political division in the United States, but I do not attribute that to the financial
crisis or recession but rather to social divisions.
The essay is just not convincing.
likbez said...
"What strikes me, is that the political response to the short-lived international financial
crisis but longer lived recession was quite restrained in developed countries"
If you mean that the goal of the state is providing unconditional welfare for financial oligarchy
(which actually is true for neoliberalism), then I would agree.
But if you use any common sense definition of "restrained" this is a joke. Instead of sending
criminals to jail they were awarded with oversized bonuses.
I think the authors are way too late to the show. There is no much left of the New Deal anyway,
so radicalization of the US society was a fait accompli long before crisis of 2008.
If you look at the Republican Party and, especially, Republican candidates, now it is not the
question of radicalization, but the question of sanity that arises. They are so completely detached
from reality that Marxists look like "hard core" realists in comparison with them.
The whole party looks like an extreme and bizarre cult that intends to take over the country:
another analogy with Marxists. Like Marx quipped: History repeats itself, first as tragedy, second
as farce.
Democrats are not that different either. With Sanders representing probably the only candidates
which can be classified as "center-left" in European terms. For all practical reasons Hillary
is a center-right, if not far-right (and as for foreign policy agenda she is definitely far right)
candidate.
So the key question is about sanity of the US society under neoliberalism, not some form of
"radicalization".
"... Mass malinvestments in U.S. shale oil, Brazilian mines, and Chinese factories and real estate must be reckoned with. ..."
"... Instead of economic strength and robust growth, economic fundamentals are breaking down. Manufacturing is slowing. Consumer spending is soft. For additional edification, just look at copper, iron ore, or aluminum.. ..."
But somewhere between collapsing oil prices, dollar strength, and consumer lethargy
the economy's narrative has drifted off plot. The theme has transitioned from one
of renewed growth and recovery to one of recurring sickness and stagnation. Mass malinvestments
in U.S. shale oil, Brazilian mines, and Chinese factories and real estate must be reckoned with.
Price adjustments, bankruptcies, and debt restructuring must be painfully worked through like
a strawberry picker hunkered over a seemingly endless furrow row of over ripening fruits.
Sore backs, burnt necks, and tender fingers are what the over-all economy has in front of it.
The U.S. economy is not immune to the global disorder after all.
More evidence is revealed each week that the unexpected is happening. Instead
of economic strength and robust growth, economic fundamentals are breaking down. Manufacturing
is slowing. Consumer spending is soft. For additional edification, just
look at copper, iron ore, or aluminum...
"... I loved that Bernie Sanders was willing to drop the "F-bomb" (fraud) on Wall Street but he needs to swing much harder at Clinton. Clinton was quick to zing O'Malley as a hypocrite by noting he appointed a former hedge-fund manager to some state regulatory position when given the chance, but yet neither Sanders or O'Malley hit back with the fact that her only child and Clinton Foundation board member, Chelsea Clinton, worked for the hedge fund of a Clinton family pal and mega-donor in 2006. ..."
"... I thought O'Malley had one of the best lines of the night when he said "I think it may be time for us to quit taking advice from economists" but it seemed to go mostly unnoticed and unappreciated. ..."
"... Sanders did a relatively good job of deflecting and not getting zinged by the 'gotcha' question but a full-frontal assault would have been much better. Stronger, more Presidential and with the added bonus of giving neo-liberal economists under the pay of plutocrats a black eye. Another missed opportunity. The questioner set it up perfectly for him. I would have loved to see the expression on her corn-fed face when Bernie turned her 'gotcha' question that she had spent so much time and thought crafting into the home-run answer of the evening. Perhaps it could happen in a debate in the near future. ..."
I couldn't believe my eyes and ears during the debate when Sanders impugned Clinton's
integrity for taking Wall Street super PAC money and she seemed to successfully deflect the
accusation by going full-bore star-spangled sparkle eagle. She played the vagina card then
quickly blurted out "9/11 New York" for applause while attempting conflate aiding and abetting
Wall Street with the 9/11 attacks and patriotism. I couldn't believe people were clapping and
I couldn't believe Clinton had the audacity to pull such a illogical and juvenile stunt on
live television, but yet CBS reported her highest approval scores of the debate were
registered during her confusing but emotionally rousing (for some people apparently) "vagina,
9/11" defense.
I loved that Bernie Sanders was willing to drop the "F-bomb" (fraud) on Wall Street but he
needs to swing much harder at Clinton. Clinton was quick to zing O'Malley as a hypocrite by
noting he appointed a former hedge-fund manager to some state regulatory position when given
the chance, but yet neither Sanders or O'Malley hit back with the fact that her only child and
Clinton Foundation board member, Chelsea Clinton, worked for the hedge fund of a Clinton
family pal and mega-donor in 2006. Neither candidate mentioned that her son-in-law and
the father of her grandchild who she is so fond of mentioning, just so happens to be an
extremely rich hedge fund manager who benefits handsomely from the Clinton's political
connections and prestige. This isn't mud, this is extremely germane, factual material already
on the public record. It gets to the core of who Hillary is and where her loyalties lie.
Hillary herself chose to identify unregulated derivatives and the repeal of Glass-Steagall as
the primary causes of the financial crisis. She either claimed directly or insinuated that she
would address these issues as President, but surprisingly no one pointed out that it was her
husband's administration that blocked Brooksley Born from regulating derivatives in the 1990's
and it was her husband's administration that effectively repealed Glass-Steagal with the
signing of Gramm-Leach-Billey act in 1999. It's not a stretch to say the Clinton's
deregulation of Wall Street paved the way for the crisis of 2008 and the extreme income
inequality of today. Wall Street is deeply unpopular and Bernie Sanders has built a candidacy
on two main issues: attacking Wall Street and addressing income inequality. These are punches
he can't afford not to throw at his rival when she holds a commanding lead in the polls plus
the support of the DNC and media establishment. Clinton is deeply corrupt and beholden to Wall
Street. She needs to be beaten with this stick hard and often. Attempting to deflect this very
accurate, very damaging criticism by wrapping herself in the flag and invoking feminism is a
cheap stunt that will only work so many times before people notice what she is doing. Bernie
needs to swing harder and keep at it, he already has the right message and Clinton is highly
vulnerable on his pet topics.
I thought O'Malley had one of the best lines of the night when he said "I think it may be
time for us to quit taking advice from economists" but it seemed to go mostly unnoticed and
unappreciated. I would have loved a frontal assault on the validity and integrity of
economists when the bespectacled lady in blue attempted to nail down Sanders with a 'gotcha'
question implying raising the minimum wage would be catastrophic for the economy because
"such-and-such economist" said so. There is so much disdain for science and academic
credentials in the heartland right now, it seems crazy not to harness this anti-academic
populist energy and redirect it to a deserving target like neo-liberal economists instead of
climate scientists. " How's that Laffer curve working out for ya Iowa? Are you feeling the
prosperity 'trickle down' yet?" Sanders did a relatively good job of deflecting and not
getting zinged by the 'gotcha' question but a full-frontal assault would have been much
better. Stronger, more Presidential and with the added bonus of giving neo-liberal economists
under the pay of plutocrats a black eye. Another missed opportunity. The questioner set it up
perfectly for him. I would have loved to see the expression on her corn-fed face when Bernie
turned her 'gotcha' question that she had spent so much time and thought crafting into the
home-run answer of the evening. Perhaps it could happen in a debate in the near future.
All this neoliberal talk about "maximizing shareholder value" and hidden redistribution mechanism
of wealth up. It;s all about executive pay. "Shareholder value" is nothing then a ruse for
getting outsize bonuses but top execs. Who cares if the company will be destroyed if you have a golden
parachute ?
Notable quotes:
"... IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. ..."
"... Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R D and capital expenditures. They're all doing it. ..."
"... Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period. ..."
"... This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion. ..."
"... Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery. ..."
"... Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining. ..."
"... But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered. ..."
"... Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s). ..."
"... On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement? ..."
"... "Results of all this financial engineering? Revenues of the S P 500 companies are falling for the fourth quarter in a row – the worst such spell since the Financial Crisis." ..."
By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist,
and author, with extensive international work experience. Originally published at
Wolf Street.
Magic trick turns into toxic mix.
Stocks have been on a tear to nowhere this year. Now investors are praying for a Santa rally to
pull them out of the mire. They're counting on desperate amounts of share buybacks that companies
fund by loading up on debt. But the magic trick that had performed miracles over the past few years
is backfiring.
And there's a reason.
IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested
in capital expenditures and R&D. It's staggering under its debt, while revenues have been declining
for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is
down 38% since March 2013.
Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade,
compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks
and dividends, and $30 billion on R&D and capital expenditures. They're all doing it.
"Activist investors" – hedge funds – have been clamoring for it. An investigative report by Reuters,
titled
The Cannibalized Company, lined some of them up:
In March, General Motors Co acceded to a $5 billion share buyback to satisfy investor Harry
Wilson. He had threatened a proxy fight if the auto maker didn't distribute some of the $25 billion
cash hoard it had built up after emerging from bankruptcy just a few years earlier.
DuPont early this year announced a $4 billion buyback program – on top of a $5 billion program
announced a year earlier – to beat back activist investor Nelson Peltz's Trian Fund Management,
which was seeking four board seats to get its way.
In March, Qualcomm Inc., under pressure from hedge fund Jana Partners, agreed to boost its
program to purchase $10 billion of its shares over the next 12 months; the company already had
an existing $7.8 billion buyback program and a commitment to return three quarters of its free
cash flow to shareholders.
And in July, Qualcomm announced 5,000 layoffs. It's hard to innovate when you're trying to please
a hedge fund.
CEOs with a long-term outlook and a focus on innovation and investment, rather than financial
engineering, come under intense pressure.
"None of it is optional; if you ignore them, you go away," Russ Daniels, a tech executive with
15 years at Apple and 13 years at HP, told Reuters. "It's all just resource allocation," he said.
"The situation right now is there are a lot of investors who believe that they can make a better
decision about how to apply that resource than the management of the business can."
Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged
in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income
for the first time in a non-recession period.
This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks
hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion,
against their combined net income of $847 billion.
Buybacks and dividends amount to 113% of capital spending among companies that have repurchased
shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big
driver in a recovery. Not this time! Hence the lousy recovery.
Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs.
A company buying its own shares creates additional demand for those shares. It's supposed to drive
up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also
reduce the number of outstanding shares, thus increase the earnings per share, even when net income
is declining.
"Serving customers, creating innovative new products, employing workers, taking care of the
environment … are NOT the objectives of firms," sais Itzhak Ben-David, a finance professor of
Ohio State University, a buyback proponent, according to Reuters. "These are components in the
process that have the goal of maximizing shareholders' value."
But when companies load up on debt to fund buybacks while slashing investment in productive
activities and innovation, it has consequences for revenues down the road. And now that magic trick
to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered.
Citigroup credit analysts looked into the extent to which this is happening – and why. Christine
Hughes, Chief Investment Strategist at
OtterWood Capital, summarized the Citi report this way: "This dynamic of borrowing from
bondholders to pay shareholders may be coming to an end…."
Their chart (via OtterWood Capital) shows that about half of the cumulative outperformance of
these buyback queens from 2012 through 2014 has been frittered away this year, as their shares, IBM-like,
have swooned...
... ... ...
Selected Skeptical Comments
Mbuna, November 21, 2015 at 7:31 am
Me thinks Wolf is slightly barking up the wrong tree here. What needs to be looked at is how
buy backs affect executive pay. "Shareholder value" is more often than not a ruse?
ng, November 21, 2015 at 8:58 am
probably, in some or most cases, but the effect on the stock is the same.
Alejandro, November 21, 2015 at 9:19 am
Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've
legalized insider trading or engineered (a) loophole(s).
On a somewhat related perspective on subterfuge. The language of "affordability" has proven
to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but
camouflages the means of embezzling the means of distribution. Isn't distribution, really, the
only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement?
Jim, November 21, 2015 at 10:42 am
More nuance and less dogma please. The dogmatic tone really hurts what could otherwise be a
fine but more-qualified position.
"Results of all this financial engineering? Revenues of the S&P 500 companies are falling
for the fourth quarter in a row – the worst such spell since the Financial Crisis."
Eh, no. No question that buybacks *can* be asset-stripping and often are, but unless you tie capital
allocation decisions closer to investment in the business such that they're mutually exclusive,
this is specious and a reach. No one invests if they can't see the return. It would be just as
easy to say that they're buying back stock because revenue is slipping and they have no other
investment opportunities.
Revenues are falling in large part because these largest companies derive an ABSOLUTELY HUGE portion
of their business overseas and the dollar has been ridiculously strong in the last 12-15 months.
Rates are poised to rise, and the easy Fed-inspired rate arbitrage vis a vis stocks and "risk
on" trade are closing. How about a little more context instead of just dogma?
John Malone made a career out of financial engineering, something like 30% annual returns for
the 25 years of his CEO tenure at TCI. Buybacks were a huge part of that.
Perhaps an analysis of the monopolistic positions of so many American businesses that allow them
the wherewithal to underinvest and still buy back huge amounts of stock? If we had a more competitive
economy, companies would have less ability to underinvest. Ultimately, I think buybacks are more
a result than a cause of dysfunction, but certainly not always bad.
"... Can courage trump careerism? I believe that for the forseeable future the answer is "No". People are highly incentivized to take the path of least resistance and simply go along to get along. ..."
"... It would be wrong to excuse the inaction of the Obama DOJ and SEC crews as being the result of some larger "corrosion of our collective values." The capos in those crews are the people doing the corroding, and not one of them was forced to (not) do what they did. Notice that every last one of the initial bunch is presently being paid, by Wall Street, to the tune of millions of dollars per year. They opted to cover up crimes and take a pay-off in exchange. And they are owed punishment. ..."
I'm embedding the text of a short but must-read speech by
Robert Jenkins, a former banker, hedge fund manager, and regulator (Bank of England) who is now
a Senior Fellow at Better Markets. If nothing else, be sure to look at the partial list of bank misconduct
and activities currently under investigation.
Jenkins points out that regulatory reform has fallen
short on multiple fronts, and perhaps the most important is courage. Readers may understandably object
to him giving lip service to the idea that Bernanke acted courageously during the crisis (serving
the needs of banks via unconventional means is not tantamount to courage), but he is a Serious Person,
and making a case against Bernanke would detract from his bigger message about the lack of guts post-crisis.
Now there have been exceptions, like Benjamin Lawsky, Sheila Bair, Gary Gensler, Kara Stein, and
in a more insider capacity, Danny Tarullo. Contrast their examples with the typical cronyism and
lame rationalizations for inaction, particularly by the Department of Justice and the SEC. It's not
obvious how to reverse the corrosion of our collective values. But it is important to remember than
norms can shift much faster than most people think possible, with, for instance, the 1950s followed
by the radicalism and shifts in social values of the 1960s, which conservative elements are still
fighting to roll back.
We do not live in an economy or a polity that breeds or rewards the kind of public-mindedness
and civic virtue that gives you courage. The author thinks the system needs courageous people,
but posits no conception of where they would come from and how they would thrive in the current
system (news flash: they won't). So this is a classic "I see the problem clearly but can't see
that the solution is impossible under the current system" piece.
TMock
Agreed.
For those who desire real solutions, try this…
The Universal Principles of Sustainable Development
In Tavis Smiley's book, My Journey with Maya Angelou, he recounts an ongoing discussion the
two of them entertained throughout the years concerning which trait, Love or Courage, was more
important in realizing a full life. Angelou argued that acting courageously was the most important.
Smiley saw love as the moving force. While important and moving, the discussion has the dead-end
quality of not being able to move past the current system of injustice. I say this because in
the end, both support incremental change to the existing system as the means to bring about social
justice. The powerful elite have perfected the manipulation of incremental change to render it
powerless.
When trying to change a social system, courage is needed. Courage to form a vision of the future
that is based on public-mindedness and civic virtues that bring justice into the world. Our current
leaders are delivering the exact opposite of civic justice. Its time to call them out on their
duplicity, and ignore their vision of the future.
The courage that is needed today is not the courage to stand up to the criminals running things
and somehow make them change. It is the courage to make them irrelevant. Change will come from
the bottom up, one person at a time.
cnchal
And when one shows up, look what happens.
The disturbing fact is that laws have been broken but law breaking has not touched
senior management.
If they knew, then they were complicit. If they did not, then they were incompetent. Alternatively,
if the deserving dozens have indeed been banned from the field let the list be known – that we
might see some of that "professional ostracism" of which Governor Carney speaks. One person
who did lose his position and quite publicly at that was Martin Wheatley, the UK's
courageous conduct enforcer.
Meanwhile the chairman of Europe's largest bank, Douglas Flint at HSBC, remains
in situ – despite having been on the board since 1995; despite having signed off on the
acquisition of Household Finance; and despite having had oversight of tax entangled subsidiaries
in Switzerland and money laundering units in Mexico. Oh, and you'll love this: the recently retired
CEO of Standard Chartered is reportedly an advisor to Her Majesty's Government. Standard Chartered
was among the first to be investigated for violations of rogue regime sanctions. The bank
was fined heavily and may be so again.
Courageous people get fired, which leads to no courageous people left.
GlassHammer
Can courage trump careerism? I believe that for the forseeable future the answer is "No". People are highly incentivized
to take the path of least resistance and simply go along to get along.
susan the other
By extreme necessity (created by total dysfunction) we will probably wind up with planned and
coordinated economies that do not rely on speculation & credit to come up with the next great
idea. Those ideas will be forced to come from the top down. And the problems of unregulated capitalism
frantically chumming for inspiration and extreme profits will shrink back down from a world-eating
monster to just a fox or two.
Oliver Budde
It would be wrong to excuse the inaction of the Obama DOJ and SEC crews as being the result
of some larger "corrosion of our collective values." The capos in those crews are the people doing
the corroding, and not one of them was forced to (not) do what they did. Notice that every last
one of the initial bunch is presently being paid, by Wall Street, to the tune of millions of dollars
per year. They opted to cover up crimes and take a pay-off in exchange. And they are owed punishment.
Malcolm MacLeod, MD
Oliver: I believe that you hit the nail on the head, and
I wholeheartedly agree.
"... The biggest market in the world today is derivatives, money making money without a useful product or service in sight. With the market in derivatives being ten times larger than global GDP we can see that making useful products and providing useful services is nearly irrelevant even today. ..."
"... "When Capitalism reaches its zenith, everyone will be an investor and no one will be doing anything." ..."
"... This problem of debt vs income seems to reflect the ongoing financialization (extraction, not to be confused with financing) of the global economy rather than a focus on capital development of people and the social and productive infrastructure. ..."
"... The "new model" was inefficient (too many fingers in the pie, all of them extracting value), highly risky (often Ponzi finance from the beginning with reverse amortization), and critically dependent on rising home prices. Even leaving aside the pervasive fraud, the model was diametrically opposed to the public interest, that is, the promotion of the capital development of the economy. It left behind whole neighborhoods of abandoned homes as well as new home developments that could not be sold. ..."
"... In my understanding, the Great Depression was an implosion of the credit system after a period of over investment in productive capacity. The investors failing to pay the workers enough to buy the extra goods produced. The projected returns never materialised to pay back the debt… Boom! ..."
"... China still has implicit state control of the banking sector, they may still have the political will to make any bad debt disappear with the puff of a fountain pen. That option is always available to a sovereign. ..."
"... They specialized in mass production the way agribusiness has here, where the production is not where the consumption is. It's as if all the pig farmers of North Carolina and corn growers in Iowa woke up one morning and found out that the people of the Eastern Seaboard had all been put on a starvation diet. The economic results in the grain belt would not be pretty. Ditto China. ..."
"... Except that China ain't Iowa, they can create a middle class as big as Europe and US combined. ..."
"... It's just anathema for the ruling class to give the little guys a break. ..."
"... The global glut of oil and other resources can't just be attributed to rising production in "tight oil". Somehow the Powers that be are hiding a great deal of economic contraction. If the world economy were growing it would need oil, copper, lead, zinc, wood and wood pulp, gold, and other metals as inputs. What I want to know is the extent of the cover-up, and what the global economy really looks like. ..."
"... We are not competent to forecast the future yet. Even the weather surprises us. Its also the case that people who do have relevant data are quite likely to convert that into profit rather than share it. ..."
"... It's the collapse of bonded warehouse copper/aluminum/etc. lending frauds and all that rehypothecation. I don't think it's just a problem in end demand. It's a problem in the derivatives/futures market. ..."
"... Here is a very good case study for why people are always wrong about economy and markets. What happen to all the currency manipulators like Paul Krugman? ..."
We shouldn't be too surprised at falling commodity prices.
Using raw materials to make real things is all very 20th Century, financial engineering is
the stuff of the 21st Century.
When Capitalism reaches its zenith, everyone will be an investor and no one will be doing anything.
Central Bank inflated asset bubbles will provide for all.
The biggest market in the world today is derivatives, money making money without a useful product
or service in sight. With the market in derivatives being ten times larger than global GDP we can see that making
useful products and providing useful services is nearly irrelevant even today.
"When Capitalism reaches its zenith, everyone will be an investor and no one will be doing
anything."
+1000
Ah, that glorious day when we're all rich, rich, RICHer than Midas from interest, dividends, and
rents!!!
Just to amuse myself, I intend to be a dog poop scooper – and pick up some pocket change of 1
million dollars a poop…
This problem of debt vs income seems to reflect the ongoing financialization (extraction,
not to be confused with financing) of the global economy rather than a focus on capital development
of people and the social and productive infrastructure.
I liked how Wray and Mazzucato linked the two in their Mack the Turtle analogy.
"Underlying all of this financialization was the homeowner's income-something like Dr. Seuss's
King Yertle the Turtle-with layer upon layer of financial instruments, all of which were supported
by Mack the turtle's mortgage payments. The system collapsed because Mack fell delinquent on payments
he could not possibly have met: the house was overpriced (and the mortgage could have been for
more than 100% of the price!), the mortgage terms were too unfavorable, the fees collected by
all the links in the home mortgage finance food chain were too large, Mack had to take a cut of
pay and hours as the economy slowed, and the late fees piled up (fraudulently, in many cases as
mortgage servicers "lost" payments).
The "new model" was inefficient (too many fingers in the
pie, all of them extracting value), highly risky (often Ponzi finance from the beginning with
reverse amortization), and critically dependent on rising home prices. Even leaving aside the
pervasive fraud, the model was diametrically opposed to the public interest, that is, the promotion
of the capital development of the economy. It left behind whole neighborhoods of abandoned homes
as well as new home developments that could not be sold."
Interesting, the supposition here is that China is heading for a depression similar to the
Great Depression.
In my understanding, the Great Depression was an implosion of the credit system after a period
of over investment in productive capacity. The investors failing to pay the workers enough to
buy the extra goods produced. The projected returns never materialised to pay back the debt… Boom!
China could well be headed down that road, there isn't enough money getting into the pockets
of ordinary Chinese that's for sure. Elites everywhere just can't bring themselves to give a break
for those at the bottom.
China still has implicit state control of the banking sector, they may still have the political
will to make any bad debt disappear with the puff of a fountain pen. That option is always available
to a sovereign.
Then again they may just realize in time, someone needs to be paid to buy all the junk.
They were counting on us and the Europeans, but we've let them down. The race to the bottom
erased the global middle class that could buy Chinese consumer products.
They specialized in mass
production the way agribusiness has here, where the production is not where the consumption is.
It's as if all the pig farmers of North Carolina and corn growers in Iowa woke up one morning
and found out that the people of the Eastern Seaboard had all been put on a starvation diet. The
economic results in the grain belt would not be pretty. Ditto China.
The global glut of oil and other resources can't just be attributed to rising production in
"tight oil". Somehow the Powers that be are hiding a great deal of economic contraction. If the
world economy were growing it would need oil, copper, lead, zinc, wood and wood pulp, gold, and
other metals as inputs. What I want to know is the extent of the cover-up, and what the global
economy really looks like.
Where were you in 2011? I was here reading NC. One of the Links posted was a graph of the abrupt
shutdown of China's economy – It was a cliffscape.
Very long vertical drop off. So dramatic I
could hardly believe it and I said I was having trouble catching my breath. Another commenter
said it looked like a tsunami. Of exported deflation as it turns out.
Things have been extreme
since 2007 when the banksters began to fall; 2008 when Lehman crashed (just after the Beijing
Olympics, how convenient for China…) and credit shut down. China was doin' just fine until then.
In spite of the irrational mess in global capitalist eonomix.
The only way to remedy it was to
shut it down I guess. That's really not very fine-tuned for a system the whole world relies on,
is it?
Proceeds from the laughable assumption that official China economic numbers 'may not be as
reliable as we'd like' rather than being 'persistently and hugely faked,' (especially during slowdowns)
and ignores that the housing-market slowdown and huge unsold-RE-overhang will also necessarily
be accompanied by a price crash, hence a huge amount of toxic debt being exposed – really basic
boom/bust dynamics.
And no demographic boom coming to the rescue, either. (But he does repeatedly
invoke the magic 'service economy boom' mantra mentioned by Ilargi.) Thankfully most of the commenters
rightly take the author to task.
Firstly, its only China's buying that stops oil falling even further Sr Ilargi.
Secondly its a Peoples' Republic – employment must be maintained.
We are not competent to forecast the future yet. Even the weather surprises us. Its also the
case that people who do have relevant data are quite likely to convert that into profit rather
than share it.
Received a small airmail parcel today containing some replacement attachments for my Dremel
moto-tool … package was addressed from Shenzen, specifically the "Fuming Manufacturing Park".
It's the collapse of bonded warehouse copper/aluminum/etc. lending frauds and all that rehypothecation.
I don't think it's just a problem in end demand. It's a problem in the derivatives/futures market.
Here is a very good case study for why people are always wrong about economy and markets. What happen to all the currency manipulators like Paul Krugman?
The first point Summers raised ... pointed out that a major global trend over the last few decades
has been the substantial disemployment-or withdrawal from the workforce-of relatively unskilled
workers. ... In other words, it is a real puzzle to observe simultaneously multi-year trends of
rising non-employment of low-skilled workers and declining measured productivity growth. ...
Another related major challenge to standard macroeconomics Summers put forward ... came in response
to a question about whether he exaggerated the displacement of workers by technology. ... Summers
bravely noted that if we suppose the "simple" non-economists who thought technology could destroy
jobs without creating replacements in fact were right after all, then the world in some aspects
would look a lot like it actually does today...
The third challenge ... Summers raised is perhaps the most profound... In a
working paper the Institute just released, Olivier Blanchard, Eugenio Cerutti, and Summers
examine essentially all of the recessions in the OECD economies since the 1960s, and find strong
evidence that in most cases the level of GDP is lower five to ten years afterward than any prerecession
forecast or trend would have predicted. In other words, to quote Summers' speech..., "the classic
model of cyclical fluctuations, that assume that they take place around the given trend is not
the right model to begin the study of the business cycle. And [therefore]…the preoccupation of
macroeconomics should be on lower frequency fluctuations that have consequences over long periods
of time [that is, recessions and their aftermath]."
I have a lot of sympathy for this view. ... The very language we use to speak of business
cycles, of trend growth rates, of recoveries of to those perhaps non-stationary
trends, and so on-which reflects the underlying mental framework of most macroeconomists-would
have to be rethought.
Productivity-based growth requires disruption in economic thinking just as it does in the real
world.
The full text explains
these points in more detail (I left out one point on the measurement of productivity).
An
essential read from Martin Wolf this Thursday on the manner in which corporate surpluses are
contributing to the savings glut problem and causing all sorts of distributive chaos in the process.
So, whereas it used to be the sovereigns over-hoarding international claims and under-consuming/under-investing
in their own infrastructure for the benefit of getting a leg up in the global hierarchal order, it's
now corporates over-hoarding retained earnings for the sake of protecting their dominant positions
instead (retaining earning piles being different to explicit cash piles, which can be generated with
debt not just profit).
Says Wolf:
The observation that a structural surplus of savings over investment appears to have emerged
in the corporate sectors of the big high-income countries is highly significant. It is
significant for the growth of potential supply, since it reflects relatively feeble investment,
but it is also significant for the shape of aggregate demand.
If the corporate sector runs a structural surplus of savings over investment, other sectors
must run offsetting structural deficits. If the government is to be in financial balance, either
households or foreigners must run these deficits. In the eurozone, this logic has led to huge
current-account surpluses (a financial deficit for foreigners). For the UK and US, it is likely
to mean renewed household deficits - a perilously destabilising possibility.
Why is corporate investment structurally so weak then? Wolf proposes a few reasons. One is the ageing
of societies, which lowers the level of investment needed. The other is globalisation, which motivates
relocation out of high-income countries. But the one we think might be most relevant is his
proposition that technological innovation is quietly killing the incentive to invest. This is critical:
Much investment today is in IT, whose price is collapsing: constant nominal investment finances
rising real investment. Again, much innovation seems to reduce the need for capital: consider
the substitution of warehouses for retail stores.
We've taken for granted that "technology" is a force for good in the world. But perhaps the reality
is a little different? Perhaps for every 'good' information tech creates, an equal and equivalent
'ungood' is created too? Or perhaps more so, the reason we're seeing the computer age everywhere
but in the productivity statistics is precisely because information technology is and always has
been another manifestation of a rent-extracting financial type of business.
Here's a chart by way
of
Iren Levina at Kingston University to cement our argument that banks were the original network-based
technology platform unicorns - with business models equally focused on gathering privileged data
about customer behaviours for the purpose of influencing more profitable behaviours elsewhere:
It is with good reason, then, that banks dedicate the biggest chunk of operating expenses to personnel,
algorithms, IT infrastructure and hardware equipment. Banks, like information tech firms today, are
and always have been information processing businesses.
On which note, Diana Hancock, of the Fed, argued
convincingly in the 1990s
that the Financial Firm is a financial technology which takes input (data), processes said input,
and then creates monetary goods which distribute existing capital to sectors which can draw returns
more effectively than others, in exchange for a leasing fee for that matching service.
But as Hancock says, financial profits can only be assured only if the purchase cost of one unit
of the capital good less the rental received during the period is equal to the discounted
depreciated value of the capital good in the rental period.
That's another
way of saying bank profits are only justifiable if the added value from redistributing leased
capital more than compensates for its natural depreciation - something that's only possible if the
total value add is over and above total lease fees charged by the intermediaries. If at the end of
the rental period society has no more capital (or less!) than it had to begin with, fees charged
on an ex-ante basis will have proven unjustified.
The parallels between banks and technology platforms are thus uncanny.
In the banking process, data input represents the process by which information about future consumption
(or lack thereof) - as extrapolated from previous behaviour - is collected from user networks to
facilitate more constructive consumption elsewhere. By the time capital is returned, enough new capital
is supposed to have been created to ensure both the original investors can be paid back as well as
the banking/intermediary layer compensated for. Banking crises emerge when it turns out investments
have failed to compensate for the natural depreciation rate.
Shrinking the pie?
In the unicorn IT process, data input represents the process by which information about future
consumption (or lack thereof) - as extrapolated from previous behaviour - is collected from user
networks to facilitate less constructive consumption at source.
In other words, instead of using information about long-term non-consumption to benefit value-adding
industries which grow the pie for all, tech firms are focused on using information about fleeting
periods of non-consumption to draw down existing capital more efficiently.
The better tech firms are at predicting or shaping behaviours through their information processes,
the less new capital investment is needed, because reduced consumer optionality allows for increased
supplier predictability. To wit, those who can predict their customer's behaviours best or mould
them, become the lowest cost marginal producers - deferring more risky capital investment (by way
of retained earnings) to the moment they can be sure they're the last monopolists left standing.
The pie as a whole stops growing, with only information tech providers - the modern-day rentiers
of the system - benefiting from the structure.
To conclude, some points from Hancock's book which incidentally highlight the parallels between
financial firms and modern-day unicorns:
The amount of profit generated, depends upon the strength of the banking system's monopoly
position.
And..:
The traditional reason given for deposit rate ceilings is that bank competition for deposits
allegedly leads to a high rate of bank failures. According to this view, bank competition for
deposits led individual banks in the 1920′s and early 1930′s to offer higher interest rates in
order to maintain or increase individual share of the market. The banks were forced to rely on
higher yielding riskier assets to offset incurred deposit costs. This placed the banks in a vulnerable
position. Any adverse economic developments, either national or local, would be sufficient to
make these risky assets uncollectible by the bank. Deposit rate ceilings affect consumers,
since they receive less for deposits than would otherwise be the case, but the accompanying increased
monopoly power of financial institutions makes them allegedly more sound.
The techies would argue they're just making the world more efficient.
We can't help wonder if solutions based on substituting new goods for pre-existing goods (or virtual
ones) are somewhat different to solutions which grow the pie for everyone. There seems to us an inherent
risk in creating monopolistic systems which overstretch themselves to the point they
essentially
run on empty.
Izabella Kaminska joined FT Alphaville in October 2008. Before that she worked as a producer at
CNBC, a natural gas reporter at Platts and an associate editor of BP's internal magazine.
"... When it comes to the hubris of corporate chief financial officers, who have been more than happy leveraging up balance sheets in order to reward shareholders, the analysts didn't mince words. We find that corporate CFOs historically are inherently backward-looking when setting corporate financing decisions, relying on past extrapolations of economic activity, even when current market pricing suggests future investment returns may be lower, they wrote. ..."
"... That leaves downgrades by credit-rating agencies as one catalyst that could spark a turn in the cycle; downgrades of corporate credit have already exceeded upgrades this year at some of the bond graders. ..."
"... Might the rating agencies spoil the party? they asked. In the end we believe strong economic interests will overwhelm rationale considerations. Rating agencies remain heavily dependent on new issuance activity, face significant competitive pressures (as issuers will select two of three ratings) and appear unconcerned with where we are in the credit cycle (e.g., see Moody's latest conference call). ..."
"... With UBS having taken all those potential catalysts firmly off the table, that leaves just fundamentals to worry about. Who, for the past few years, has been worrying about those? [Sarcasm? - Editor] ..."
It's no secret that companies have been taking advantage of years of low interest rates to
sell cheap debt to eager investors, locking in lower funding costs that have allowed them to go
on a spree of share buybacks and mergers and acquisitions.
With fresh evidence that investors are becoming more discerning when it comes to corporate credit
as they approach the first interest rate rise in the U.S. in almost a decade, it's worth asking
whether anything might stop the trend of companies assuming more and more debt on their balance
sheets.
... ... ...
For a start, they note that higher funding costs are unlikely to dissuade companies from
continuing to tap the debt market since, even after a rate hike, financing costs will remain near
historic lows. "The predominant reason is the Fed[eral Reserve] is anchoring low interest rates,"
the analysts wrote.
When it comes to the hubris of corporate chief financial officers, who have been more than
happy leveraging up balance sheets in order to reward shareholders, the analysts didn't mince
words. "We find that corporate CFOs historically are inherently backward-looking when setting
corporate financing decisions, relying on past extrapolations of economic activity, even when
current market pricing suggests future investment returns may be lower," they wrote.
"Several management teams have been on the road indicating higher funding costs of up to 100 to
200 basis points would not impede attractive M&A deals, in their view."
Higher market volatility has often been cited as one factor that could knock the corporate
credit market off its seat...
That leaves downgrades by credit-rating agencies as one catalyst that could spark a turn
in the cycle; downgrades of corporate credit have already exceeded upgrades this year at some of
the bond graders. Here, Mish and Caprio offered some stunningly blunt words. "Might the
rating agencies spoil the party?" they asked. "In the end we believe strong economic interests
will overwhelm rationale considerations. Rating agencies remain heavily dependent on new issuance
activity, face significant competitive pressures (as issuers will select two of three ratings)
and appear unconcerned with where we are in the credit cycle (e.g., see Moody's latest conference
call)."
With UBS having taken all those potential catalysts firmly off the table, that leaves just
fundamentals to worry about. Who, for the past few years, has been worrying about those?
[Sarcasm? - Editor]
"Bottom line, we struggle to envision an end to the releveraging phenomenon-absent a
substantial correction in corporate earnings and/or broader risk assets," concluded the UBS
analysts.
It's not about Adam Smith, it's about well paid intellectual prostitutes hired to restore the rule
of financial oligarchy. The books discussed are
Chicagoedonomics: The Evolution of Chicago Free Market Economics by By Lanny Ebenstein (278pp)
and ECONOMICS RULES The Rights and Wrongs of the Dismal Science By Dani Rodrik (253pp)
Notable quotes:
"... He believed that government had a crucial role to play in a well-functioning economy. It should finance and run good schools, as well as build roads, bridges and parks, he argued. It should tax alcohol, sugar and tobacco, all of which impose costs on society. It should regulate businesses to protect workers. And it should tax the rich - who suffer from "indolence and vanity" - to help the poor. ..."
"... Which leftist economist was this? None other than Adam Smith, the inventor of the "invisible hand" and the icon of laissez-faire economics today. Smith's modern reputation is a caricature. ... ..."
David Leonhardt reviews 'Chicagonomics' and 'Economics Rules':
'Chicagonomics' and 'Economics Rules': He believed that government had a crucial role to play
in a well-functioning economy. It should finance and run good schools, as well as build roads, bridges
and parks, he argued. It should tax alcohol, sugar and tobacco, all of which impose costs on society.
It should regulate businesses to protect workers. And it should tax the rich - who suffer from "indolence
and vanity" - to help the poor.
Which leftist economist was this? None other than Adam Smith, the inventor of the "invisible
hand" and the icon of laissez-faire economics today. Smith's modern reputation is a caricature.
...
pgl
"Dani Rodrik, a Harvard economics professor, has written a much less political book than
Ebenstein has, titled "Economics Rules," in which he sets out to explain the discipline to
outsiders (and does a nice job). Yet in surveying the larger "rights and wrongs" of economics,
to quote his subtitle, Rodrik has diagnosed the central mistake that contemporary libertarians
have made: They have conflated ideas that often make sense with those that always make sense."
Dani is often under looked in these discussions which is a shame. His writings on how different
societies have dealt with their local issues is some of the most informed economics out there.
likbez -> pgl...
I think we need to distinguish between Friedman the academic economist before writing Capitalism
and Freedom (1962) and Friedman the public intellectual after.
"After" Friedman was a dismal intellectual prostitute that promoted neoliberalism for money paid
by financial oligarchy. The level of dishonesty and intellectual degradation that he displays in
his public appearances that now are available in YouTube videos is simply astonishing.
Actually Professor Wendy Brown touched the mechanics of this slick propaganda campaign in her
book "Undoing the Demos". From Amazon:
=== Start of quote === Neoliberal rationality -- ubiquitous today in statecraft and the workplace, in jurisprudence, education,
and culture -- remakes everything and everyone in the image of homo oeconomicus. What happens when
this rationality transposes the constituent elements of democracy into an economic register? In Undoing
the Demos, Wendy Brown explains how democracy itself is imperiled. The demos disintegrates into bits
of human capital; concerns with justice bow to the mandates of growth rates, credit ratings, and
investment climates; liberty submits to the imperative of human capital appreciation; equality dissolves
into market competition; and popular sovereignty grows incoherent. Liberal democratic practices may
not survive these transformations. Radical democratic dreams may not either.
In an original and compelling argument, Brown explains how and why neoliberal reason undoes the
political form and political imaginary it falsely promises to secure and reinvigorate. Through meticulous
analyses of neoliberalized law, political practices, governance, and education, she charts the new
common sense. Undoing the Demos makes clear that for democracy to have a future, it must become an
object of struggle and rethinking.
Hillary tried to play the gender card and the 9/11 card in an attempt to escape to accusation
(actually a provable fact) that she is a Wall Street sheel. "Why has Wall Street been the major
campaign contributor to Hillary Clinton?" Sanders asked loudly, concluding that big contributors only
give because "They expect to get something. Everybody knows it."
...Clinton asserted that under her
bank-regulation plan, if Wall Street institutions don't play by the rules "I will break them up."
Sanders minced her defense into peaces: "Wall Street play by the rules? Who are we kidding?!
The business model for Wall Street is fraud," Sanders fired back.
A short time later, the moderators got a tweet calling her out for "invoking 9/11" to justify taking
donations from Wall Street. One tweeter said they'd never seen a candidate "invoke 9/11 to champion
Wall Street. What does that have to do with taking big donations," Clinton was asked.
Sanders said that there's no getting around the fact that Wall Street has become a dominant political
power and its "business model is greed and fraud, and for the sake of our economy major banks must be
broken up."
Bernie compared himself to Ike, scoring one of the few real laugh lines of the night. CBS News moderator
Nancy Cordes asked Sanders how he's going to pay for expensive programs such as his tuition-free college
plan. By taxing the wealthy and big corporations, he says. Asked how much of a tax hike he's planning
to stick them with, he responded, "We haven't come up with an exact number yet … But it will not be
as high as the number under Dwight D. Eisenhower which was 90%," Sanders said of the Republican president.
"I'm not that much of a socialist compared to Eisenhower," Sanders concluded, to guffaws from the
crowd.
Senator Sanders, let me just follow this line of thinking. You've criticized then Senator Clinton's
vote. Do you have anything to criticize in the way she performed as secretary of state?
BERNIE SANDERS:
I think we have a disagreement. And-- the disagreement is that not only did I vote against the
war in Iraq, if you look at history, John, you will find that regime change-- whether it was in the
early '50s in Iran, whether it was toppling Salvador Allende in Chile or whether it was overthrowing
the government Guatemala way back when-- these invasions, these-- these toppling of governments,
regime changes have unintended consequences. I would say that on this issue I'm a little bit more
conservative than the secretary.
JOHN DICKERSON:
Here, let me go--
MARTIN O'MALLEY:
John, may I-- may I interject here? Secretary Clinton also said that we left the h-- it was not
just the invasion of Iraq which Secretary Clinton voted for and has since said was a big mistake,
and indeed it was. But it was also the cascading effects that followed that.
It was also the disbanding of-- many elements of the Iraqi army that are now showing up as part
of ISIS. It was-- country after country without making the investment in human intelligence to understand
who the new leaders were and the new forces were that are coming up. We need to be much more far
f-- thinking in this new 21st century era of-- of nation state failures and conflict. It's not just
about getting rid of a single dictator. It is about understanding the secondary and third consequences
that fall next.
JOHN DICKERSON:
Governor O'Malley, I wanna ask you a question and you can add whatever you'd like to. But let
me ask you, is the world too dangerous a place for a governor who has no foreign policy experience?
MARTIN O'MALLEY:
John, the world is a very dangerous place. But the world is not too dangerous of a place for the
United States of America provided we act according to our principles, provided we act intelligently.
I mean, let's talk about this arc of-- of instability that Secretary Clinton talked about.
Libya is now a mess. Syria is a mess. Iraq is a mess. Afghanistan is a mess. As Americans we have
shown ourselves-- to have the greatest military on the face of the planet. But we are not so very
good at anticipating threats and appreciating just how difficult it is to build up stable democracies
and make the investments in sustainable development that we must as the nation if we are to attack
the root causes of-- of the source of-- of instability.
And I wanted to add one other thing, John, and I think it's important for all of us on this stage.
I was in Burlington, Iowa and a mom of a service member of ours who served two duties in Iraq said,
"Governor O'Malley, please, when you're with your other candidates and colleagues on-- on stage,
please don't use the term boots on Iraq-- on the ground. Please don't use the term boots on the ground.
My son is not a pair of boots on the ground."
These are American soldiers and we fail them when we fail to take into account what happens the
day after a dictator falls. And when we fall to act with a whole of government approach with sustainable
development, diplomacy and our economic power in-- alignment with our principles.
BERNIE SANDERS:
But when you talk about the long-term consequences of war let's talk about the men and women who
came home from war. The 500,000 who came home with P.T.S.D. and traumatic brain injury. And I would
hope that in the midst of all of this discussion this country makes certain that we do not turn our
backs on the men and women who put their lives on the line to defend us. And that we stand with them
as they have stood with us.
JOHN DICKERSON:
Senator Sanders, you've-- you've said that the donations to Secretary Clinton are compromising.
So what did you think of her answer?
BERNIE SANDERS:
Not good enough. (LAUGH) Here's the story. I mean, you know, let's not be naive about it. Why
do-- why over her political career has Wall Street a major-- the major-- campaign contributor to
Hillary Clinton? You know, maybe they're dumb and they don't know what they're gonna get. But I don't
think so.
Here is the major issue when we talk about Wall Street, it ain't complicated. You got six financial
institutions today that have assets of 56 per-- equivalent to 50-- six percent of the GDP in America.
They issue two thirds of the credit cards and one third of the mortgages. If Teddy Roosevelt, the
good republican, were alive today you know what he'd say? "Break them up. Reestablish (APPLAUSE)
(UNINTEL) like Teddy Roosevelt (UNINTEL) that is leadership. So I am the only candidate up here that
doesn't have a super PAC. I'm not asking Wall Street or the billionaires for money. I will break
up these banks, support community banks and credit unions-- credit unions. That's the future of banking
in America.
JOHN DICKERSON:
Quick follow-up because you-- you-- (APPLAUSE) Secretary Clinton, you'll get a chance to respond.
You said they know what they're going to get. What are they gonna get?
BERNIE SANDERS:
I have never heard a candidate, never, who's received huge amounts of money from oil, from coal,
from Wall Street, from the military industrial complex, not one candidate, go, "OH, these-- these
campaign contributions will not influence me. I'm gonna be independent." Now, why do they make millions
of dollars of campaign contributions? They expect to get something. Everybody knows that. Once again,
I am running a campaign differently than any other candidate. We are relying on small campaign donors,
$750,000 and $30 apiece. That's who I'm indebted to.
BERNIE SANDERS:
Here's-- she touches on two broad issues. It's not just Wall Street. It's campaigns, a corrupt
campaign finance system. And it is easy to talk the talk about ending-- Citizens United. But what
I think we need to do is show by example that we are prepared to not rely on large corporations and
Wall Street for campaign contributions.
And that's what I'm doing. In terms of Wall Street I respectfully disagree with you, Madame Secretary
in the sense that the issue is when you have such incredible power and such incredible wealth, when
you have Wall Street spending five billion dollars over a ten year period to get re-- to get deregulated
the only answer that I know is break them up, reestablish Glass Steagall.
JOHN DICKERSON:
Senator, we have to get Senator O'Malley in. But no-- along with your answer how many Wall Street--
veterans would you have in your administration?
MARTIN O'MALLEY:
Well, I'll tell you what, I've said this before, I-- I don't-- I believe that we actually need
some new economic thinking in the White House. And I would not have Robert Rubin or Larry Summers
with all due respect, Secretary Clinton, to you and to them, back on my council of economic advisors.
HILLARY CLINTON:
Anyone (UNINTEL PHRASE).
MARTIN O'MALLEY:
If they were architects, sure, we'll-- we'll have-- we'll have an inclusive group. But I won't
be taking my orders from Wall Street. And-- look, let me say this-- I put out a proposal-- I was
on the front line when people lost their homes, when people lost their jobs.
I was on the front lines as the governor-- fighting against-- fighting that battle. Our economy
was wrecked by the big banks of Wall Street. And Secretary Clinton-- when you put out your proposal
(LAUGH) on Wall Street it was greeted by many as quote/ unquote weak tea. It is weak tea. It is not
what the people expect of our country. We expect that our president will protect the main street
economy from excesses on Wall Street. And that's why Bernie's right. We need to reinstate a modern
version of Glass Steagall and we should have done it already. (APPLAUSE)
KATHIE OBRADOVICH:
And I will also go after executives who are responsible for the decisions that have such bad consequences
for our country. (APPLAUSE)
BERNIE SANDERS:
Look, I don't know-- with all due respect to the secretary, Wall Street played by the rules. Who
are we kidding? The business model of Wall Street is fraud. That's what it is. And we-- we have--
(APPLAUSE) and let me make this promise, one of the problems we have had I think all-- all Americans
understand it is whether it's republican administration or democratic administration we have seen
Wall Street and Goldman Sachs dominate administrations. Here's my promise Wall Street representatives
will not be in my cabinet. (APPLAUSE)
BERNIE SANDERS:
But let's-- let me hear it-- if there's any difference between the secretary and myself. I have
voted time and again to-- for-- for the background checks. And I wanna see it improved and expanded.
I wanna see them do away with the gun show loophole. In 1988 I lost an election because I said we
should not have assault weapons on the streets of America.
We have to do away with the strong man proposal. We need radical changes in mental health in America.
So somebody who's suicidal or homicidal can get the emergency care they need. But we have-- I don't
know that there's any disagreement here.
MARTIN O'MALLEY:
John, this is another one of those examples. Look, we have-- we have a lot of work to do. And
we're the only nation on the planet that buries as many of our people from gun violence as we do
in my own state after they-- the children in that Connecticut classroom were gunned down, we passed
comprehensive-- gun safety legislation, background checks, ban on assault weapons.
And senator, I think we do need to repeal that immunity that you granted to the gun industry.
But Secretary Clinton, you've been on three sides of this. When you ran in 2000 you said that we
needed federal robust regulations. Then in 2008 you were portraying yourself as Annie Oakley and
saying that we don't need those regulation on the federal level. And now you're coming back around
here. So John, there's a big difference between leading by polls and leading with principle. We got
it done in my state by leading with principle. And that's what we need to do as a party, comprehensive
gun--
MARTIN O'MALLEY:
John, there is not-- a serious economist who would disagree that the six big banks of Wall Street
have taken on so much power and that all of us are still on the hook to bail them out on their bad
debts. That's not capitalism, Secretary Clinton-- Clinton, that's crummy capitalism.
That's a wonderful business model if you place that bet-- the taxpayers bail you out. But if you
place good ones you pocket it. Look, I don't believe that the model-- there's lots of good people
that work in finance, Secretary Sanders. But Secretary Clinton, we need to step up. And we need to
protect main street from Wall Street. And you can't do that by-- by campaigning as the candidate
of Wall Street. I am not the candidate of Wall Street. And I encourage--
BERNIE SANDERS:
No, it's not throwing-- it is an extraordinary investment for this country. In Germany, many other
countries do it already. In fact, if you remember, 50, 60 years ago, University of California, City
University of New York were virtually tuition-free. Here it's a new (?) story.
It's not just that college graduates should be $50,000 or $100,000 in debt. More importantly,
I want kids in Burlington, Vermont, or Baltimore, Maryland, who are in the six grade or the eighth
grade who don't have a lot of money, whose parents that-- like my parents, may never have gone to
college. You know what I want, Kevin? I want those kids to know that if they study hard, they do
their homework, regardless of the income of their families, they will in fact be able to great a
college education. Because we're gonna make public colleges and universities tuition-free. This is
revolutionary for education in America. It will give hope for millions of young people.
BERNIE SANDERS:
It's not gonna happen tomorrow. And it's probably not gonna happen until you have real campaign finance
reform and get rid of all these super PACs and the power of the insurance companies and the drug
companies. But at the end of the day, Nancy, here is a question. In this great country of ours, with
so much intelligence, with so much capabilities, why do we remain the only (UNINTEL) country on earth
that does not guarantee healthcare to all people as a right?
Why do we continue to get ripped off by the drug companies who can charge us any prices they want?
Why is it that we are spending per capita far, far more than Canada, which is a hundred miles away
from my door, that guarantees healthcare to all people? It will not happen tomorrow. But when millions
of people stand up and are prepared to take on the insurance companies and the drug companies, it
will happen and I will lead that effort. Medicare for all, single-payer system is the way we should
go. (APPLAUSE)
BERNIE SANDERS:
Well-- I had the honor of being chairman of the U.S. Senate Committee on Veteran Affairs for two
years. And in that capacity, I met with just an extraordinary group of people from World War II,
from Korea, Vietnam, all of the wars. People who came back from Iraq and Afghanistan without legs,
without arms. And I've been determined to do everything that I could to make VA healthcare the best
in the world, to expand benefits to the men and women who put their lives on the line to defend (UNINTEL).
And we brought together legislation, supported by the American Legion, the VFW, the DAV, Vietnam
Vets, all of the veterans' organizations, which was comprehensive, clearly the best (UNINTEL) for
veterans' legislation brought forth in decades. I could only get two Republican votes on that. And
after 56 votes, we didn't get 60. So what I have to do then is go back and start working on a bill
that wasn't the bill that I wanted.
To (UNINTEL) people like John McCain, to (UNINTEL) people like Jeff Miller, the Republican chairman
of the House, and work on a bill. It wasn't the bill that I wanted. But yet, it turns out to be one
of the most significant pieces of veterans' legislation passed in recent history. You know, the crisis
was, I lost what I wanted. But I have to stand up and come back and get the best that we could.
JOHN DICKERSON:
All right, Senator Sanders. We end-- (APPLAUSE) we've ended the evening on crisis, which underscores
and reminds us again of what happened last night. Now let's move to closing statements, Governor
O'Malley?
MARTIN O'MALLEY:
John, thank you. And to all of the people of Iowa, for the role that you've performed in this
presidential selection process, if you believe that our country's problems and the threats that we
face in this world can only be met with new thinking, new and fresh approaches, then I ask you to
join my campaign. Go onto MartinOMalley.com. No hour is too short, no dollar too small.
If you-- we will not solve our nation's problems by resorting to the divisive ideologies of our
past or by returning to polarizing figures from our past. We are at the threshold of a new era of
American progress. That it's going to require that we act as Americans, based on our principles.
Here at home, making an economy that works for all of us.
And also, acting according to our principles and constructing a new foreign policy of engagement
and collaboration and doing a much better job of identifying threats before they back us into military
corners. There is new-- no challenge too great for the United States to confront, provided we have
the ability and the courage to put forward new leadership that can move us to those better and safer
and more prosperous (UNINTEL). I need your help. Thank you very, very much. (APPLAUSE)
BERNIE SANDERS:
This country today has more income and wealth inequality than any major country on earth. We have
a corrupt campaign finance system, dominated by super PACs. We're the only major country on earth
that doesn't guarantee healthcare to all people. We have the highest rate of childhood poverty. And
we're the only in the world, (UNINTEL) the only country that doesn't guarantee paid family and medical
leave. That's not the America that I think we should be.
But in order to bring about the changes that we need, we need a political revolution. Millions
of people are gonna have to stand up, turn off the TVs, get involved in the political process, and
tell the big monied interests that we are taking back our country. Please go to BernieSanders.com,
please become part of the political revolution. Thank you. (CHEERING) (APPLAUSE)
"... And the moral of this tale, he says, is that he had been phished for a phool - or manipulated into buying something. ..."
"... we live in a constructed world thats filled with deception like this. Fools or not ..."
"... Phishing was initially coined to describe internet fraud, but Profs Shiller and Akerlof use it more broadly to cover a world of deception, and add the term phools to describe its victims. ..."
"... The financial crisis of 2008 was caused in part, says Prof Shiller, by buyers being manipulated into buying financial products that were ultimately destructive to them and to society. ..."
"... Most people will pick little shortcuts, little dishonesties, says Prof Shiller. You are pushed [to dishonesty] by many pressures, one is a sense of responsibility to your investors, another is to your employees. And you think everybody does this. Nobodys making a stink.... of course you do it, and the ones who dont do it are failing and going out of business. Thats a phishing equilibrium. ..."
"... Profs Shiller and Akerlof argue that the free markets persuade us to do things with results that no one could possibly want... ..."
"Once upon a time a Nobel Prize winning economist had a cat called Lightning.
Now, Lightning appeared to like his cat food, a rather pricey gourmet dish which claimed to be
a cut above the rest. But maybe, thought the Nobel Prize winning economist, I have been fooled into
thinking this cat food is a cut above the rest - when it isn't. There is only one way to find out,
said the economist. And that is to eat it myself. And so he did. It was, he said with a giggle, pretty
much like any other cat food.
And the moral of this tale, he says, is that he had been "phished for a phool" - or manipulated
into buying something.
Now the economist in question, Robert Shiller and his fellow Nobel laureate George Akerlof, have
written Phishing for Phools, about how the sellers of cat food and thousands of other products and
services "phish" us into buying things we do not want or need.
"Of course they do it," he says. "If you had a cat food company you wouldn't say 'Dried Dead Fish'
on the label...we live in a constructed world that's filled with deception like this." Fools or not
"Phishing" was initially coined to describe internet fraud, but Profs Shiller and Akerlof use
it more broadly to cover a world of deception, and add the term "phools" to describe its victims.
Being gulled into paying more for cat food is hardly a serious affair. But the two economists
see it as a microcosm of something much bigger in society.
The financial crisis of 2008 was caused in part, says Prof Shiller, by buyers being manipulated
into buying financial products that were ultimately destructive to them and to society.
So the sale of deeply flawed mortgage-backed securities and their accompanying credit-default
swaps flourished on the back of free markets and the reputations of the banks and finance house that
sold them.
... ... ...
Profs Shiller and Akerlof argue that if people were fooling themselves there were plenty of others
happy to help them on their way. ...The two authors are behavioral economists, who inject psychology and sociology into their economics. There's nothing new about that, but this latest foray into the "dismal art" has a distinctly dismal
view of human nature.
"Most people will pick little shortcuts, little dishonesties," says Prof Shiller. "You are pushed [to dishonesty] by many pressures, one is a sense of responsibility to your investors,
another is to your employees. And you think everybody does this. "Nobody's making a stink.... of course you do it, and the ones who don't do it are failing and
going out of business. That's a phishing equilibrium."
... ... ...
Profs Shiller and Akerlof argue that the free markets persuade us to do things with results
that no one could possibly want..."
Neoliberal college is not about education. It is about getting wealthy a head start to enforce
and strengthen separation between the elite and the rest. Other can only complain... But
that e fact is the many large companies invite for interview for open positions only of Ivy
Leagues graduates. Other do not need to apply. So it is mostly about "Class A" and "Class B"
citizens. Talent and hard work can buy buy a ticket for vertical mobility (see some stories below),
but that was true in any society. Actually mobility in the USA is below average, despite MSM
non-stop brainwashing of the USA citizens about "the land of opportunities", the "American Dream",
etc. And exorbitant salaries of University brass is a norm now. you can't change that
without changing the neoliberal system as a whole. they are no longer bound by academic ethics. Like
Wall Streeters, want to get the most of the life, no matter by what means (the
end justifies the means mentality). They are masters of the universe. Others (aka suckers) can
go to hell.
Notable quotes:
"... Dealing with swiftly mounting student loan debt has been a focus of candidates vying for the White House in 2016. Democratic hopeful Bernie Sanders has vowed to make tuition free at public universities and colleges, and has pledged to cut interest rates for student loans. ..."
"... I can see having a low, federally-subsidized interest rate on these loans....which I seem to recall having on some of my loans, but anyone wanting anything for free can take a hike, IMHO. ..."
"... Ever visit a university in a country that has free college education for its' citizens? It's pretty austere. These kids need to think past the clever sound bytes and really consider the effect of what they are asking for. ..."
"... What really needs to be addressed is the skyrocketing cost of college education PERIOD! At the rate it's going up pretty soon only the children of billionaires will be able to afford to go to college. ..."
"... College tuition cannot be allowed to just continue to escalate. ..."
"... If a high school grad can't explain in detail how much cash is needed, and how spending all that cash and time for education is going to provide a positive return on investment, he or she should not be going to college. This should be near the top of things that teens learn in high school. ..."
"... I get really cynical about all graduates claiming they had no idea how much their loans were going to cost them. ..."
"... If you didn't bother to read your loan docs before signing, or research likely monthly payments for your loan, that's your fault! ..."
"... College costs went up far faster than inflation, often because colleges built fancy sports and living facilities...because they figured out these same millennials pick colleges based on those things. ..."
"... The standard tours take students through fancy facilities that have nothing to do with quality of education. Add declining teaching loads that have decreased from 12 class hours to 3 class hours per week for a professor in the past 25 years and the rise in overhead for non-academic administration overhead positions like chief diversity and inclusion officer and you have expensive college. ..."
"... These 'loans' are now almost all, Pell Grant underwritten. Cannot Bankrupt on, co-signers and students can lose their Social Security money if defaulting. 1.5 trillion$ of these loans have been packaged, like Home Loans, derivative. What happens to peoples retirement accounts when their Funds have investments in them, what happens to the Primary Dealers when the derivatives bubble bursts? ..."
"... Where it is free, but only to the select, the performers, most American Students would not qualify in other countries for advanced Ed. ..."
Students held rallies on college campuses across the United States on Thursday to protest
ballooning student loan debt for higher education and rally for tuition-free public colleges and
a minimum wage hike for campus workers.
The demonstrations, dubbed the Million Student March, were planned just two days after thousands
of fast-food workers took to the streets in a nationwide day of action pushing for a $15-an-hour
minimum wage and union rights for the industry.
About 50 students from Boston-area colleges gathered at Northeastern University carrying signs
that read "Degrees not receipts" and "Is this a school or a corporation?"
"The student debt crisis is awful. Change starts when people demand it in the street. Not in the
White House," said Elan Axelbank, 20, a third year student at Northeastern, who said he was a
co-founder of the national action.
... ... ...
"I want to graduate without debt," said Ashley Allison, a 22-year-old student at Boston's
Bunker Hill Community College, at the Northeastern rally. "Community college has been kind to me,
but if I want to go on, I have to take on debt."
Dealing with swiftly mounting student loan debt has been a focus of candidates vying for the
White House in 2016. Democratic hopeful Bernie Sanders has vowed to make tuition free at public
universities and colleges, and has pledged to cut interest rates for student loans.
... ... ...
Andrew Jackson
Free taxpayer supported public education means more college administrators earning $200,000
or more, more faculty earning $100,000 or more working 8 months a year and more $300
textbooks. Higher education costs are a direct correlation to Federal Student Loans subsiding
college bureaucracies, exorbitant salaries for college administrators and faculty.
terrance
What fantasy world do these people live in. There is nothing for free and if you borrow
tens of thousands of dollars you can't expect later that someone else will pick up your tab.
Pucker up bucky, it is your responsibility.
Furthermore, a lot of this money didn't go to education. I have read where people went back
to school so they could borrow money to pay their rent, or even their car payments. As for 15
dollars an hour to sling burgers, grow up.
sjc
Having been out of college for a few years, I am curious. I went to a State University.
Tuition was high, I had to take loans, I drove a cheap 10 yr old vehicle, but it didn't kill
me. My total debt was about the price of a decent new car back then.
Today, the average student loan debt after graduation is just under $30,000. Around the
price of a new car. And these kids are trying to tell us that this is too much of a burden???
Look around any campus these days, and you will see lots of $30,000 cars in the parking lots.
I can see having a low, federally-subsidized interest rate on these loans....which I
seem to recall having on some of my loans, but anyone wanting anything for free can take a
hike, IMHO.
Meed
Careful what you wish for, kiddies. It's simple math and simple economics (things I learned
in school while studying instead of protesting). Every university has a maximum number of
students it can support, based on the number and capacity of dorms, classrooms, faculty, etc.
The tuition rates have always closely matched the amount of easily-accessed loans available
- the easier the access to loans, the higher tuition is. The simple reason is that the
universities raise tuition rates to manage the demand for their limited resources, and can
always raise rates when there is more demand than there are openings for incoming students.
Thanks to the windfall from that high tuition, today's universities have student unions,
recreation facilities, gyms, pools, and lots of amenities to attract students. Imagine what
they will offer when they can't jack up the tuition. Ever visit a university in a country
that has "free" college education for its' citizens? It's pretty austere. These kids need to
think past the clever sound bytes and really consider the effect of what they are asking for.
matthew
Oddly enough, a majority of these students attend colleges who has sport teams sponsored by
Nike, Under Armour, Adidas, or Reebok. So, should theses companies atop providing the uniforms
and equipment free of charge and donate the money to make more scholarships available? Then
the student athletes can purchase their own gear on their own dime. Where one group attains,
another must lose. Let this be debated on college campuses and watch the students divide
themselves. We will find out what is most important to them.
JB
What really needs to be addressed is the skyrocketing cost of college education PERIOD!
At the rate it's going up pretty soon only the children of billionaires will be able to afford
to go to college.
Some junk yard dog investigative journalist needs to dig into the rising cost of college
education and identify the cause. Once the cause are understood then something can be done to
make college more affordable. College tuition cannot be allowed to just continue to
escalate.
just sayin'
Seriously how do we let our children out of high school without enough information to
decide if going to college is actually a good investment? If a high school grad can't
explain in detail how much cash is needed, and how spending all that cash and time for
education is going to provide a positive return on investment, he or she should not be going
to college. This should be near the top of things that teens learn in high school.
pcs
I get really cynical about all graduates claiming they had no idea how much their loans
were going to cost them. I mean, they had enough math skills to be accepted, then
graduate, from college. If you didn't bother to read your loan docs before signing, or
research likely monthly payments for your loan, that's your fault!
E
College costs went up far faster than inflation, often because colleges built fancy
sports and living facilities...because they figured out these same millennials pick colleges
based on those things. If you tour colleges, and I toured many in the past few years with
my kids, you don't see a classroom or lab unless you ask.
The standard tours take students through fancy facilities that have nothing to do with
quality of education. Add declining teaching loads that have decreased from 12 class hours to
3 class hours per week for a professor in the past 25 years and the rise in overhead for
non-academic administration overhead positions like "chief diversity and inclusion officer"
and you have expensive college.
If students want a cheap education, go to the junior college for general ed classes then
transfer to a four-year school. It is not glamorous but it yields a quality education without
a fortune in debt.
Rich
Getting an education is obviously the biggest scam in history!!!! Look at who controls
education. Look at all the Universities presidents last names then you will know what they
are. I can't say it here on Yahoo because they will take my comments out for speaking the
truth. These presidents make millions of $$$$$ a year off of students and parents who are
slaves and work hard to pay those tuitions. Not only that but look at the owners last names of
the Loan
50 CAL
Universities are money munching machines with no regard for how the students will repay the
loans. Universities annually raise tuition rates(much of which is unnecessary) with no regard
of how these young minds full of mush are going to repay the crushing debt, nor do they care.
Locally one university just opened a 15 million dollar athletic center, which brings up the
question, why did they need this? With that kind of cash to throw around, what wasn't at least
some used to keep tuitions affordable?
Mike D
These 'loans' are now almost all, Pell Grant underwritten. Cannot Bankrupt on,
co-signers and students can lose their Social Security money if defaulting. 1.5 trillion$ of
these loans have been packaged, like Home Loans, derivative.
What happens to peoples retirement accounts when their Funds have investments in them, what
happens to the Primary Dealers when the derivatives bubble bursts?
How are these loans to be made 'free' if existing loans bear interest? If the student of
'free education' defaults, doesn't graduate, will he owe money-will his parent, or will the
'free school' simply become a dumping ground for the youth without direction, simply housed in
college's dorm rooms?
Lots of questions and two things to keep in mind, the Banks and Teaching institutes love the
idea of 'free', the students are believing there might be a free ride.. ignoring schools and
Banks don't, won't and never do anything for free.
This is not going to turn out well for consumers. Sure, Household payments of Education may
drop, but the Institution of Education cannot keep even its slim success rate it has now. I
don't know how educators managed to turn education into a purely self gratifying industry,
giving anything to purchasers they wished for that Education loan, but never ever ever, has
underwriting by the Central improved the quality of business. Complete underwriting of the
important system of education at the Fed level will be a disaster.
There will be almost zero accountability for institutes and students, we will have a more
expensive system that turns out the worst grads.
Don't try believing that other countries abilities with free Ed can be duplicated here..
not without serious socialism, a condition where qualifying for Ed advancement is determined
by the Central.
Where it is free, but only to the select, the performers, most American Students would
not qualify in other countries for advanced Ed. Blanket quals are almost a condition
here, American Students are in for a serious surprise. They will not be so able to buy/loan
their way to college and have to excel to get into college.
The joke is on the American student.
Jim
i was one of seven children- i worked my way through four years of undergrad and three
years of grad school with my parents only being able to pay health insurance and car
insurance- i worked shelving books, busing tables, delivering pizzas and for the last five
years as a parimutuel clerk at dog and horsetracks- i never got to go on spring break, do a
semester at sea or take classes in europe- i graduated debt free from public universities-
have no sympathy for a bunch of whiny brats who have to drive better cars than their
professors and believe they are entitled to special treatment- get a job and quit acting like
a bunch of welfare queens who feel they deserve entitlements
Linda
My son is in college. Because grandpa saved his money over the years, he volunteered to pay
for college costs. We hope to continue the tradition with our grandchildren and carefully save
our money as well. We don't live high or purchase new. He will graduate zero dollars in debt.
My son's college roommate comes from a very wealthy family. They own a plane - two houses -
dad works on Wall Street - mom is a Doctor. He has to pay for his own education and gets loans
for everything. His parents simply don't have the cash to pay for his education.
It's priorities people! If something is worth it, you'll make it happen.
"... cheaper oil has boosted GDP growth in 2015 by 0.2 pp. Looking ahead, we think that about 0.1 pp of oil growth stimulus is left in the tank, which should lift growth over the next 18 months. ..."
"... Judging by the recent earnings reports from retailers, one has to question the Oil Stimulus theory. ..."
"... Can't wait until Goldman tells us that higher oil prices lead to higher GDP. ..."
"... Total real personal income expenditure is at the pre-97 trend. Markets keep on wanting 97-06 consumption levels. They simply don't get it. ..."
"... This is not worthy of a post. It is just sucking up to Goldman, of all disreputable firms to quote. Ridonculous. Really. ..."
"... Credo: Economic Beliefs in a World in Crisis ..."
A few excerpts from a Goldman Sachs research piece by economist Daan Struyven: Shale, States
and the Shrinking Oil Stimulus
... ... ...
Our state-level analysis suggests that a 50% decline in oil prices is associated with an
eventual rise in aggregate output of 0.4% and 400,000 to 500,000 extra jobs. These estimates
are broadly consistent with our most recent research, but below the impact implied by many
earlier studies. Taking together our new state-level estimates as well as our earlier work and
a few back-of-the-envelope calculations, our best estimate would be that cheaper oil has
boosted GDP growth in 2015 by 0.2 pp. Looking ahead, we think that about 0.1 pp of oil growth
stimulus is left in the tank, which should lift growth over the next 18 months.
"... model one under which the efficient markets hypothesis is correct-and that's a model where there are a number of critical assumptions: one is rationality (we rule out behavioral aspects like bandwagons, excessive optimism and so on); second, we rule out externalities and agency problems ..."
"... to liberalize as many markets as possible and to make regulation as light as possible. In the run-up to the financial crisis, if you'd looked at the steady increase in house prices or the growth of the shadow banking system from the perspective of the efficient markets hypothesis, they wouldn't have bothered you at all. You'd tell a story about how wonderful financial liberalization and innovation are-so many people, who didn't have access before to mortgages, were now able to afford houses; here was a supreme example of free markets providing social benefits. ..."
"... But if you took the same [set of] facts, and applied the kind of models that people who had been looking at sovereign debt crises in emerging markets had been developing-boom and bust cycles, behavioral biases, agency problems, externalities, too-big-to-fail problems-if you applied those tools to the same facts, you'd get a very different kind of story. ..."
"... "efficient markets hypothesis": ..."
"... tendency in the policy world to liberalise as many markets as possible and to make regulation as light as possible ..."
Q. You give a couple of examples in the book of the way theoretical errors can lead to policy
errors. The first example you give concerns the "efficient markets hypothesis". What role did
an overestimation of the scope and explanatory power of that hypothesis play in the run-up to
the global financial crisis of 2007-08?
A. If we take as our central model one under which
the efficient markets hypothesis is correct-and that's a model where there are a number of critical
assumptions: one is rationality (we rule out behavioral aspects like bandwagons, excessive optimism
and so on); second, we rule out externalities and agency problems-there's a natural tendency
in the policy world to liberalize as many markets as possible and to make regulation as light
as possible. In the run-up to the financial crisis, if you'd looked at the steady increase in
house prices or the growth of the shadow banking system from the perspective of the efficient
markets hypothesis, they wouldn't have bothered you at all. You'd tell a story about how wonderful
financial liberalization and innovation are-so many people, who didn't have access before to mortgages,
were now able to afford houses; here was a supreme example of free markets providing social benefits.
But if you took the same [set of] facts, and applied the kind of models that people who
had been looking at sovereign debt crises in emerging markets had been developing-boom and bust
cycles, behavioral biases, agency problems, externalities, too-big-to-fail problems-if you applied
those tools to the same facts, you'd get a very different kind of story. I wish we'd put
greater weight on stories of the second kind rather than the first. We'd have been better off
if we'd done so.
djb said...
"efficient markets hypothesis": magical thinking
Jerry Brown said...
I can't get that link to open. Dani Rodrik says "there is a natural tendency in the policy
world to liberalise as many markets as possible and to make regulation as light as possible".
Is that in general? Or is that a part of the efficient market hypothesis?
"... There's a certain fetishism that comes along with the use of math. And that shows up in two ways: one is that arguments which are relatively straightforward, that can be put in a directly literary form, we feel we have mathematise them. Sometimes, there's undue mathematisation or formalisation. We get so enamoured of the math that the mathematical structure of models becomes an object of analysis. And that's one of the problems with economic theory-that it often becomes applied mathematics, where the point is the mathematical properties of the models. And so it becomes more and more peripheral to what economics should be about, which is to look at social phenomena. But there's a much better appreciation today of the role and also the limits of math in economics than there was 30 years ago. ..."
"... it has squeezed out the space for mindless, abstract theorising or modelling for the sake of modelling. ..."
"... Models are stylised abstractions that lay bare the relationship between cause and effect. I liken [models] to lab experiments. When you conduct an experiment in a lab, you're trying to isolate the thing you're looking at. ..."
"... As long as we don't forget that [the model we're using] is a model, not the model. An immediate implication of what I just said, of the way I defined the usefulness of the model, is that the model captures only one of many different causal effects. And it's going to be most useful when we apply it to a real world setting where, in some sense, that causal effect is the dominant one. But [we should not] forget that there will be other settings where other causal effects or other models are more relevant. ..."
"... model one under which the efficient markets hypothesis is correct-and that's a model where there are a number of critical assumptions: one is rationality (we rule out behavioural aspects like bandwagons, excessive optimism and so on); second, we rule out externalities and agency problems-there's a natural tendency in the policy world to liberalise as many markets as possible and to make regulation as light as possible. In the run-up to the financial crisis, if you'd looked at the steady increase in house prices or the growth of the shadow banking system from the perspective of the efficient markets hypothesis, they wouldn't have bothered you at all. You'd tell a story about how wonderful financial liberalisation and innovation are-so many people, who didn't have access before to mortgages, were now able to afford houses; here was a supreme example of free markets providing social benefits. ..."
The economist Dani Rodrik, a professor at Harvard, recently spent a couple of years at Princeton's
Institute for Advanced Study. In his new book, "Economics
Rules: Why Economics Works, When it Fails, and How to Tell the Difference," he recalls just what
a "mind-stretching experience" that sojourn was. He found that many of the visitors to the Institute's
School of Social Sciences, prominent academics from other disciplines, harboured a deep "suspicion
toward economists." Those visitors seemed to believe, he writes, that "economists either stated the
obvious or greatly overreached by applying simple frameworks to complex social phenomena." It felt,
Rodrik says, as if economists were being cast as the "idiots savants of social science: good with
math and statistics, but not much use otherwise."
Part of the problem, Rodrik thinks, is
"misinformation" about what it is economists do, exactly. "Economics Rules" is in part, therefore,
an attempt to set the record straight-and to rebut some fairly widespread criticisms of economics
in the process. But it's also aimed at his colleagues in the economics profession, who he thinks
have made a sorry fist of "presenting their science to the world." When I spoke to him on the phone
from the United States this week, I asked about that assumption he'd encountered at Princeton-that
economists are "good with math and statistics" and not much else.
DR: Often we take it [mathematics] too far. There's a certain fetishism that
comes along with the use of math. And that shows up in two ways: one is that arguments which are
relatively straightforward, that can be put in a directly literary form, we feel we have mathematise
them. Sometimes, there's undue mathematisation or formalisation. We get so enamoured of the math
that the mathematical structure of models becomes an object of analysis. And that's one of the problems
with economic theory-that it often becomes applied mathematics, where the point is the mathematical
properties of the models. And so it becomes more and more peripheral to what economics should be
about, which is to look at social phenomena. But there's a much better appreciation today of the
role and also the limits of math in economics than there was 30 years ago.
JD: Right. You say in the book that one of the most significant developments
in economics over the past three decades or so has been the increasingly widespread use of empirical
methods.
Yes, that has definitely been a [sign of] great progress and has forced us to be much more grounded.
And it has squeezed out the space for mindless, abstract theorising or modelling for the sake
of modelling. But there's a tendency in parts of the profession [today] to believe that if you're
just doing empirical work, then you can do away with theory or with thinking about the models that
lie behind the particular empirical application. The point that is important to realise-and I'm not
sure if I make this sufficiently strongly in the book itself-is that it's impossible to interpret
any empirical evidence without either an implicit or, better still, an explicit model behind it.
So every time we make a causal assertion about the real world using data we are implicitly using
a model.
The idea of the economic model is one of the central concepts in the book. Where
does the explanatory power of economic models come from?
Models are stylised abstractions that lay bare the relationship between cause and effect.
I liken [models] to lab experiments. When you conduct an experiment in a lab, you're trying to isolate
the thing you're looking at.
You draw an interesting comparison between models and fables. You say that models, like
fables, leave out or abstract from certain aspects of the world as it is. And that, in your view,
is a strength, a feature, as you put it, rather than a bug.
As long as we don't forget that [the model we're using] is a model, not the
model. An immediate implication of what I just said, of the way I defined the usefulness of the model,
is that the model captures only one of many different causal effects. And it's going to be most useful
when we apply it to a real world setting where, in some sense, that causal effect is the dominant
one. But [we should not] forget that there will be other settings where other causal effects or other
models are more relevant.
A charge often made against economics, and which you try to rebut in the book, is that
many of its assumptions, particularly about the rationality of economic actors, are unrealistic.
To what extent does behavioural economics, which injects the insights of psychology into formal economic
modelling, take that kind of criticism for granted? Or, to put it another way, does behavioural economics
overturn or invalidate what you call the "garden-variety perfectly competitive market model"?
Yes, but it's only the latest a stream of models that have all had the effect of overturning the
central implication of the perfectly competitive model. We've known since the 19th century that a
market with a few firms would not produce the efficiency consequences of the perfectly competitive
model. Then, of course, in the 1970s there was the imperfect competition revolution, where it turns
out that, in the presence of asymmetric information, all kinds of consequences follow. So the behavioural
revolution isn't new in the sense of generating results that overturn the basic implications of the
perfectly competitive model. It's new in that it directly removes an assumption that had been at
the core of neoclassical theorising-the notion of individual rationality.
There's a tendency now to interpret the behavioural models as implying that we can now forget
about "rational man," that we can forget about all these optimising frameworks. And again I think
that's wrong. There are going to be settings in which the behavioural model provides important insights.
But it would be wrong to discard models in which rational behaviour plays an important role. The
trick is to know when to apply a behavioural approach and when to apply a rational approach.
You have a chapter entitled "When Economists Go Wrong" in which you argue that economists'
biggest mistake concerns the claims they often make for the general validity of certain assumptions
and models. The danger, in other words, is that of confusing a model with the model.
Right. In policy, that's where we fall on our faces repeatedly. When we are called on for policy
advice our biggest mistake is not drawing the links between the critical assumptions of a model and
the real world context with the same kind of rigour and systematic thinking that we exercise when
we're operating within a model.
You give a couple of examples in the book of the way theoretical errors can lead to policy
errors. The first example you give concerns the "efficient markets hypothesis". What role did an
overestimation of the scope and explanatory power of that hypothesis play in the run-up to the global
financial crisis of 2007-08?
If we take as our central model one under which the efficient markets hypothesis is correct-and
that's a model where there are a number of critical assumptions: one is rationality (we rule out
behavioural aspects like bandwagons, excessive optimism and so on); second, we rule out externalities
and agency problems-there's a natural tendency in the policy world to liberalise as many markets
as possible and to make regulation as light as possible. In the run-up to the financial crisis, if
you'd looked at the steady increase in house prices or the growth of the shadow banking system from
the perspective of the efficient markets hypothesis, they wouldn't have bothered you at all. You'd
tell a story about how wonderful financial liberalisation and innovation are-so many people, who
didn't have access before to mortgages, were now able to afford houses; here was a supreme example
of free markets providing social benefits.
But if you took the same [set of] facts, and applied the kind of models that people who had been
looking at sovereign debt crises in emerging markets had been developing-boom and bust cycles, behavioural
biases, agency problems, externalities, too-big-to-fail problems-if you applied those tools to the
same facts, you'd get a very different kind of story. I wish we'd put greater weight on stories of
the second kind rather than the first. We'd have been better off if we'd done so.
You also have a chapter on "Economics and Its Critics". To what extent does your point
about economists' tendency to overestimate the scope and power of their models neutralise some fairly
common criticisms of the discipline made by non-economists? Your point being, as I understand it,
that the problem is not so much with the models themselves as with economists' expectations of what
those models will yield.
What I'm claiming is that if economists were actually truer to their discipline and were to project
their discipline to the rest of the world as a collection of models, to a large extent it would help
neutralise the criticism that economists are [wedded to] one model in particular. You don't get a
reputation as a successful researcher by demonstrating that Adam Smith was right! You get a reputation
by showing that there are very circumstances in which he might have been wrong. But this richness,
this willingness to countenance non-free-market outcomes, is somehow rarely revealed to the outside
world.
Dani Rodrik's "Economics Rules: Why Economics Works, When It Fails, And How to Tell the Difference"
is published by Oxford University Press (Ł16.99)
"... There may be little doubt that the trickle down stimulus that has been bloating the paper assets of the wealthiest few while no progress is being made by all the rest is going to lead to a break point in the current socio-economic equilibrium. At least, this is what history has proven. ..."
"... the huge increase in corporate debt that has been facilitated by the Feds easy money AND generous tax breaks, loopholes, and offshore tax havens for the biggest and the wealthiest corporations, has been largely deployed not to build for the future, or pay living wages, but rather to pump up the price of their stocks through buybacks that benefit insiders and the wealthiest few. ..."
"To know and to serve God, of course, is why we're here, a clear truth, that, like the nose
on your face, is near at hand and easily discernible but can make you dizzy if you try to focus
on it hard. But a little faith will see you through. What else will do except faith in such a
cynical, corrupt time? When the country goes temporarily to the dogs, cats must learn to be circumspect,
walk on fences, sleep in trees, and have faith that all this woofing is not the last word.
What is the last word, then? Gentleness is everywhere in daily life, a sign that faith rules
through ordinary things: through cooking and small talk, through storytelling, making love, fishing,
tending animals and sweet corn and flowers, through sports, music and books, raising kids - all
the places where the gravy soaks in and grace shines through. Even in a time of elephantine vanity
and greed, one never has to look far to see the campfires of gentle people."
Garrison Keillor
The economic data continued in weakly this morning, with an oversized number of newly unemployed,
and a continuing unemployment number that was higher than expected. Tra la.
There may be little doubt that the 'trickle down' stimulus that has been bloating the paper assets
of the wealthiest few while no progress is being made by all the rest is going to lead to a break
point in the current socio-economic equilibrium. At least, this is what history has proven.
On the right is a chart that shows how the huge increase in corporate debt that has been facilitated
by the Fed's easy money AND generous tax breaks, loopholes, and offshore tax havens for the biggest
and the wealthiest corporations, has been largely deployed not to build for the future, or pay living
wages, but rather to pump up the price of their stocks through buybacks that benefit insiders and
the wealthiest few.
But such abuses of policy and regulation can go quite far. And the further it goes, the more messy
the reversion to the mean may be.
"... In truth, the real jobless rate would be 9.8% if those who have given up looking for work and part-timers who want a full-time job were included. ..."
"... The labor force participation rate is at its lowest level in 38 years. ..."
"... This Federal Reserve chart (November 6) shows that only 62.4% of working-age Americans are employed or looking for work ..."
"... A record 94,610,000 Americans were not in the workforce in September. But the questionable health of the U.S. labor market doesn't stop here. ..."
"... the point is that many of the new jobs in the U.S. have been at the lower end of the income brackets. ..."
In truth, the real jobless rate would be 9.8% if those who have given up looking for work and
part-timers who want a full-time job were included.
The labor force participation rate is at its lowest level in 38 years.
This Federal Reserve chart (November 6) shows that only 62.4% of working-age Americans are
employed or looking for work:
A record 94,610,000 Americans were not in the workforce in September. But the questionable
health of the U.S. labor market doesn't stop here.
Even those who are working are struggling to make headway.
And what about the 2.95 million new jobs that were created in 2014, and the slightly more
than 2 million so far in 2015?
The numbers sound impressive until you dig deeper. This is
from the Atlantic magazine (September 4):
According to new research, between 2009 and 2014, wage loss across all jobs averaged
4 percent. But for those in the bottom quintile, those losses averaged 5.7 percent. ...
The [jobs] where declines in real wages have been the most acute -- are also the jobs
that have hired the highest share of new workers during the recovery.
It's true that average hourly earnings increased by nine cents in October. Even so, the
point is that many of the new jobs in the U.S. have been at the lower end of the income
brackets.
Also consider that in September, the U.S. Consumer Price Index fell 0.2% and that the
Producer Price Index declined by 0.5%.
All told, our stance remains that deflation is knocking at the door.
Currency devaluation's role in the developing global crisis
How the self-reinforcing aspect of deflation is already apparent in commodities
trading
Why the top 1% of earners are in for a rude awakening
How Europe's biggest economies are screeching to a halt
The hair-raising future for U.S. stocks
Just recall how swiftly the 2007-2009 financial crisis unfolded. We anticipate
that the next global financial crisis could be even more sudden and severe.
"... STUDY: During the past three years, members of the Standard Poor's 500 Index have spent more than $1.5 trillion buying back stock ... US companies issued stock equal to $1.2 trillion last year. All told the new issues in 2014 exceeded share buybacks ... The conclusion is that what looks like buybacks are actually thinly veiled management-compensation plans. ..."
"... Looser monetary policy increases the value of existing assets but reduces the return on assets. So the impact it has on inequality is to increase it in the short run, but in the long run the first order* impact is zero. ..."
"... I doubt that trickle down, starve the beast, supply-side, sound money fantasies are really economics at all. They look now more like the supportive myths of a new, much more hierarchical social order. As such, they should be seen as modern equivalents of the Divine Right royal myth of the Ancien Regime, or even the claim of Dark Age warlords to be descendants of Woden. ..."
"Ben Bernanke, the Federal Reserve chairman when the QE programs were first launched, claimed
that asset purchases would have a "wealth effect": by the Fed purchasing bonds in such large amounts,
bond prices would rise, yields would fall, and investors would shift into riskier securities,
driving up the price of corporate shares and stock markets. Everyone would feel richer, businesses
would invest and consumers would spend more. This seems much like the theory of "trickle-down"
fiscal policy: that tax cuts for those with high incomes would be invested, thereby leading to
the hiring of additional workers and spreading the benefits to the rest of the economy. But like
the Bush administration's tax cuts, the Fed's monetary trickle-down has not worked so well. The
Fed's lending and asset purchase programs have effectively propped up Wall Street interests -- big
banks and financial markets -- but they have also neglected the needs of Main Street, including the
small community banks, small and moderate sized and family-owned businesses, unemployed and underemployed
workers, and state and local governments."
https://www.dissentmagazine.org/article/who-runs-federal-reserve-2008-crash
What's amazing: 'liberals' can see trickle down when it comes to tax cuts but not in monetary
policy. They march in lock step with Wall Street when it comes to monetary policy...which has
barely trickled down at all after seven years.
STUDY: "During the past three years, members of the Standard & Poor's 500 Index have spent
more than $1.5 trillion buying back stock ... US companies issued stock equal to $1.2 trillion
last year. All told the new issues in 2014 exceeded share buybacks ... The conclusion is that
what looks like buybacks are actually thinly veiled management-compensation plans."
It's apparently impossible for most to understand this ... but the most accurate way to describe
the first order distributional impact of looser monetary policy would be to say:
Looser monetary policy increases the value of existing assets but reduces the return on assets.
So the impact it has on inequality is to increase it in the short run, but in the long run the
first order* impact is zero.
*Of course, second order impacts are important here. But if we're counting those, we should probably
keep in mind the dynamics of the given situation, and the fact that workers in no way benefit
from letting the economy slide into depression.
Peter K. said...
WSJ:
"It's also notable that nearly all of the GOP candidates identify the Federal Reserve's post-crisis
monetary policy as a source of rising inequality "
I find it hard to believe that the Wall Street Journal or the GOP candidates actually think rising
inequality is a bad thing.
gordon said...
I doubt that "trickle down, starve the beast, supply-side, sound money fantasies" are really
economics at all. They look now more like the supportive myths of a new, much more hierarchical
social order. As such, they should be seen as modern equivalents of the Divine Right royal myth
of the Ancien Regime, or even the claim of Dark Age warlords to be descendants of Woden.
West Texas Intermediate crude futures was down 2.75 percent at $41.75 per barrel. WTI set an
intraday low of $37.75 on Aug. 24. Brent crude was down nearly 3 percent Thursday at $45.23 per
barrel.
Real gross domestic product (GDP) growth is seen averaging 3.1 percent year-on-year across the
globe in 2015 and 3.6 percent next year by the IMF. This is down from the international body's
July forecasts, which suggested economic expansion of 3.3 percent in 2015 and 3.8 percent in
2016. It is also marginally slower than the growth rates of 3.3 percent and 3.4 percent seen in
2013 and 2014, respectively.
"Growth remains fragile and could be derailed if transitions are not successfully navigated. In
an environment of declining commodity prices, reduced capital flows to emerging markets, and
higher financial market volatility, downside risks to the outlook remain elevated, particularly
for emerging economies," the IMF said.
... ... ...
Overall, growth is seen declining in emerging economies for a fifth year in a row in 2015,
before strengthening next year. Notably, Russia's economy is seen shrinking 3.8 percent this year
and 0.6 percent next, while Brazil's economy is declining by 3.0 percent this year and 1.0
percent in 2016.
It's that time of year.... when the bank-that-does-God's-work chooses who to bless with mass
affluence. This year 425 Goldman Sachs' employees were annointed "Managing Directors" which
according to Emolumnet.com means an average annual comp of approximately $1 million.
"... I agree. Excellent point on the frack log, but at some point with the reduced rate of drilling the frack log will dwindle. Let's take the Bakken where we have the best numbers, Enno estimates around 800 DUC wells (rough guess from memory), to make things simple let's assume no more wells are drilled because prices are so low. If 80 wells per month are completed the DUCs are gone in July 2016. Now the no wells drilled is probably not realistic. If 40 wells per month are drilled (though at these oil prices I still don't understand why) the 800 DUCs would last for 20 months rather than only 10 months, so your story makes sense at least for the Bakken. ..."
"... One thing to be careful with the fracklog, is that not all of these will be good wells. ..."
"... I agree that high cost will be likely to reduce demand. The optimistic forecasts assume there will be low cost supply judging by the price scenarios. For AEO 2013 Brent remains under $110/b (2013$) until 2031 and only reaches $141/b (2013$) in 2040. ..."
"... "Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years. ..."
"... U.S. drillers account for 20 percent of the debt due in 2015, ..."
"Mr Falih, who is also health minister, forecast the market would come into balance in the new
year, and then demand would start to suck up inventories and storage on oil tankers. "Hopefully,
however, there will be enough investment to meet the needs beyond 2017."
Other officials also estimated that it would probably take one to two years for the market to
clear up the oil market glut, allowing prices to recover towards $70-$80 a barrel."
"Non-OPEC supply is expected to fall in 2016, only one year after
the deep cuts in investment," he said.
"Beyond 2016, the fall in non-OPEC supply is likely to accelerate, as the cancellation
and postponement of projects will start feeding into future supplies, and the impact of previous
record investments on oil output starts to fade away."
I thought just about everyone was expecting a rebound in production by 2017?
The EIA. IEA. OPEC and most others expect non-OPEC production, excluding the U.S.
and Canada to decline in 2016 and the next few years due to the decline in investments and postponement
/ canceling of new projects.
Production in Canada is still projected to continue to grow, but at a much slower rate than previously
expected.
Finally, U.S. C+C production is expected to rebound in the second half of 2016 due to slightly
higher oil prices ($55-57/bbl WTI). Also, U.S. NGL production proved much more resilient, than
C+C, despite very low NGL prices.
Non-OPEC ex U.S. and Canada total liquids supply (mb/d) Source: EIA STEO October 2015
Thanks. I don't think oil prices at $56/b is enough to increase the drilling in the LTO
plays to the extent that output will increase, it may stop the decline and result in a plateau, it's
hard to know.
On the "liquids" forecast, the NGL is not adjusted for energy content as it should be, each barrel
of NGL has only 70% of the energy content of an average C+C barrel and the every 10 barrels of NGL
should be counted as 7 barrels so that the liquids are reported in barrels of oil equivalent (or
better yet report the output in gigajoules (1E9) or exajoules(1E18)). The same conversion should
be done for ethanol as well.
Note that not only the EIA, but also the IEA, OPEC, energy consultancies and investment
banks are projecting a recovery in US oil production in the later part of next year.
That said, I agree with you that $56 WTI projected by the EIA may not be sufficient to trigger
a fast rebound in drilling activity.
However there is also a backlog of drilled but uncompleted wells that could be completed and put
into operation with slightly higher oil prices.
Most shale companies have announced further cuts in investment budgets in 2016, so I think it is
difficult to expect significant growth in the U.S. onshore oil production in 2H16.
If and when oil prices reach $65-70/bbl, I think LTO may start to recover (probably in 2017 ?).
I think that annual growth rates will never reach 1mb/d+ seen in 2012-14, but 0.5 mb/d annual average
growth is quite possible for several years with oil prices exceeding $70.
I agree. Excellent point on the frack log, but at some point with the reduced rate of
drilling the frack log will dwindle. Let's take the Bakken where we have the best numbers, Enno estimates
around 800 DUC wells (rough guess from memory), to make things simple let's assume no more wells
are drilled because prices are so low. If 80 wells per month are completed the DUCs are gone in July
2016. Now the no wells drilled is probably not realistic. If 40 wells per month are drilled (though
at these oil prices I still don't understand why) the 800 DUCs would last for 20 months rather than
only 10 months, so your story makes sense at least for the Bakken.
I have no idea what the frack log looks like for the Eagle Ford. If its similar to the Bakken
and they complete 130 new wells per month, with about 61 oil rigs currently turning in the EF they
can drill 80 wells per month, so they would need 50 wells each month from the frack log. If there
are 800 DUCs, then that would last for 16 months.
The economics are better in the Eagle Ford because the wells are cheaper and transport costs are
lower, but the EUR of the wells is also lower (230 kb vs 336 kb), the well profile has a thinner
tail than the Bakken wells. I am not too confident about the EIA's DPR predictions for the Eagle
Ford, output will decrease, but perhaps they(EIA) assume the frack log is zero and that only 75 new
wells will be added to the Eagle Ford each month. If my guess of 150 new wells per month on average
from Sept to Dec 2015 is correct, then decline from August to Dec 204 will only be about 100 kb/d
and 255 kb/d from March to Dec 2015 (155 kb/d from March to August 2015).
One thing to be careful with the fracklog, is that not all of these will be good wells.
It is fair enough that companies like EOG will have some good DUCs, (should there be a "k" in that?)
in their fracklogs. But as the fracklog is worked through, I am sure there will be a some very ugly
DUCklings, that nobody wants to admit to. How many fall into this category, will be anybodies guess, but not all DUC, will turn out to be beautiful
swans?
On the predictions of the EIA and IEA, they also expect total oil supply to be quite
high in 2040. For example the EIA in their International Energy Outlook reference case they have C+C output
at 99 Mb/d in 2040.
Their short term forecasts are probably better than that, but my expectation for 2040 C+C output
is 62 Mb/d (which many believe is seriously optimistic, though you have never expressed an opinion
as far as I remember).
So I take many of these forecasts with a grain of salt, they are often more optimistic than me,
others are far more pessimistic, the middle ground is sometimes more realistic.
You said above that estimated URR of all global C+C (ex oil sands in Canada and Venezuela)
is 2500 Gb. And about 1250 Gb of C+C had been produced at the end of 2014. So the remaining resources
are 1250 Gb.
BP estimates total global proved oil reserves as of 2014 at 1700 Gb, or 1313 excluding Canadian
oil sands and Venezuela's extra heavy oil. Their estimate in 2000 was 1301 Gb and 1126 Gb. Hence,
despite cumulative production of 419 Gb in 2001-2014, proved reserves increased by 187 Gb, or 400
Gb including oil sands and Venezuela's Orinoco oil. Note that BP's estimate is for proved (not P+P)
reserves, but it includes C+C+NGLs. My very rough guess is that NGLs account for between 5% and 10%
of the total.
You may be skeptical about BP's estimates, but the fact is that proved reserves or 2P resources
are not a constant number; they are increasing due to new discoveries and technological advances.
BTW, the EIA's estimate of global C+C production increasing from 79 mb/d in 2014 to 99 mb/d in
2040 implies a cumulative output of 836 Gb, about 2/3 of your estimate of remaining 2P resources
of C+C or BP's estimate of the current proved reserves. Given future discoveries and improvements
in technology, I think that further growth of global oil production to about 100 mb/d by 2040 should
not be constrained by resource scarcity.
What can really make the EIA's and IEA's estimates too optimistic is not the depleting resource
base, but the high cost of future supply, political factors and/or lower than expected demand.
You are quite optimistic. Note that I add 300 Gb to the 2500 Gb Hubbert Linearization estimate to account for reserve growth
and discoveries.
The oil reserves reported in the BP Statistical review are 1312 Gb. Jean Laherrere estimates that
about 300 Gb of OPEC reserves are "political" to keep quotas at appropriate levels with respect to
"true" reserve levels. So the actual 2P reserves are likely to be 1010 Gb. Some of the cumulative
C+C output is extra heavy oil so the cumulative C+C-XH output is 1240 Gb so we have a total cumulative
discovery (cumulative output plus 2P reserves) of 2250 Gb through 2014.
My medium scenario with a URR of 2800 Gb of C+C-XH plus 600 Gb of XH oil (3400 Gb total C+C) assumes
550 Gb of discoveries plus reserve growth.
What do you expect for a URR for C+C?
Keep in mind that at some point oil prices rise to a level that substitutes for much of present
oil use will become competitive, so oil prices above $175/b (in 2015$) are unlikely to be sustained
in my view.
In a wider format below I will present a scenario with what extraction rates would be needed for
my medium scenario to reach 99 Mb/d in 2040.
I agree that high cost will be likely to reduce demand. The optimistic forecasts assume
there will be low cost supply judging by the price scenarios. For AEO 2013 Brent remains under $110/b
(2013$) until 2031 and only reaches $141/b (2013$) in 2040.
Depleting resources will raise production cost to more than these prices and demand will be reduced
due to high oil prices. There will be an interaction between depletion and the economics of supply and demand. It will
be depletion that raises costs, which will raise prices and reduce demand.
"Debt repayments will increase for the rest of the decade, with $72 billion maturing this year,
about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion
in bonds and loans are due for repayment over the next five years.
U.S. drillers account for 20 percent of the debt due in 2015, Chinese companies rank second with
12 percent and U.K. producers represent 9 percent."
[These are just the bonds that have yields higher than 10%]
[Its very unlikely that prices will recover in time to save many of the drillers, and even if
prices recover, even $75 oil will not help since they need $90 to break even to service the debt.
Also not sure who is going to buy maturing debt so it can be rolled over. Even if prices slowly recover,
there is likely to be fewer people willing to loan money drillers.]
"... "The Cantarell oil field - an aging supergiant oil field in Mexico - saw its lowest production in over 30 years with an output of 206,000 barrels per day in October, said PEMEX Exploration and Production (PEP) on Thursday. In its latest weekly report, Pemex said that Cantarell was producing 256,000 bpd at the beginning of 2015, its lowest level since 2004, sparking fears that Mexico's most productive field was running out of oil." ..."
"... Wow, thats an average decline rate of about 18% per year (since 2003). ..."
MEXICO'S CANTARELL OIL FIELD POSTS RECORD LOW OIL PRODUCTION
"The Cantarell oil field - an aging
supergiant oil field in Mexico - saw its lowest production in over 30 years with an output of 206,000
barrels per day in October, said PEMEX Exploration and Production (PEP) on Thursday. In its latest
weekly report, Pemex said that Cantarell was producing 256,000 bpd at the beginning of 2015, its
lowest level since 2004, sparking fears that Mexico's most productive field was running out of oil."
Meanwhile Ku-Maloob-Zaap remains on a production plateau of about 850,000 bpd which is expected
to continue until 2017.
Yeh, so much for the long fat tail theory. Mind you, there are extenuating circumstances (Aren't
there always?). I.E., PEMEX started shifting resources away from Cantarell a year or so back.
"... It's perhaps more so high yield paper issuance ..."
"... We imagined that a mini Apocalypse loomed, derived from shutting down oil production via loan shutoff simply because it was not profitable. How absurd, in retrospect. Profitable. Profitable was a lot more powerful a requirement pre 2009 than post 2009. Now, it's almost laughable. No one is going to allow horrible outcomes just because numbers on a screen are red. ..."
The "big news" this month is that the banks granted over leveraged, loss making shale oil drillers
a stay of execution by continuing to provide credit lines. Consequently, there was no major move
in US oil drilling or production though both are trending down. Elsewhere, the story is one of production
plateaus and stabilisation of rig counts. The modest production rises and falls detailed below are
simply noise on these production baselines.
Against this backdrop of no news, the oil price traded sideways in October. OPEC countries, Russia
and International Oil Companies are all losing billions and look set to continue doing so throughout
2016 as over-supply now looks set to continue until early 2017. The situation is one of stalemate
as opposed to checkmate.
"Banks". It's perhaps more so high yield paper issuance, and we have seen at least one
story indicating a bank (JP Morgan) orchestrated placement of the issuance in order to service debt
JPM had actually loaned. So this would mean banks are selling debt to the public (with their powerful
sales force), and doing so to protect their own loan portfolios. One might also wonder about their
managed accounts (client money entrusted to in-house advisors) and if those accounts were put into
this HY paper.
There was that JPM quote in response to a question about the risks to their loan portfolio. "We
have offloaded that risk to investors."
To a certain extent it all says that I forgot my own mantra: Nothing relevant to money is going
to be allowed to destroy civilization, because it can be created from nothingness.
We imagined that a mini Apocalypse loomed, derived from shutting down oil production via loan
shutoff simply because it was not profitable. How absurd, in retrospect. Profitable. Profitable was
a lot more powerful a requirement pre 2009 than post 2009. Now, it's almost laughable. No one is
going to allow horrible outcomes just because numbers on a screen are red.
"... Oil demand is expected to be 94 million barrels a day this year, rising 1.5 percent from last year, with about 2 million barrels a day of spare capacity, mainly held in Saudi Arabia, the prince said. Growth in Asia's demand may slow "by efforts to efficiency enhancement and oil substitution," he said. ..."
"... "But the petroleum industry should not lose sight of the fact that scale matters," with billions of people moving up into the middle class, the prince said. The size of the world's middle class will expand from 1.8 billion to 3.2 billion in 2020, and to 4.9 billion in 2030, with the bulk of this expansion occurring in Asia, he said. ..."
"... The oil market will rebalance in 2016 or 2017, as demand grows between 1.2 million barrels per day and 1.5 million barrel per days through 2020, Yergin, vice chairman of consultants IHS, said in a speech in Abu Dhabi. Demand will rise by about 17 million barrels a day to almost 110 million barrels a day by 2040, with 70 percent of the growth to come from Asia, the head of the Organization of Petroleum Exporting Countries said at an event in Doha. ..."
"... "The next few quarters are going to continue to be tough as Iranian oil comes back into the market," Yergin said Monday. "We really see 2016 as the year of transition." ..."
"... "We have a vested interest to keep prices as stable as possible, but we cannot do that by reducing production," Mazrouei said. "We expect the market will recover by itself because high-cost production will continue to decline." ..."
"... "We're near the bottom at $40, and there's a potential upside that's much higher." ..."
The scale of the global oil and gas industry's spending cuts are making another surge in energy
prices possible by diminishing future supply, Saudi Vice Minister of Petroleum & Mineral Resources
Prince Abdulaziz bin Salman said.
Investments have been cut by $200 billion this year and will drop another 3 percent to 8 percent
next year, marking the first time since the mid 1980s that industry cut the spending for two consecutive
years, Prince Abdulaziz said in a copy of his speech for delivery to energy ministers in Doha Monday.
Nearly 5 million barrels a day of projects have been deferred or canceled, he said in the remarks.
Just like high oil prices can't last, a prolonged period of low prices is "also unsustainable, as
it will induce large investment cuts and reduce the resilience of the oil industry, undermining the
future security of supply and setting the scene for another sharp price rise," the prince said in
the remarks. "As a responsible and reliable producer with long-term horizon, the kingdom is committed
to continue to invest in its oil and gas sector, despite the drop in the oil price."
Oil demand is expected to be 94 million barrels a day this year, rising 1.5 percent from last year,
with about 2 million barrels a day of spare capacity, mainly held in Saudi Arabia, the prince said.
Growth in Asia's demand may slow "by efforts to efficiency enhancement and oil substitution," he
said.
"But the petroleum industry should not lose sight of the fact that scale matters," with billions
of people moving up into the middle class, the prince said. The size of the world's middle class
will expand from 1.8 billion to 3.2 billion in 2020, and to 4.9 billion in 2030, with the bulk of
this expansion occurring in Asia, he said.
"Rather than being a commodity in decline, as some would like to portray, supply and demand patterns
indicate that the long-term fundamentals of the oil complex remain robust."
-------------------------
OPEC's Badri says oil market to be more balanced in 2016
The oil market is expected to become more balanced in 2016 as demand continues to grow, OPEC Secretary-General
Abdullah al-Badri said on Monday ahead of the producer group's policy meeting next month.
"The expectation is that the market will return to more balance in 2016," he said in a speech at
an Asian ministerial energy roundtable in the Qatari capital Doha.
"We see global oil demand maintaining its recent healthy growth. We see less non-OPEC supply. And
we see an increase in the demand for OPEC crude," Badri said, according to the text of the speech
published on the OPEC website.
Most of the oil supply increases in recent years have come from high-cost production, Badri said,
in a clear reference to supply sources such as U.S. shale oil.
"The market is now taking on board this new reality and gradually resetting itself, as we can see
with falling non-OPEC supply growth and stronger demand," he said.
---------------------------- Yergin Joins OPEC in Seeing Market Balanced as Soon as 2016
Global demand for crude will bring more balance to the oil market as soon as next year, according
to Pulitzer Prize-winning author and energy consultant Daniel Yergin and OPEC Secretary General Abdalla
El-Badri.
The oil market will rebalance in 2016 or 2017, as demand grows between 1.2 million barrels per day
and 1.5 million barrel per days through 2020, Yergin, vice chairman of consultants IHS, said in a
speech in Abu Dhabi. Demand will rise by about 17 million barrels a day to almost 110 million barrels
a day by 2040, with 70 percent of the growth to come from Asia, the head of the Organization of Petroleum
Exporting Countries said at an event in Doha.
"The next few quarters are going to continue to be tough as Iranian oil comes back into the market,"
Yergin said Monday. "We really see 2016 as the year of transition."
Current market volatility was caused by oversupply, mostly from high-cost producers, and oil stocks
are above the five-year average, El-Badri said. Energy industry investment in exploration and production
fell 20 percent, or by about $130 billion from 2014 to 2015, he said.
"The expectation is that the market will return to more balance in 2016," El-Badri said Monday. "We
see global oil demand maintaining its recent healthy growth. We see less non-OPEC supply. And we
see an increase in the demand for OPEC crude."
Oil prices are unsustainable at current levels and will rise gradually as international companies
defer projects and production plans, United Arab Emirates Energy Minister Suhail Al Mazrouei told
reporters .
"We have a vested interest to keep prices as stable as possible, but we cannot do that by reducing
production," Mazrouei said. "We expect the market will recover by itself because high-cost production
will continue to decline."
The U.S. is now the new swing producer of oil, with much room for efficiency gains, Yergin said.
If U.S. law would allow it, the nation could be a major oil exporter by the end of decade, he said.
Canada's oil sands production will add more than 800,000 barrels a day by the decade's end, and Iran
will add 400,000 to 600,000 barrels a day to world markets within a few months of sanctions ending.
"The market will have to deal with a very significant overhang of inventories," Yergin said. "There's
more volatility in this process." --------------------– Speculators Share Andy Hall's Optimism That Oil Prices at Bottom
Andy Hall and Daniel Yergin think oil prices are bottoming out. Hedge funds agree. Money managers' net-long position in West Texas Intermediate crude rose 20 percent in the week ended
Nov. 3, the most in seven months, according to data from the U.S. Commodity Futures Trading Commission.
Bets on rising prices increased to the highest level since June. U.S. onshore oil production fell for the fifth month in a row in August and supplies grew at the
slowest pace since September in the week ended Oct. 30. Inventory data don't indicate a surplus in
the crude market and prices are set to rise, said Hall, one of the world's best-known oil traders.
Global supply and demand will begin to move into balance by late 2016 or 2017, according to Yergin.
"The fundamentals are starting to play out," said David Pursell, a managing director at investment
bank Tudor Pickering Holt & Co. in Houston. "You've got greater recognition that U.S. supply is falling
and maybe falling faster. Inventories are building, but the pace of that build is more manageable."
Onshore production excluding Alaska fell to 7.25 million barrels a day in August, down 334,000 barrels
a day from March, according to Energy Information Administration data. U.S. oil inventories grew
by 2.8 million barrels a day the week ended Oct. 30, the smallest gain since Sept. 18.
U.S. output will retreat by about 10 percent in the 12 months ending April, according to Yergin,
vice chairman at IHS Inc.." Prices may rise to $70 to $80 a barrel by the end of the decade, he said
in an interview.
Hall, the crude trader, said Saudi Arabia is producing close to capacity while Iraq is struggling
to maintain output, while U.S. rig counts will continue to decline.
"We think the degree of negativity is unwarranted," Hall, who runs $2.6 billion hedge fund Astenbeck
Capital Management, said Nov. 4.
"The economy is on the rebound, China is coming out of a bear market, people are saying let's get
long oil," said Carl Larry, head of oil and gas for Frost & Sullivan LP.
"We're near the bottom at
$40, and there's a potential upside that's much higher."
"... I focus on the oil price necessary to be cash flow neutral and maintain production. That price is different for every company and constantly changes, but overall it remains much higher than current oil and natural gas prices. Shale companies have been hiding behind this for quite awhile, but recently management is beginning to talk about maintaining production and cash flow neutrality. Apparently some one important has signaled to them that the cash burn has to stop. I do not think $55 WTI or even $65 WTI will result in a return to 2011-2014 like drilling, which is what will be needed to cause US oil production to reverse its decline. The shale companies cannot return rigs at these price levels without burning more cash, on the whole. ..."
"... At the current price level some companies may stop completing wells and may stop drilling. There are a fair number of drilled uncompleted wells in the Bakken (Enno has two estimates 450 and 900, I am not sure which he favors, let's call it 675). These wells are a sunk cost and are likely to be completed to keep up cash flow levels. Even if all drilling stops (which is unlikely) if 75 wells are completed from the frack log each month, there are 9 months supply of DUCs, if 40 wells per month are drilled the supply would be enough for 19 months of completions at 75 wells completed each month. My scenario assumes well productivity (the estimated ultimate recovery over the first 60 months) of new wells remains at 2013 to 2014 levels. So far the actual data shows no change in new well EUR (it actually increased slightly in 2013 and 2014 from earlier levels and has remained steady in 2015). Perhaps Enno or Freddy W have a 3 month or 6 month cumulative chart for the Bakken Three Forks. I have an old chart but they may have something more recent. Chart below is from data in April or May 2015. ..."
"... I just want to add that yes production has stayed relatively flat over the years. But water content has increased significantly. Fracking has become more costly also with more fracking fluids and so on. They have on the other hand become more efficient in what they are doing, but I think overall that costs have gone up. ..."
"... "The short investment cycle of US tight oil and its ability to respond quickly to price signals are changing the way that the oil market operates. The plunge in prices means US tight oil production is now stumbling: if prices out to 2020 remain under $60/bbl, without a rapid evolution in drilling efficiency and technology learning, tight oil production in the United States will likely see a substantial decline in output. However, with tighter markets leading to higher mid-term prices in the New Policies Scenario ($80/bbl in 2020) US tight oil ultimately resumes its upward march, growing by 1.5 mb/d by 2020 to over 5 mb/d." ..."
"... Plunging oil prices may suggest that the world is awash with cheap oil but, in reality, what the world is really awash with is lots of expensive oil, much of it being produced at a loss. ..."
"... In any event, I bet the extra 1/2 to 1 million barrels (if truly produced) are the most expensive barrels they have. So one wonders how much more income is really earned by the extra barrels. ..."
"... Oil and gas debt held by US banks is over $270 billion, but that would include conventional production. ..."
"... Looking at Iraq and Iran more closely. I think those two are greater threats to KSA market share than US shale at this point in time. As US shale continues to drop, looks like Iran and Iraq are set to grow, with total costs likely lower than even KSA. ..."
"... Oil Industry Needs Half a Trillion Dollars to Endure Price Slump. Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, (2015) about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years. ..."
"... A lot of money borrowed by US upstream, and they are in tremendous trouble if prices stay below $60 WTI though 2016, and do not substantially recover in 2017 ..."
Heinrich. Your point about CAPEX v operating expense is on the money.
I focus on the oil price necessary to be cash flow neutral and maintain production. That
price is different for every company and constantly changes, but overall it remains much higher
than current oil and natural gas prices. Shale companies have been hiding behind this for quite
awhile, but recently management is beginning to talk about maintaining production and cash flow
neutrality. Apparently some one important has signaled to them that the cash burn has to stop.
I do not think $55 WTI or even $65 WTI will result in a return to 2011-2014 like drilling, which
is what will be needed to cause US oil production to reverse its decline. The shale companies
cannot return rigs at these price levels without burning more cash, on the whole.
Thank you for your reply. My point is also that many shale companies have published
low operating expenses over years by moving most of their expenses into the category 'capex'.
By the recent impairments they have moved a big chunk of their capex into the category expenses.
So, basically they are saying to investors: sorry folks you have invested your money, but actually
it is not invested anymore we have spent the money already on producing gas and oil and you will
see a big part of your money never again. This is in my view a very unfair way to pretend to have
low operating costs.
Enno Peters posts charts each month showing the well productivity. It has not
decreased.
At the current price level some companies may stop completing wells and may stop drilling.
There are a fair number of drilled uncompleted wells in the Bakken (Enno has two estimates 450
and 900, I am not sure which he favors, let's call it 675). These wells are a sunk cost and are
likely to be completed to keep up cash flow levels. Even if all drilling stops (which is unlikely)
if 75 wells are completed from the frack log each month, there are 9 months supply of DUCs, if
40 wells per month are drilled the supply would be enough for 19 months of completions at 75 wells
completed each month. My scenario assumes well productivity (the estimated ultimate recovery over
the first 60 months) of new wells remains at 2013 to 2014 levels. So far the actual data shows
no change in new well EUR (it actually increased slightly in 2013 and 2014 from earlier levels
and has remained steady in 2015). Perhaps Enno or Freddy W have a 3 month or 6 month cumulative
chart for the Bakken Three Forks. I have an old chart but they may have something more recent.
Chart below is from data in April or May 2015.
I just want to add that yes production has stayed relatively flat over the years. But
water content has increased significantly. Fracking has become more costly also with more fracking
fluids and so on. They have on the other hand become more efficient in what they are doing, but
I think overall that costs have gone up.
Newer wells produce more in the beginning, but has higher decline rates for at least the first
year. My guess is that the earlier wells will eventually have recovered more oil than the later
ones.
New data will probably come out on Friday. Maybe I have something to show after that.
"The short investment cycle of US tight oil and its ability to respond quickly to price
signals are changing the way that the oil market operates. The plunge in prices means US tight
oil production is now stumbling: if prices out to 2020 remain under $60/bbl, without a rapid evolution
in drilling efficiency and technology learning, tight oil production in the United States will
likely see a substantial decline in output. However, with tighter markets leading to higher mid-term
prices in the New Policies Scenario ($80/bbl in 2020) US tight oil ultimately resumes its upward
march, growing by 1.5 mb/d by 2020 to over 5 mb/d."
"The short investment cycle of tight oil and its ability to respond quickly to price signals
is changing the way that the oil market operates, but the intensity with which the tight oil resource
is developed in the United States eventually pushes up costs. US tight oil production stumbles
in the short term but resumes its upward march as prices recover, helped by continued improvements
in technology and efficiency improvements. But tight oil's rise is ultimately constrained by the
rising costs of production, as operators deplete the "sweet spots" and move to less productive
acreage. US tight oil output reaches a plateau in the early-2020s, just above 5 mb/d, before starting
a gradual decline."
Change in production (2015-2020) of US tight oil for a range of 2020 oil prices
mb/d
In its short term energy outlook, the EIA sharply revised its U.S. C+C production estimates
for 2H15 and forecast for 2016.
Estimate for this year's growth was increased to 580 kb/d from a 540 kb/d in previous month
STEO, due to stronger than expected performance in onshore production. The biggest upwards revisions
were made for August 2015: +187 kb/d, September: +160 kb/d and October: + 108 kb/d. The new production
forecast for 2015 is 9.29 mb/d vs. 9.25 mb/d in October STEO.
Despite these revisions, the EIA still notes that "monthly crude oil production started to
decrease in the second quarter of 2015, led by Lower 48 onshore production. From March 2015 through
October 2015, Lower 48 onshore output has fallen from more than 7.6 million b/d to about 7.1 million
b/d. EIA estimates total crude oil production has declined almost 0.5 million b/d since April,
averaging 9.1 million b/d in October", down 43 kb/d from September.
The EIA expects declines to continue through September 2016, when total production is forecast
to average 8.54 mb/d. This level of production would be almost 1.1 mb/d less than the 2015 peak
reached in April.
"Plunging oil prices may suggest that the world is awash with cheap oil but, in reality,
what the world is really awash with is lots of expensive oil, much of it being produced at a loss.
OPEC, home to the world's lowest-cost oil, is pretty much producing what it always has. The
market glut is from increased output from high-cost producers like the oil sands. Their existential
dilemma in today's market is that it is they, not OPEC, who must cut production to clear the glut.
I wish I knew more about production costs for the four Gulf OPEC members plus Iran and Iraq.
I also wish I knew how much of KSA's increase in oil production, for example, which began in
March, 2015, was oil from storage as opposed to produced.
In any event, I bet the extra 1/2 to 1 million barrels (if truly produced) are the most
expensive barrels they have. So one wonders how much more income is really earned by the extra
barrels.
KSA's production was increasing from March and peaked in June. Since then, it has slightly
declined.
I don't think they will (and can, and intend to) increase it further.
Saudi Arabia's oil production
Source: JODI, OPEC (direct communications)
AlexS. Thanks. Surprisingly, KSA has really not increased oil production that much, especially
in relation to the United States.
Euan's post above indicates there is negligible spare capacity and it is almost all heavy oil
with no refining capacity available for it. Given KSA interest in shale tech, would appear 10.6
may be their conventional peak.
Russia has been able to continue to slowly increase production. Do you think Russia is nearing
conventional peak? Any recent news on Russian LTO efforts?
The IEA estimates Saudi capacity at 12.26 mb/d and sustainable spare capacity at 2.06 mb/d
(in September). However these numbers can be overstated and actual capacity may not exceed 11-11.5
mb/d.
Euan is right that most spare capacity consists of heavy oil with high sulphur content.
3 other Gulf states have very small spare capacity of around 100 kb/d.
Hence production increases in 2016 can be expected only from Iran and Iraq. Libya is a big
unknown, which potentially can add up to 1 mb/d
I think Russia could further increase production in the near term, but not by much. In the
medium to long term it will try to maintain production at current levels, so it's probably not
a peak, but a plateau.
Russian LTO is a long-term story, similarly to the Arctic projects. No significant additions
are expected until next decade.
Among other non-OPEC, non-US sources, some growth may be expected from Canada and Brazil, but
in both cases it will be slower than previously expected due to lower oil prices.
With the declining US output and continued (albeit slower) growth in demand, the market will
begin rebalancing next year.
In 1H15, that will mean lower excess supply vs demand, and from 2H15 demand will likely exceed
supply.
This scenario implies that additional supplies from Iran do not exceed 500-700 kb/d, Libya remains
in doldrums, and there is no dramatic slowdown in global economic growth.
AlexS. Thanks for the post. I agree with you that Iran and Iraq appear to be able to add much
more production than Saudi Arabia, Kuwait, UAE and Qatar combined.
Iraq in particular has many areas to be developed, subject primarily to political instability.
For example, Rumalia oil field production has ramped up significantly and it appears there
is much room to run at a very low price.
"Oil and gas commitments to the exploration and production sector and the services sector totaled
$276.5 billion, or 7.1 percent, of the SNC portfolio. Classified commitments-a credit rated as
substandard, doubtful, or loss-among oil and gas borrowers totaled $34.2 billion, or 15.0 percent,
of total classified commitments, compared with $6.9 billion, or 3.6 percent, in 2014."
I went looking for this because a local bank is seeking to increase is liquidity via a preferred
stock offering. It is trying to raise a multi-million $ amount. The offered terms are a 5% dividend,
5 year term, and share repurchase at redemption date. The bank is 30 + years old.
I am told another local bank is doing a similar offering.
Hmmm…..liquidity issues and off balance sheet financing. Where has that been tried before in
the oil patch?
Quick example, go to finance.google.com and enter stock symbol bac. and that's a period after
the c and look at all the preferred offerings/issues.
Quick lesson for the partially washed. Preferred stock is equity that usually has no voting
rights for corporate governance determination. Speaking practically it's usually priced about
$25/share and pays a higher yield than any common dividend. Preferreds get their dividend first.
If there isn't enough profit to pay preferred divvies and common, common has to get zero.
There are cumulative preferreds and convertible preferreds. Cumulative means if a quarter's
dividend is missed, ya gotta make up that quarter's missed payout before you can pay to common
shares. Convertible means can convert to XXX shares of common. blahblah
Anyway, a bank issuing preferred stock is not eyebrow raising in any environment. That is,
excluding issuance bought by Buffet in 2009. Anything at all done that year was eyebrow raising.
John S. Thanks for the link! That is the release I was referring to earlier.
WTI below $43. Wow. Have to think the substandard or worse oil and gas backed loans are only
going to grow.
Looking at Iraq and Iran more closely. I think those two are greater threats to KSA market
share than US shale at this point in time. As US shale continues to drop, looks like Iran and
Iraq are set to grow, with total costs likely lower than even KSA.
KSA has said repeatedly shale is no threat to them and they are no threat to shale. Shale oil
can't export. It CAN'T compete. And almost all US imports are coming from Canada and Mexico and
Ven and Nigeria. Only about 1 mbpd from KSA.
They're right - besides which shale oil isn't the medium / heavy oil out of KSA. It's not even
the same product to envision as competing.
Watcher, you occasionally make some sense, sorta kinda.
But you know better, or at least you ought to know better, than to say shale oil doesn't matter
because it cannot be exported.
Oil is a fungible commodity traded in a brutally competitive world market.
A million barrels a day of domestic yankee production above and beyond "the usual" is a million
barrels somebody formerly exported to us Yankees looking for a new home in some other importing
country.
Taking a million barrels a day off our Yankee production would have approximately the same
effect on the world market as if Saudi Arabia were to cut back by a million barrels a day.
But your remarks about oil supposedly going into storage recently seem to be very reasonable.
SURELY TO SKY DADDY the tank farms of the world must be getting pretty damned close to overflowing
by now, and every rusty old tanker that will hold a few thousand barrels is probably full as well,
sitting anchored someplace.
"Patrick Rodgers, the chief executive of Euronav, one of the world's biggest listed tanker
companies, said oil glut was so severe traders were asking ships to go slow to help them manage
storage levels."
And btw all you supply and demand worshippers . . . just who is buying oil to store, when storage
has throughput? You aren't buying to store it for future higher price. You buy it to store it
to flow it outward incrementally to consumption, with new oil coming in to refill the tanks. FIFO.
That's how Cushing works. If price rose, the oil getting sold from storage just went in there
last week or 2 weeks ago. It didn't get there in January. There's no big profit.
Oil Industry Needs Half a Trillion Dollars to Endure Price Slump. Debt repayments will
increase for the rest of the decade, with $72 billion maturing this year, (2015) about $85 billion
in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans
are due for repayment over the next five years.
Watcher and Shallow: Your numbers on total debt look a bit low, but I'm only siting the
Financial Times.
dmg555. I was just throwing out things off the top of my head, which is probably not the best
thing to do.
A lot of money borrowed by US upstream, and they are in tremendous trouble if prices stay
below $60 WTI though 2016, and do not substantially recover in 2017.
"... Much steeper oil production declines in the Eagle Ford and Niobrara are apparently due to much
higher and accelerating decline rates of the existing wells compared to the Bakken and Permian basin.
..."
Combined oil production from 7 shale plays is expected to decline by 558 kb/d, from 5507 kb/d
in April to 4949 (these numbers include ~800-900 kb/d of conventional production, mainly from
the Permian basin).
New combined estimates for 7 plays were revised down by about 25-35 kb/d
from March to May, and by 40-50 kb/d from June to December.
Much steeper oil production declines in the Eagle Ford and Niobrara are apparently due to
much higher and accelerating decline rates of the existing wells compared to the Bakken and Permian
basin.
Monthly legacy production declines as % of total production by 4 key LTO plays
Source: EIA DPR
"... Saudi was selling 9 m/bbl/day when oil was at $100+, now they are selling 10.5 mbbl/day at
$43. The math on that is staggering. ..."
"... So why are they overproducing, selling more of their finite resource at a low price instead
of over the longer term at more than double its current price. ..."
"... If the real reason of this stunt is to cause severe pain for Russia, Iran, Venezuala and others,
well the oil doesn't go away. Someone will still own it and someone will still drill and pump when prices
are more favorable. ..."
OPEC's meeting in Vienna is less than a month away, and oil producers – countries and companies
alike – have been raising their concerns at an energy conference in the United Arab Emirates over
the cartel's strategy to keep prices low.
The issue arose on Monday when Mohammed bin Hamad al-Rumhy, the oil minister of Oman – not a member
of OPEC – told the annual Abu Dhabi International Petroleum Exhibition and Conference that oil production
is at "irresponsible" levels, leaving little latitude for variations in production.
"This is [a] man-made crisis in our industry we have created," al-Rhumy said. "And I think all
we're doing is irresponsible."
Al-Rhumy added, "This is a commodity that if you have 1 million barrels a day extra in the market,
you just destroy the market. We are hurting, we are feeling the pain, and we're taking it like a
God-driven crisis. Sorry, I don't buy this, I think we've created it ourselves."
The next day, al-Rhumy's concerns, if not his criticism, were shared by executives of leading
international oil companies: ExxonMobil of the United States, BP of Britain and Total of France.
All said they expect the current glut of oil, and the resultant depression in oil prices, to last
longer than anyone expected – months longer, if not years longer.
"I'm not sure we will exit from low prices before many months," Total CEO Patrick Pouyanne said.
Lamar McKay, the director of exploration and production for BP, said he expects oil prices will
stay low for some time, and Michael Townshend, the company's director for Middle East operations,
said he expects the price of a barrel of oil will rise no higher than about $60 for three more years.
These gloomy forecasts contrasted with the OPEC view. The group's secretary general, Abdullah
al-Badri, told the conference on Tuesday that 2016 is likely to be a year for positive momentum in
oil markets. And on Monday, UAE Oil Minister Suhail al-Mazrouei, said a decision by OPEC to cut production
to shore up oil prices would only play into the hands of its competitors.
As a result, al-Mazrouei said, he doesn't expect OPEC to change its strategy when it meets Dec.
4. "When you are the least expensive oil, you should be the base producer," he said.
At its meeting in November 2014, OPEC adopted Saudi Oil Minister Ali al-Naimi's strategy of keeping
production at 30 million barrels a day, despite the fall in oil prices caused by a rapid increase
in production by non-members, especially the United States, which had ramped up production of shale
oil.
The goal was to wage a price war that would keep oil prices so low that such producers, who rely
on relatively expensive hydraulic fracturing, or fracking, can't afford to drill for oil. The break-even
point for fracking is around $60 per barrel, and oil now averages about $50 per barrel, leading to
a noticeable drop in U.S. drilling.
In the meantime, OPEC nations are exceeding their production limit of 30 million barrels per day
by more than 1.5 million barrels, so it's no wonder oil prices are so low.
Concerns about low oil prices were raised before last year's OPEC meeting, particularly by Venezuela.
Saudi Arabia had already said it opposed production cuts. Venezuela's president, Nicolas Maduro,
said he was hoping to work out ways to bolster oil prices in meeting both with members of OPEC and
producers who weren't part of the 12-member cartel.
That came to naught, however, and the Saudi plan became OPEC policy. Despite current dissatisfaction
from some oil producers, there's no reason to expect the cartel to change course if it believes its
strategy is working.
I have posted this comment on 7 million forums and discussion boards and I have yet to get
a reasonable answer.
If an oil producer, big or small, has X barrels of oil in the ground, a finite number, why
would they (especially OPEC countries who can 'control' the price) overproduce to sell today at
$43 instead of $110+ ??
How does driving down the price get one more 'market share' ? When oil was $100/bbl, all things
being equal, it was $100 across the globe. At $43, its $43 across the globe. Again, all things
being equal, how does that impact market share ?
Sure, at a point in the future, when competitors fold you gain market share. Does this fall
into the "market can stay illogical longer than one can remain solvent" category ?
Completely short sighted vision in my book. WTF was the intention of OPEC in the first place?
Saudi was selling 9 m/bbl/day when oil was at $100+, now they are selling 10.5 mbbl/day
at $43. The math on that is staggering.
Back to the finite X reserves. No doubt Saudi and every oil producer will pump and drill and
do everything they can to get down to the last drop. Then it's over, literally pack up your tent
and call it a day.
So why are they overproducing, selling more of their finite resource at a low price instead
of over the longer term at more than double its current price.
If the real reason of this stunt is to cause severe pain for Russia, Iran, Venezuala and
others, well the oil doesn't go away. Someone will still own it and someone will still drill and
pump when prices are more favorable.
So WTF is really going on here ?
Benjamin123
I sort of answered below.
They dont care. Those countries do not feel any pain. Countries are not even real, only people
or animals feel pain and those oil ministers are rich either way.
Gregor Samsa
Easy answer: cashflow. These companies / countries need any revenue they can get. Turning off
the lights and going home is simply not an answer.
A secondary answer is that many oil plays, such as tarsands and fracking literally cannot be
shut down once started (at least not without incurring extra costs in the millions).
erk
US oil production is still up around 9 mill barrels according to EIA. Once their unsustainable
shale oil output drops a million BBL or two, then OPEC are back to business as usual.
It's not just the oil. The oil is convenient to point at because the US can pretend that
they got SA to cause the drop in order to stick it to Russia. Makes the US look really smug.
Meanwhile the truth is, copper down, zinc down, iron ore down, you name it down.
Baltic Dry almost crashing, soft commodities gone to hell. I guess SA can also influence
these markets as well.
"... Looking at the recent moves in exchange rates based on a simple switch in expectation of whether or not the Fed would raise rates in December or wait one or two meetings its seems obvious that the markets are not very good at anticipation. So I would not put much money on the ability of the markets to anticipate the trajectory and endpoint of raising rates - or the ability of anybody to guess where the exchange rates will go next. ..."
"... The drop in hours worked data in the productivity report is very confusing. ..."
"... I think lower oil prices has lead to a stronger consumption boost than initially thought. ..."
Have U.S. financial market stress indicators worsened substantially?
Has the U.S. labor market returned to normal?
What will the headline inflation rate be once the effects of the oil price shock dissipate?
Will the U.S. dollar continue to gain value against rival currencies?
I would add:
Will wage gains translate into inflation (or something along those lines)?
Anything else?
sanjait said in reply to Anonymous...
Markets move based on expectations of both economic fundamentals and the Fed's reaction
function. So both can create surprises.
In this case, a relatively stronger than expected US economy could push the dollar up quite a
bit. The central bank would be expected to dampen but not eliminate this effect, even without
changing their perceived reaction function.
DeDude said in reply to Anonymous... , November 10, 2015 at 02:35 PM
Looking at the recent moves in exchange rates based on a simple switch in expectation
of whether or not the Fed would raise rates in December or wait one or two meetings its seems
obvious that the markets are not very good at anticipation. So I would not put much money on
the ability of the markets to anticipate the trajectory and endpoint of raising rates - or the
ability of anybody to guess where the exchange rates will go next.
What we can say is that the strengthening of the US$ that has happened recently will hurt the
economy - whether it will hurt enough to slow the Fed is anybodies guess. Whether those
guesses have already been baked into the exchange rates is impossible to predict.
Bert Schlitz said...
On Angry Bear, there is a post about 3rd quarter hours and Spencer's remark:
"The drop in hours worked data in the productivity report is very confusing.
The employment shows several measures of hours worked and they increased in the third
quarter from 0.5% to 1,08 for aggregate weekly payrolls.
Something is really change.
The productivity report also had unit labor cost rising more than prices,
This implies falling profits, what the S&P 500 shows."
Basically wages accelerated rapidly in the 3rd quarter. The BLS didn't start catching up to it
until October. My guess the hours drop and employment picks up trying to hold down costs.
However, this will probably only level off things off for a few quarters, which would be good
enough to profits catch back up until the labor market becomes so tight, they simply have no
choice but to raise prices and hours worked surge again. Classic mid-cycle behavior (which
Lambert should have noticed).
This is what triggered the 3rd quarter selloff and inventory correction. That foreign stuff
was for show. I think lower oil prices has lead to a stronger consumption boost than
initially thought.
am said...
Clicked on this link for the answers but it is 34 blank pages, so i'll go for:
1. No, they'll just devalue when need be to soften the landing. I think they will do another
one before the end of the year.
2. No idea.
3. Near it if you believe the Atlanta Fed. They have a detailed analysis on their blog.
4. 2.2 if you believe the St Louis Fed, end of December for the oil price decline washout from
the system. So inflation will creep up by the end of the year.
5. Yes and more so if they raise the rate.
6. No. because it will just be oil led not wages (see 4).
Anything else: the weather with apologies to PeterK.
anne said...
I am really having increasing trouble understanding, how is it that having a Democratic
President means making sure appointments from the State or Defense Department to the Federal
Reserve are highly conservative and even Republican. Republicans will not even need to elect a
President to have conservatives strewn about the government:
"... do not just own shares in American banks, they own mainly voting shares. It these financial companies that exercise the real control over the US banking system. ..."
Financial holding companies
like the Vanguard Group, State Street Corporation, FMR (Fidelity), BlackRock, Northern Trust, Capital
World Investors, Massachusetts Financial Services, Price (T. Rowe) Associates Inc., Dodge & Cox Inc.,
Invesco Ltd., Franklin Resources, Inc., АХА, Capital Group Companies, Pacific Investment Management
Co. (PIMCO) and several others do not just own shares in American banks, they own mainly voting
shares. It these financial companies that exercise the real control over the US banking system.
Some analysts believe that
just four financial companies make up the main body of shareholders of Wall Street banks. The other
shareholder companies either do not fall into the key shareholder category, or they are controlled
by the same 'big four' either directly or through a chain of intermediaries. Table 4 provides a summary
of the main shareholders of the leading US banks.
Table 4.
Leading institutional shareholders of the
main US banks
Name of shareholder company
Controlled assets, valuation (trillions of dollars; date
of evaluation in brackets)
Number of employees
Vanguard Group
3 (autumn 2014)
12,000
State Street Corporation
2.35 (mid-2013)
29,500
FMR (Fidelity)
4.9 (April 2014)
41,000
Black Rock
4.57 (end of 2013)
11,400
Evaluations of the amount
of assets under the control of financial companies that are shareholders of the main US banks are
rather arbitrary and are revised periodically. In some cases, the evaluations only include the companies'
main assets, while in others they also include assets that have been transferred over to the companies'
control. In any event, the size of their controlled assets is impressive. In the autumn of 2013,
the Industrial and Commercial Bank of China (ICBC) was at the top of the list of the world's banks
ranked by asset size with assets totaling $3.1 trillion. At that point in time, the Bank of America
had the most assets in the US banking system ($2.1 trillion). Just behind were US banks like Citigroup
($1.9 trillion) and Wells Fargo ($1.5 trillion).
The energy sector's capital expenditure, or capex, on spending for
fixed infrastructure that secures future business activity, has
slumped 8% this year according to Goldman Sachs.
There's usually a lag between energy-sector capital spending and
oil prices, with prices leading. That means even if oil prices defy
most forecasts and rise sharply from current levels, capex will
likely still fall.
"... In The Economic Growth Engine Warr and Ayres have some interesting historical data on how most improvements in, say, fuel efficiency come not from actual technological innovation but a straightforward process of making vehicles lighter, suggesting that there's a hard cap on how far such work can go. ..."
"... The report states, "The plunge in oil prices has set in motion the forces that will lead the market to rebalance, via higher demand and lower growth in supply. This may take some time, as oil consumers are not reacting as quickly to changes in price as they have in the past." Here we see the inability to perceive the unfolding consequences of peak oil playing out in a neoliberal world run for the benefit of the 1%. It's as if "The market" will "rebalance" because it is eternal and, well, since it's eternal it just has to rebalance. ..."
"... A few generations from now our descendants will wonder, "What took them so long to figure out that we'd reached the limits to growth?" The answer, of course, is that growth is the core of the myth holding the American psyche together. If it's false, what's the meaning of "life, the universe, everything?" ..."
Green smoke. "These projected figures are a figment of our imagination. We hope you like
them." (New Yorker cartoon from the 1980s
vteodorescu, November 11, 2015 at 5:31 am
The path to low carbon is nuclear. Anything else is a palliative. Technical fact: wind and
solar have to be backed up with equal capacity of baseload generation, usually gas, to keep
the grid balanced, to compensate the highly variable supply wind and solar produce. They are
largely politically driven and a sop to the misinformed intelligentsia.
Energy scarcity is another tool to keep the huddled masses huddled.
Disclaimer: I am an organic farmer in the northeast of Brazil. I do not work for or have any
financial interest in the nuclear industry.
TheCatSaid, November 11, 2015 at 6:54 am
These crystal-ball gazing exercises leave out the high likelihood like pandemics. Losing a
significant % of population will impact demand but also supply (just imagine what losing key
engineers and scientists could impact on development of better technologies, or on production
facilities).
likbez -> TheCatSaid, November 11, 2015 at 9:34 pm
If I remember correctly in 1956 Hubbert correctly predicted the peak of the USA production
in 1970. From Wikipedia
==== quote ===
Hubbert, in his 1956 paper,[3] presented two scenarios for US crude oil production:
most likely estimate: a logistic curve with a logistic growth rate equal to 6%, an ultimate
resource equal to 150 Giga-barrels (Gb) and a peak in 1965. The size of the ultimate resource
was taken from a synthesis of estimates by well-known oil geologists and the US Geological
Survey, which Hubbert judged to be the most likely case.
upper-bound estimate: a logistic curve with a logistic growth rate equal to 6% and ultimate
resource equal to 200 Giga-barrels and a peak in 1970.
Hubbert's upper-bound estimate, which he regarded as optimistic, accurately predicted that US
oil production would peak in 1970, although the actual peak was 17% higher than Hubbert's
curve.
Production declined, as Hubbert had predicted, and stayed within 10 percent of Hubbert's
predicted value from 1974 through 1994; since then, actual production has been significantly
greater than the Hubbert curve.
Nicholas Cole, November 11, 2015 at 8:51 am
Is the title of this article supposed to be funny?
To echo Paper Mac, I'd like to know more about their assumptions re: energy efficiency
investments and improvements.
In The Economic Growth Engine Warr and Ayres have some interesting historical data on
how most improvements in, say, fuel efficiency come not from actual technological innovation
but a straightforward process of making vehicles lighter, suggesting that there's a hard cap
on how far such work can go.
DanB, November 11, 2015 at 9:35 am
The report states, "The plunge in oil prices has set in motion the forces that will
lead the market to rebalance, via higher demand and lower growth in supply. This may take some
time, as oil consumers are not reacting as quickly to changes in price as they have in the
past." Here we see the inability to perceive the unfolding consequences of peak oil playing
out in a neoliberal world run for the benefit of the 1%. It's as if "The market" will
"rebalance" because it is eternal and, well, since it's eternal it just has to rebalance.
The counter explanation that the price of oil fell because people are going broke while the
cost of extracting oil is climbing cannot be conceived, let alone entertained.
And the peak oil scenario is actually hidden in plain sight in classical economics: if a
resource becomes scarce what happens? Price increases and then encourages more exploration and
recovery of the resource. If that does not work then price incentivizes the introduction of
substitutes. And if that doe not work you get demand destruction, because the market always
clears -- even if people go hungry the market clears.
A few generations from now our descendants will wonder, "What took them so long to figure
out that we'd reached the limits to growth?" The answer, of course, is that growth is the core
of the myth holding the American psyche together. If it's false, what's the meaning of "life,
the universe, everything?"
IDG, November 11, 2015 at 9:50 am
Humans are awfully bad at predicting things, specially under radical uncertainty conditions
(so basically this situation); yet we see this sort of rubbish published on daily basis. Call
me back when we can predict what will happen in a year reliably, until then… 20y-30y
projections are a joke, for all I know humanity could have self-exterminated itself in a
nuclear war by then (one century with nuclear weapons around and no nuclear-conflict having
happened yet looks like defying probability to me!).
But I guess economists need employment too after all, how would such useless profession be
justified if wouldn't swallow rubbish like this.
"... But the standard explanation, as well as the standard debate, overlooks the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs ..."
"... This means that the fracture in politics will move from left to right to the anti-establishment versus establishment. ..."
"... In most cases, international agreements are negotiated by elites that have more in common with each other than with working people in the countries that they represent. ..."
"... when we negotiate economic agreements with these poorer countries, we are negotiating with people from the same class. That is, people whose interests are like ours – on the side of capital ..."
"... Accordingly, the fundamental purpose of the neo-liberal polices of the past 20 years has been to discipline labor in order to free capital from having to bargain with workers over the gains from rising productivity. ..."
"... Moreover, unregulated globalization in one stroke puts government's domestic policies decisively on the side of capital. In an economy that is growing based on its domestic market, rising wages help everyone because they increase purchasing power and consumer demand – which is the major driver of economic growth in a modern economy. But in an economy whose growth depends on foreign markets, rising domestic wages are a problem, because they add to the burden of competing internationally. ..."
"... Both the international financial institutions and the WTO have powers to enforce protection of investors' rights among nations, the former through the denial of financing, the latter through trade sanctions. But the institution charged with protecting workers' rights – the International Labor Organization (ILO) – has no enforcement power. ..."
But the standard explanation, as well as the standard debate, overlooks the increasing concentration
of political power in a corporate and financial elite that has been able to influence the rules by
which the economy runs. ...
Dan Kervick said...
"This means that the fracture in politics will move from left to right to the anti-establishment
versus establishment."
I think this is probably right, but the established parties are doing their best to prevent
it. Each of them has an interest in continuing to divide people along various cultural, religious
and ethnic identity lines in order to prevent them from achieving any kind of effective solidarity
along class lines.
Anyway, I fear we may be headed toward a turbulent and very unpleasant future.
Kenneth D said...
"Rethinking the Global Political Economy" By Jeff Faux April 24, 2002
In most cases, international agreements are negotiated by elites that have more in common with
each other than with working people in the countries that they represent. As a retired U.S. State
Department official put it to me bluntly a few years ago, "What you don't understand," he said,
"is that when we negotiate economic agreements with these poorer countries, we are negotiating
with people from the same class. That is, people whose interests are like ours – on the side of
capital."
Accordingly, the fundamental purpose of the neo-liberal polices of the past 20 years has
been to discipline labor in order to free capital from having to bargain with workers over the
gains from rising productivity.
But labor is typically at a disadvantage because it usually bargains under conditions of excess
supply of unemployed workers. Moreover, the forced liberalization of finance and trade provides
enormous bargaining leverage to capital, because it can now threaten to leave the economy altogether.
Moreover, unregulated globalization in one stroke puts government's domestic policies decisively
on the side of capital. In an economy that is growing based on its domestic market, rising wages
help everyone because they increase purchasing power and consumer demand – which is the major
driver of economic growth in a modern economy. But in an economy whose growth depends on foreign
markets, rising domestic wages are a problem, because they add to the burden of competing internationally.
Both the international financial institutions and the WTO have powers to enforce protection
of investors' rights among nations, the former through the denial of financing, the latter through
trade sanctions. But the institution charged with protecting workers' rights – the International
Labor Organization (ILO) – has no enforcement power.
"... People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason. But the privileged also feel that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right. ..."
"... The Fed wants to raise rates for their own policy purposes, so they can cut them, without going overtly negative, when their latest financial bubble starts to collapse, which it may already be doing. They cannot really raise rates in a Presidential election year past June, so they will push ahead, to serve their own purposes, even as they harm the real economy. ..."
"People of privilege will always risk their complete destruction rather than surrender any material
part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason.
But
the privileged also feel that their privileges, however egregious they may seem to others, are a
solemn, basic, God-given right."
John Kenneth Galbraith, Age of Uncertainty
"Misdeeds, once exposed, have no refuge but in audacity. And they have accomplices in those who are
fearful in their complicity."
Tacitus, Annals
I was discussing the markets this morning with my friends Dave and Bill Murphy as we generally do.
This is what I just wrote back in response to a question from Bill. I read his columns at
LeMetropoleCafe.com every day. His is
an amazing crossroads for discussion of things that are interesting about precious metals. I have
been a subscriber since 2000. Dave has a new site at
Investment Research Dynamics
that is quite good and different since he has a very different background in the heart of darkness as
a NYC bond trader from mine as a Bell Lab rat and Silicon Valley roustabout.
We just saw a very historically significant decline in the precious metals in terms of days lower
without relief. And we have seen a remarkable rise in the US dollar index against the Euro and the
Swiss franc that cannot possibly be good for the real economy of the US, when every other developed
nation is trying to devalue their currencies to stimulate their exports and inhibit imports.
I
believe that a portion of the gold selling in particular is an effort to knock down the open interest
in gold for December. If there was any serious attempt for holders of those contracts to stand for
delivery, even JPM, which has been obviously building up its stores of gold to act as the 'fixer'
in that market, would not be able to cover the demand.
JPM was consistently taking delivery for their house account in gold, and just transferred 70,000+
ounces over from Nova Scotia's warehouse, from whom they had been taking delivery.
As we know, in the last big delivery month, JPM stepped up with an enormous amount of their gold,
400,000+ ounces, to provide enough real bullion to satisfy the contracts standing for delivery. Even
now their inventories remain somewhat depleted.
The dollar has also been soaring, because the Fed is trying to pretend that the US is recovering
so that they can raise rates. A strong dollar and higher rates are very harmful to what is
almost undoubtedly a fragile economic recovery in the US.
And it is fantasy to think that the US can somehow go it alone, and continue to improve while
the rest of the world is cutting rates because their economies are slowing.
The Fed wants to raise rates for their own policy purposes, so they can cut them, without going
overtly negative, when their latest financial bubble starts to collapse, which it may already be
doing. They cannot really raise rates in a Presidential election year past June, so they will push
ahead, to serve their own purposes, even as they harm the real economy.
There will be another financial crisis as the IMF warned today. There will be a serious dislocation
in several financial markets, including the precious metals and the bonds at some point, that will
rock the current system to its foundations. It is a portion of the credibility trap which inhibits any meaningful remedy and reform.
It is an almost perfect storm of incompetence and felony.
"... Organizational culture and behavior is a critical factor in the success of any business. The intense emphasis most American businesses place on numbers to the exclusion of almost any other consideration is a major contributor to the vast amount of corporate control fraud we have witnessed in the past decade or so. ..."
"... One of the fundamental tenets of Reaganism/Libertarianism is that "The Ends Justify the Means." The financial sector is not the only institution in our civilization that is failing due to this mind-set. The best form of regulation is simply holding up a mirror to a firm or agency and asking questions such as, "In this organization, when is it OK to lie?" ..."
Fascinating research. Thanks for posting this, Yves.
Organizational culture and behavior is a critical factor in the success of any business.
The intense emphasis most American businesses place on numbers to the exclusion of almost any
other consideration is a major contributor to the vast amount of corporate control fraud we
have witnessed in the past decade or so.
Unfortunately, I don't see any of these executive psychopaths putting themselves through the
self-assessment that is one of the necessary steps mentioned in the study. At least, not
voluntarily.
Sluggeaux, November 7, 2015 at 11:39 am
Important.
One of the fundamental tenets of Reaganism/Libertarianism is that "The Ends Justify the
Means." The financial sector is not the only institution in our civilization that is failing
due to this mind-set. The best form of regulation is simply holding up a mirror to a firm or
agency and asking questions such as, "In this organization, when is it OK to lie?"
"... Most certainly, and here is one explanation for the recent market revulsion with prolific repurchasers (see IBM, KORS, CAT). It comes from Citi which shows that contrary to conventional, and wrong, wisdom, gross corporate leverage has never actually been higher. Throw in rising rates, and blowing out spreads, and suddenly all these companies that enjoyed a free ZIRP lunch by engaging in the dumbest of capital allocation decisions, namely pushing their own stock higher (by issuing debt no less), are about to vomit it all right back. ..."
Managements will remain committed to returning cash S&P 500
firms will return more than $1 trillion to shareholders in 2016 with
buybacks and dividends each growing by 7%. We expect high
cash return strategies to outperform given modest GDP growth, low
rates, and slim equity returns. A similar macro environment in 2015
rewarded stocks with high cash returns to shareholders while firms
investing in capex lagged.
So buy stocks the buy their own stock. Got it. Only.... any time Goldman tells its client to
do something, the opposite usually happens. Could that be the case again?
Most certainly, and here is one explanation for the recent market revulsion with prolific
repurchasers (see IBM, KORS, CAT). It comes from Citi which shows that contrary to conventional,
and wrong, wisdom, gross corporate leverage has never actually been higher. Throw in rising
rates, and blowing out spreads, and suddenly all these companies that enjoyed a free ZIRP lunch
by engaging in the dumbest of capital allocation decisions, namely pushing their own stock higher
(by issuing debt no less), are about to vomit it all right back.
Give up. Reality is not scientific nor even mathematical
Yes, and from all the ugliness will come an even tighter grip on the New American Century.
Get ready for the rate hikes that will follow by understanding, the dollar, not gold and
certainly not the yuan, is going to rule the world.
Opportunity abounds for those who aren't the typical alternative media America hater, and who
also have sense enough to see the next logical step in this march toward the future. Given the
alternative, the world will welcome what they will see as a new golden age of prosperity and
progress.
It won't be that, but only the old will be in on the massive deceit. Civilization merely rides
the mercilous bucking bronco of reality.
Yen Cross
He's joking right? CapEx has been in the shitter since 2008-09.
" Furthermore, according to the latest forecast by Goldman's David Kostin, this surge
in buybacks will continue for the simple reason that with Capex spending set for its first
decline since 2009."
Its not that humans can't adapt to the changes, its all of the rest of the flora and fauna and
biosphere in general all of which humans rely 100% on to exist which is dying off at exponential
rates that will kill us.
You've got it wrong. We HAVE to kill off flora and fauna to make room for more humans. Getting
rid of buffalo was a master stroke but now there's the other stuff to exterminate. Think about
how many people we can fit into Africa by getting rid of that useless wildlife. And, all the bio-fuel
we can generate with land wasted by jungle in the Amazon. The key is HUMAN CARRYING CAPACITY.
That's what really matters guy.
Who needs these large animals on our planet anyway? We are the dominant predator species, including
prey on one another; these animals simply have failed to evolve and adapt with a neo-cortex, superior
technology, will to power, and the imperative to grow numbers and resource consumption per capita
perpetually.
Human apes are superior, and the 7 billion of us and counting is unambiguous proof of our superiority.
Exactly, we're like rats: better at what we do than anyone else. And like rats we deserve to inherit
the earth. But I do wonder what happens when all that's left is us and rats? Maybe they eat us.
"... I've seen my children's generation living a lifestyle kings and queens couldn't have dreamt
of (in the not too distant past): their own furnished homes upon marriage, multiple new-ish cars, international
travel, etc. This was a blip in history, one that was financed by – debt. ..."
"... The question here is: why would oil patch debt cause a systemic crisis? The 2007 real estate
crisis was a crisis because it threatened to bankrupt very, very large banks. The Great Depression was
caused by bank failures, and the failure of Lehman Brothers scared everyone with the possibility of
a re-run of 1929. So, is there a threat that the oil patch will bring down Chase, or Bank of America??
I don't see any evidence of that – that's what needs to be looked at. ..."
"... I suspect any mainstream economist, including Krugman, would think Gail is crazy to suggest
that excess debt is causing the current commodity deflation. The straightforward explanation, AFAIK,
is that commodity deflation is a long-term (secular) phenomenon, that was temporarily interrupted by
a construction bubble in China. ..."
"... The thing is as the total debt levels grows and it becomes apparent that the debtor is not
capable of repaying the debt, trust is lost in the debtor (and its currency) and it gets harder to run
a deficit, which means austerity measures are introduced. ..."
"... "Would an economy with 25% unemployment be good for them?" Dennis Coyne ..."
"... "There is nothing crappy or fake about the current economy," ~ ChiefEngineer ..."
"... "1. thrifty management; frugality in the expenditure or consumption of money, materials, etc."
~ dictionary.com ..."
"... "Do you need a job Caelan ?" ~ ChiefEngineer ..."
"This is the same as borrowing even more from the future to maintain today's over consumptive
life styles and leaving their children and grand children with the bill." And, that says it all,
thanks Rune.
Imagine your children were just graduating from college. Would an economy with 25%
unemployment be good for them? That's what we get when we are too concerned over high public debt
as the Hoover administration clearly was. You should read Keynes (it is a short book), The General Theory of Employment, Interest, and Money
I've seen my children's generation living a lifestyle kings and queens couldn't have dreamt
of (in the not too distant past): their own furnished homes upon marriage, multiple new-ish cars,
international travel, etc. This was a blip in history, one that was financed by – debt.
My daughter just graduated from University. You avoided the question, if your daughter
had just graduated do you think a World with a 25% unemployment rate would be better, or one with
a 6% unemployment rate?
Low government debt and balanced budgets (Herbert Hoover thinking) gets you low employment.
Keynesian policies done properly get you higher employment.
Debt is important, of that there is no doubt.
When the economy is doing poorly it is usually because of too little debt rather than too much
debt.
Greece is a notable exception and there are other cases where countries have taken on too much
debt, in Greece's case the lack of control over its own monetary policy is a big problem. If they
had the ability to increase their money supply to get some moderate inflation (5% or so), they
could have eased their debt burden and gradually got there spending and taxation to sustainable
levels. The Euro was not a good idea for this reason, that is why the United Kingdom did not join
in the monetary union, a smart economic and political move.
Dennis, there are two types of debt, public and private. If you read Gail's article, you will
see that it deals exclusively with private debt and not public debt. Keynes theories deals primarily
with public debt, efforts by the government to prime the economy with public money.
I don't
think Krugman would disagree that strongly with Gail. I read some of the reviews of his book,
End This Depression Now! It appears to me that they are talking about two entirely different
subjects.
But back to Keynes, do you really believe that the economic theories of John Maynard Keynes,
written in 1936 have more than a remote connection to today's financing in the oil patch.
The US government public debt today is totally different from the public debt during the Hoover
administration. It is more than just silly to compare the US economy today with that of the Hoover
administration. But even doing so would would have only marginal connection to the oil patch.
The question here is: why would oil patch debt cause a systemic crisis? The 2007 real
estate crisis was a crisis because it threatened to bankrupt very, very large banks. The Great
Depression was caused by bank failures, and the failure of Lehman Brothers scared everyone with
the possibility of a re-run of 1929. So, is there a threat that the oil patch will bring down
Chase, or Bank of America?? I don't see any evidence of that – that's what needs to be looked
at.
-------–
I suspect any mainstream economist, including Krugman, would think Gail is crazy to suggest
that excess debt is causing the current commodity deflation. The straightforward explanation,
AFAIK, is that commodity deflation is a long-term (secular) phenomenon, that was temporarily interrupted
by a construction bubble in China.
BIS (Bank for International Settlements) apparently gives some attention to the oil and gas sector
total debt.
"First, the oil–debt nexus illustrates the evolving risks in the financial system. Rapidly
rising leverage creates risk exposures in the non-financial corporate sector that may be transferred
across the global financial system. Similarly, rising leverage puts a greater premium on the
liquidity of the markets for the assets that back debt. Both developments underscore the need
to better understand the functioning, behaviour and interaction of markets and intermediaries.
Second, the build-up of debt in the oil sector provides an example of how high debt levels
can induce new linkages between individual markets and the wider economy. Such interaction
needs to be taken into account in assessments of the economic implications of falling oil prices." https://www.bis.org/publ/qtrpdf/r_qt1503f.pdf
Doug was talking about public debt, I used to read Gail's stuff at the Oil Drum, on
economics she is not very good in my opinion.
One thing she may be missing is that when oil companies go bankrupt, they may sell off their
assets to bigger companies with deeper pockets. When oil prices recover, these financially stronger
companies will be able to get financing to drill profitable wells.
I won't comment further, there will be much less of a lag in new drilling once oil prices get
above $75/b than Gail believes.
There is something called a balanced budget (I am aware that there are pockets on this planet
that this principles do not apply).
To run a deficit means spending more than what is received
as income. This may work temporarily if that puts the economy back on an organic growth trajectory.
The US has since 1945 accumulated a total debt of around $12Trillion from (total) fiscal deficits
(OMB) and has not run a surplus since 2001 and OMBs estimates now is for deficits through 2020.
So solving the debt problem created by one generation by arguing that youth unemployment needs
to be kept in check by adding more debt for them to service later is [insert appropriate description
here].
The thing is as the total debt levels grows and it becomes apparent that the debtor is
not capable of repaying the debt, trust is lost in the debtor (and its currency) and it gets harder
to run a deficit, which means austerity measures are introduced.
"The thing is as the total debt levels grows and it becomes apparent that the debtor is not
capable of repaying the debt, trust is lost in the debtor (and its currency) and it gets harder
to run a deficit, which means austerity measures are introduced."
If this is true, why do so many right wing conservatives have their panties in a wad about
the United States ? The US is the strongest economy in the world and the dollar is at record strength.
Why won't Republicans return to the tax policies of the year 2000 if debt is that important to
them? The year of a record surplus.
History shows Conservatives only care about debt when a Progressive is in the White House.
I never heard a word about debt from the Republicans during the Bushy and Raygun years. Remember,
Dick Cheney said deficits don't matter.
Yes when unemployment is low, a balanced budget makes perfect sense to me.
I am not in favor of unending deficits (though I probably don't sound like it). It would be
better for the government to pay down debt when the economy is doing well (lets say 5.5% unemployment
rate or lower).
When the unemployment rate is high (I was talking about unemployment in general rather than
youth unemployment rates), government deficits make perfect sense, even if too much private debt
initially caused the recession. Sometimes solving a problem caused by too much private debt, requires
increasing public debt to get the economy growing. The economic growth should decrease the deficit
as increased income will increase tax revenue and reduce government spending on unemployment benefits
and government aid to low income citizens.
"There is nothing crappy or fake about the current economy," ~ ChiefEngineer
The economy
is uneconomical, so, yes, it's crappy.
…Well, ok, its much worse than crappy. Happy?
Economy: "1. thrifty management; frugality in the expenditure or consumption of money, materials, etc."
~ dictionary.com
"Do you need a job Caelan ?" ~ ChiefEngineer
You mean like one that manufactures a need for a relatively useless, overpriced and/or otherwise
crappy junk sweatshopped product that breaks more often and sooner than ever before and cannot
be fixed or fixed easily or cheaply by the owner?
That crappy economy produced that crappy computer which keeps posting your crappy comments. All
because of the crappy education you got from the fake school from a crappy fake government.
Ya all this fake/virtual communication in place of the real, all the while those with an education
(in what?) run around and help to perpetuate the above, the aforementioned and this kind of uneconomy
that pushes the planet ever closer to the precipice.
Back to the ol' drawing board, ChiefEngineer.
My daughter just graduated from University.
You avoided the question, if your daughter had just graduated do you think a World with a 25%
unemployment rate would be better, or one with a 6% unemployment rate?
I think you are living
far far in the past. I have a son who is still at a University, My brother's daughter also just
graduated. so I think I can relate to your concerns. However I think what is happening now, is
going to change how society views employment at a fundamental level. The idea of a career might
not even apply at all anymore for the current crop of graduates.
"We are in the middle of an economic transition, from the old industrial economy to the
new collaborative economy" – Peers Inc.
New sharing practices, facilitated by information technology and pervasive networking, are
disrupting the status quo in business, education and society. As co-founder of Zipcar, Robin Chase
has been a pioneer and leading thinker in this movement since its emergence. Now, with Peers Inc,
Robin aims to "combine the best of people power with the best of corporate power" to help realise
the wider benefits when decentralisation, localisation and specialisation meet scale and resources.
On top of examples and success stories from this 'new collaborative economy', what could
this mean for the economy as a whole? Are we in the midst of a transition from capitalism to something
new and different? Are the rules of our current economic model being rewritten? If so, what are
the new rules of the game and how do we play by them?
The transition may be good for many, my point is that many University graduates are
having a tough time finding work that utilizes what they have learned at University.
This is potentially much more of a problem for young people than excess government debt. In
addition, the idle labor and capital is wasteful, there is work to be done to transition away
from fossil fuel we should get to it. The ensuing economic growth will reduce government deficits
so that the debt incurred to jump start the economy will be reduced if the government surplus
that results is not given away in lower tax rates (as Republican presidents since 1980 have tended
to do.)
And a bear market for the broad equity market is underway (especially value and small-cap stocks,
which typically is followed by the large-cap stocks "catching down" thereafter):
Without subprime auto loans, vehicle sales would be 13M vs. 17-18.
Subprime debt and ACA-induced spending (subsidies to insurers) for "health" care is what is
preventing the US economy from decelerating from around stall speed to recession since late 2014.
But "health" care spending has become a net drag on the rest of the economy.
The recession-like contraction in the acceleration of money velocity to private GDP implies
that the market is tightening financial conditions (credit/debt-money acceleration) before the
Fed can begin raising rates and tightening reserves.
Therefore, rather than raising rates, the Fed (and ECB, BOJ, BOE, and PBoC) is more likely
to resume QEternity to fund increasing deficits/GDP to prevent nominal GDP from contracting from
the post-2007 trend rate per capita of below 2% (slowest since the Great Depression, 1890s, and
1830s-40s).
Moreover, don't be surprised if the Fed is compelled to resort to negative interest rate policy
(NIRP) because of debt and price deflation hereafter, including for the service sector ("health"
care, "education", law, personal services, etc.).
Normally I would think twice before commenting/correcting you, but this time I
noticed you used "Credit" and "Debt" as equivalent terms, therefore I will try:
although many economists and finance people erroneously use those terms as equivalent – they are
NOT!
Simply/shortly said: credit is a "worthiness" notion -economically not useful in practical terms.
In order for it to be "useful" economically (i.e generate economic activity/GDP), it has to become
debt.
Signatory parties with COLLATERAL who are pledging/willing to circulate it (i.e. spend it) are
necessary for credit to become debt.
Although this " concept" is altered by Glass_Stegal repeal and interest paying central bank reserves
(i.e. FED) which erased the line between commercial and investment banking (today they are one
and the same), it still holds generally true throughout economy.
Be well,
Petro
P.S.: an essential mistake most economic/finance luminaries make is: "money is backed by debt".
Today money is debt – debt is money!
If one does not clear that concept up, one is certain to stay in the fog when it comes to money/debt/credit…
"... Chesapeake CHK published its 3q15 results. Loss $5.4 bn on revenue of $880 mill. ..."
"... Total oil and gas industry loss of $25 bn during last quarter indicates deeply uneconomic production. ..."
"... If oil prices do not take off, CLR will have no choice and make the impairment. The longer oil prices stay low, the more dramatic the situation. What strikes me is that OXY left the Bakken at a huge loss. Fidelity Oil Gas closed…. There must be something going on here. There is probably more to asset impairments other than price (depletion of sweet spots, monster decline of monster wells?) I think we will see more when the next Bakken production numbers are out. ..."
"... 63 Billion USD went poof in the Enron Collapse. ..."
"... Impairments are a non-cash item. My preliminary analysis of companies' 3Q results suggests that operating cashflows remained close to 2Q levels, while capex was sharply reduced. As a result, cash burn was also considerably lower than in previous two quarters, and some companies were cash positive. ..."
"... Banks traditionally lend money only on PDP reserves, or if PUD is included, there is a large discount applied, per Office of the Comptroller of the Currency regulations. Also, it should be noted SEC reserve valuations and bank reserve valuations are not necessarily the same. SEC uses the average of the price of WTI and Henry Hub on the first day of each month, with no escalation in the event of contango, nor deceleration in the event of futures backwardization. ..."
Total oil and gas industry loss of $25 bn during last quarter indicates deeply uneconomic production.
As no economic system could carry on to produce at such losses, companies have already responded.
Chesapeake has cut rig count to 18 from 69. Gross wells completed are down to 84 (from 309) and gross
wells spud are down to 81 from 296. Activity is reduced threefold!!! As there is a time lag of six
to nine months from lower capex to actual production, I expect a significant fall of natgas production
for the first quarter 2016. As CHK is one of the leading producers in the US, this will also impact
total US production.
Reminds me of some old cars I have had, keep pouring money into them and get poor performance all
the way to the next time they suck your wallet dry. Answer, dump the old one, get a newer more efficient
car.
So if oil is not working out for us, dump it. Get our energy elsewhere. Time to stop throwing money
at it, it's in a death spiral.
AlexS, Thank you for the link. As prices – especially natgas – are now even lower than in 3q15, this becomes
even bigger this quarter. I get the feeling that this is very big and I am wondering what the consequences
will be.
If oil prices do not take off, CLR will have no choice and make the impairment. The
longer oil prices stay low, the more dramatic the situation. What strikes me is that OXY left the
Bakken at a huge loss. Fidelity Oil&Gas closed…. There must be something going on here. There is
probably more to asset impairments other than price (depletion of sweet spots, monster decline of
monster wells?) I think we will see more when the next Bakken production numbers are out.
It doesn't matter if prices will take off now, the impairment still has to be made. Only December
may make a very small difference:
"The United States Securities and Exchange Commission (SEC) calculates
the economics of proved reserves using the unweighted, trailing 12-month average of the closing prices
from the first day of each month. Year-end 2014 impairment tests were evaluated using a $94.99/barrel
of oil prices and a $4.31 per MCF gas price, with 2014's low year-end prices buoyed by strong prices
from the first 10 months of the year."
I saw wolf richters article this mornings as well. Those are some ugly numbers mainly because of
the write downs. I think I already know the answer, but without the write downs are any of these
guys even cash neutral much less making money?
Wasn't it Harold Hamm that said by spring production will fall off a cliff?
"What strikes me is that OXY left the Bakken at a huge loss"
Occidental was planning to sell its Bakken assets long before the drop in oil prices.
But the actual price was far from what they were initially expecting. Occidental Reportedly Sells Bakken Assets To Lime Rock
As recently as last fall, Wall Street had expected Oxy's Bakken assets to sell for more than $3
billion. The sharp drop in the deal's value represents the most-significant pullback in valuation
yet in the second-largest U.S. oil producing state. =================================
Occidental Petroleum cuts spending, scales back in the Bakken
Occidental Petroleum Corp. will scale back operations in the Williston Basin and is reducing its
2015 capital cost budget by 33 percent in response to low oil prices. "Our capital program will focus on our core assets in the Permian Basin and parts of the Middle East,"
said Stephen Chazen, president and CEO. "We have minimized our development activities in the Williston
Basin, domestic gas properties, Bahrain, and the Joslyn oil sands project, as these have subpar returns
in this current product price environment." ======================================== Oxy Says Permian Operations Still Solidly Profitable
… while Hess regards the Bakken as a crown jewel in its portfolio, it is far less important to
Oxy, which lacks the core acreage positions and sheer scale that Hess enjoys there. In fact, Oxy is cutting spending in the Bakken to "virtually nil" this year, matching similar cuts
across its gas-weighted Midcontinent holdings, Chazen said. =========================================== Oxy sale of Bakken assets would make strategic sense -analysts
Any sale of Occidental Petroleum Corp's roughly 330,000 acres in North Dakota's oil-rich Bakken
shale formation would make strategic sense for the company, which is likely eager to strike a deal,
two analysts said on Tuesday. Oxy is looking to sell its Bakken holdings, which are largely undeveloped, for as much as $3 billion,
according to a report from Bloomberg News. Even with the recent dip in crude oil prices, the divestment "makes sense to us, strategically,"
Raymond James analysts Pavel Molchanov and Kevin Smith said in a note to clients on Tuesday. "This is substantially undeveloped acreage, and Occidental has long cited it as a likely monetization
candidate, so it's been puzzling why the company kept it this long," the analysts said. Oxy is spending about $510 million this year on its North Dakota holdings, and any buyer would have
to invest significant capital to boost production. Currently, Oxy is the 18th-largest oil producer
in North Dakota with about 17,000 barrels per day as of July, trailing peers of the same size and
even much-smaller rivals. Oxy said last October that it would pursue "strategic alternatives" for some of its North American
assets, including those in North Dakota. In a statement to Reuters on Tuesday, the company reiterated
that position. ===============================================
Occidental said to seek buyer for $3 billion Bakken oil business
HOUSTON (Bloomberg) - Occidental Petroleum is seeking to sell oil assets in North Dakota for as
much as $3 billion, people with knowledge of the matter said. Occidental is working with investment bank Tudor Pickering Holt & Co. to sell about 335,000 net drilling
acres in the Williston Basin, said the people, who asked not to be identified because they were discussing
private information. The holdings include a part of North Dakota's Bakken formation, an area that
has been less successful for Occidental because of higher costs, though it's one of the fastest-growing
oil-producing regions in the U.S. Melissa Schoeb, an Occidental spokeswoman, said the Houston-based company reported plans last year
to "pursue strategic alternatives" for some assets, including in the Williston Basin. Occidental, CEO, Stephen I. Chazen has embraced a restructuring plan that includes selling part of
Occidental's Middle East business and spinning off the company's California operations. Chazen told
investors in July that he might accelerate plans to sell assets in what the company calls its "midcontinent"
operations in the Piceance and Williston basins. ==============================================
… Occidental Petroleum has decided to slim down as well. Oxy's plan, announced last Friday, will be dramatic. Its California assets will be rolled into a
separate publicly traded company … . Analyst Tim Rezvan with Sterne Agee expects Oxy to sell down
its Middle Eastern and Bakken assets as well as its oil trading division in order to focus on Texas. ============================================= Occidental Petroleum starts breakup plan in Middle East, North Africa
Bloomberg, 10/18/2013
The company said today it will pursue "strategic alternatives" for Mid-continent assets, including
some in the oil-bearing Bakken shale of North Dakota as well as in the Hugoton gas field in Kansas
and the Piceance gas fields in the Rocky Mountains.
I think this one was more impressive. These are "energy companies".
Evaluate Energy has
analysed the preliminary Q3 earnings statements of 48 U.S. companies and compared it with their earnings
in previous periods. The 48 companies had a combined total net loss of US$25.5 billion, which is
a staggering 70% and 58% larger than these companies' significant combined net losses of US$14.9
billion and US$16.6 billion in Q1 and Q2 2015 respectively.
In fact, the sharp increase in combined net losses was largely due to the increase in asset impairments.
"Impairments are clearly the main reason for this continued downward trend".
Impairments are a non-cash item. My preliminary analysis of companies' 3Q results suggests that operating
cashflows remained close to 2Q levels, while capex was sharply reduced. As a result, cash burn was
also considerably lower than in previous two quarters, and some companies were cash positive.
However
lower capex will likely results in lower 1h16 production volumes.
Do you have any statistics on gas/ oil ratio trend? Seems to me oil production is declining faster
than gas and NGLs production for the oil weighted companies.
I think Enno has posted that associated gas is not falling to the extent oil is, and this masks
oil decline in the company headline reports. Have to look at each report/10Q.
An example of this is SD, who saw Mid-Continent BOE production fall 10%, but oil fell 18%.
Asset impairments relate to revisions of reserves and resources. However, the main question
is now did the revisions relate to oil and gas prices only or is there also a revision of the quantity
of reserves due to faster than expected decline? Is there any way to find this out?
I think impairments mainly reflect the reduction in the value of the reserves (due to
lower prices), rather than volumes.
There was no mention of faster decline rates
I think it should be noted in the SEC reserve reports there are the following categories:
PDP –
Proved Developed Producing PDNP – Proved Developed Non-Producing PUD- Proved Undeveloped
Although admittedly simplistic, and I stand to be corrected, PDP are active wells, PDNP are inactive
wells and PUD are where there are no wells, but the locations have been "proved" by offsetting wells,
and there are plans to drill and complete the location within 5 years.
All categories will be hit by WTI and Henry Hub prices being half of 2014, but also there should
be a hit due to a number of PUD locations being no longer economically viable.
Banks traditionally lend money only on PDP reserves, or if PUD is included, there is a large discount
applied, per Office of the Comptroller of the Currency regulations. Also, it should be noted SEC
reserve valuations and bank reserve valuations are not necessarily the same. SEC uses the average
of the price of WTI and Henry Hub on the first day of each month, with no escalation in the event
of contango, nor deceleration in the event of futures backwardization.
Banks, on the other hand, use a price deck, which should closely mirror the WTI and Henry Hub
strips, subject to maybe a little of the banks' own forecasts on future prices.
As I have noted many times, total debt levels for all US companies operating in the Bakken, except
for XOM, EOG and Abraxas will be greater than 65% of SEC PDP PV10 at 2015 year end, if my calculations
are close. Prior to the shale boom, would have meant no further monies advanced using reserves as
collateral, assuming bank price decks are close to the current strips.
Yes, this will include, companywide, the likes of COP, MRO, HES, QEP, CLR and WLL.
Another exception would be Statoil (not US), I did not include them, as I could not get a handle
on their debt/PDP PV10. I did also not analyze Canadian firms operating in the Bakken. However, most
Canadian shale firms have large amounts of long term debt, similar to US shale firms.
"... Of the 48 companies, 38 recognized impairment charges totaling $32.8 billion in Q3 alone, a 79% jump from Q2, when impairments hit $18.4 billion. Since Q4 2014, these 48 companies recognized impairments of $84.6 billion; 39% of that in Q3. ..."
"... In Q4 2014, many investors thought the oil bust was a blip, that this was just a correction of sorts in oil prices and that they'd rebound in early 2015. But in 2015, oil and natural gas both have plunged to new cycle lows. And yet, over and over again, sharp sucker rallies gave rise to hopes that it would all be over pronto, that the price would settle safely above $80 a barrel, or at least above $65 a barrel, where some of the oil companies could survive. ..."
"... he game has boiled down to who can slash operating costs and capital expenditures fast enough without losing too much production, who has enough cash to burn through while this lasts, and who can still get new money at survivable rates. And that game is accompanied, as in Q3, by the giant sucking sound of capital destruction. ..."
"... Banks, when reporting earnings, are saying a few choice things about their oil gas loans ..."
"... Its a legitimate industry with high costs. It came online before its time. Fast forward 10 years and conventional depletion+Chinese/Indian demand will let it flourish again. ..."
"... If it was a scheme, it was a rather elaborate one, involving tens of billions of dollars and tens of thousands of workers. Also, they maintained the facade for years before winding it down. ..."
"... Dunno, it's certainly a cluster-f*ck, but I think the dumb bastards actually believed the recoverable reserves numbers in the beginning. ..."
"... Thank The Saudis for crashing the price of energy, perhaps with a little assistance on the broader political front to crush Russia? How is that going? ..."
"... You simply cannot build up an industry on leveraged debt when there is no future of sustainable demand. ..."
"... Yep, the Fed created this monster, but the oil patch is the obvious problem. things are just as bad or worse in all the other economic sectors. Of course when all the defaults start, it will be a complete surprise to all the financial Frankensteins who created the monster... ..."
Chesapeake Energy is a good example. The second largest natural gas producer in the US, after
Exxon, reported its debacle yesterday.
Revenues plunged 49% from the quarter a year ago, when the oil bust had already set in. The company
has been slashing costs and capital expenditures. In June, it eliminated its dividend. And yesterday,
it recognized $5.4 billion in impairment charges, bringing impairments for the nine months to a staggering
$15.4 billion.
Impairment charges are a sudden accounting recognition of accumulated capital destruction. These
impairments pushed its losses from operations to $5.4 billion in Q3 and to $16 billion for the nine
months.
Chesapeake currently gets 72% of its production from natural gas, 17% from oil, and 11% from natural
gas liquids. The oil bust has been going on since the summer of 2014. The US natural gas bust has
been going on since 2009! Two natural gas producers have already gone bankrupt this year: Quicksilver
Resources and Samson Resources.
Its annual free cash flow has been negative since 1994, even during good times, with only two
tiny exceptions (Bloomberg
chart). After
living off borrowed money, it's now trying to hang on by selling assets and lowering its mountain
of debt. But it still owes $16 billion, much of which QE-besotted, ZIRP-blinded, yield-hungry investors
had handed it over the years, based on hype and false hopes.
Its shares last traded at $7.50, down 75% from peak hype in June 2014. Its 4.875% notes due 2022
and its 5.75% notes due 2023, according to
S&P Capital IQ LCD yesterday, traded
for 66 cents on the dollar.
In terms of capital destruction, Chesapeake is in good company, and not even the leader. A new
report by
Evaluate Energy, which covers Oil & Gas companies around the globe, examined the financial statements
of the 48 US oil & gas companies that have reported earnings for the third quarter so far. The amounts
and the speed of deterioration are just stunning.
Turns out, what started in Q4 last year is getting worse relentlessly. And now it's getting serious:
plunging revenues, squeezed operating margins, whopping impairment charges, and horrendous losses
are combining into a very toxic mix.
Evaluate Energy determined that net income of those 48 companies was a gigantic loss for the three
quarters combined of $57 billion.
On a quarterly basis, the losses in Q3 jumped 58% from Q2 and 70% from Q1 to $25.5 billion. This
fiasco, which has been spiraling down at a breath-taking pace, looks like this:
The biggest factor in these losses, as in Chesapeake's case, was the impairments. For this study,
Evaluate Energy only counted impairments of property and equipment, not of financial assets such
as "goodwill." Including charge-offs of goodwill, it would have been even worse (an example is Whiting
Petroleum, which we'll get to in a moment).
Of the 48 companies, 38 recognized impairment charges totaling $32.8 billion in Q3 alone, a 79%
jump from Q2, when impairments hit $18.4 billion. Since Q4 2014, these 48 companies recognized impairments
of $84.6 billion; 39% of that in Q3.
Devon Energy was king of the hill, with $5.9 billion in impairments in Q3, after having recognized
impairments every quarter this year, for a total of about $15.5 billion.
Our natural-gas hero Chesapeake is in second place, if only barely, with $5.4 billion in impairments
this quarter, and $15.5 billion for the nine months.
Of note, Occidental Petroleum, with impairments of $3.3 billion in Q3, Murphy Oil, Whiting Petroleum,
and Carrizo Oil & Gas all recognized over 90% of their respective impairments this year in this misbegotten
third quarter. They were in no hurry to grant their investors a peek at reality.
However, Whiting's impairments of $1.7 billion do not include an additional $870 million in write-offs
of goodwill in connection with its once highly ballyhooed acquisition of Kodiak Oil & Gas, which
closed in December last year.
In Q4 2014, many investors thought the oil bust was a blip, that this was just a correction of
sorts in oil prices and that they'd rebound in early 2015. But in 2015, oil and natural gas both
have plunged to new cycle lows. And yet, over and over again, sharp sucker rallies gave rise to hopes
that it would all be over pronto, that the price would settle safely above $80 a barrel, or at least
above $65 a barrel, where some of the oil companies could survive.
But now that oil in storage is practically coming out of our ears, globally, the meme
has become "lower for longer," and the game has boiled down to who can slash operating costs and
capital expenditures fast enough without losing too much production, who has enough cash to burn
through while this lasts, and who can still get new money at survivable rates. And that game is accompanied,
as in Q3, by the giant sucking sound of capital destruction.
Banks, when reporting earnings, are saying a few choice things about their oil & gas loans, which
boil down to this: it's bloody out there, but we made our money and rolled off the risks to others
in a trade that has become blood-soaked.
Which plays right into the hands of those manipulating Brzezinski's "Grand Chessboard," as
energy choke-points grow ever more valuable to those who ultimately control them.
Frumundacheeze
You were a complete inbecile if you ever believed the US fracking industry was anything more than
a false pretense for pump and dump schemes. If you did, you didn't do your homework, or you bought
into the hype.
Benjamin123
Its a legitimate industry with high costs. It came online before its time. Fast forward 10
years and conventional depletion+Chinese/Indian demand will let it flourish again.
The conventional oil industry was also in trouble in the early 90s when oil slipped under
$7. Oh, that was also a pump and dump.
Casey Jones
I was in North Dakota recently and was shocked, appalled and utterly devastated by the
environmental damage up there, not to mention all the cheap ass construction of lousy housing
and fact food outlets. The place is wrecked. Fracking is a cruel joke.
divingengineer
I guess that makes me a complete imbecile. The industry seems a little complex to reduce to
a pump and dump.
If it was a scheme, it was a rather elaborate one, involving tens of billions of dollars and
tens of thousands of workers. Also, they maintained the facade for years before winding it
down.
Dunno, it's certainly a cluster-f*ck, but I think the dumb bastards actually believed the
recoverable reserves numbers in the beginning.
philipat
Thank The Saudis for crashing the price of energy, perhaps with a little assistance on the
broader political front to crush Russia? How is that going?
NotApplicable
I still say that this narrative is more of an after the fact blame-game, as prices would've
crashed regardless of what the Saud's are doing. You simply cannot build up an industry on
leveraged debt when there is no future of sustainable demand. Mises laid all of this out
nearly a century ago.
new game
thank the fed with zirp and qe stimulas. without it and market discipline none of this
would be happening. fascism, what is the future now. the fed is the enemy from within that is
destroying freedom...
KnuckleDragger-X
Yep, the Fed created this monster, but the oil patch is the obvious problem. things are
just as bad or worse in all the other economic sectors. Of course when all the defaults start,
it will be a complete surprise to all the financial Frankensteins who created the monster...
"... Banks have been sloughing off the risk: They lent money to scrappy junk-rated companies that powered the shale revolution. These loans were backed by oil and gas reserves. ..."
"... fresh money is already lining up again. They're trying to profit from the blood in the street. Blackstone raised almost $5 billion for a new energy fund and is waiting to pounce. Carlyle is trying to raise $2.5 billion for its new energy fund. Someday someone will get the timing right and come out ahead. ..."
"... Next year is going to be brutal, explained the CEO of oil-field services giant Schlumberger. But then, there are dreams of "a potential spike in oil prices." Read… The Dismal Thing Schlumberger Just Said about US Oil ..."
Banks have been sloughing off the risk: They lent money to scrappy junk-rated companies
that powered the shale revolution. These loans were backed by oil and gas reserves.
... ... ...
Magnetar Capital, with $14 billion under management, sports an energy fund that is down 12%
this year through September on "billions of dollars" it had invested in struggling oil-and-gas
companies. But optimism reigns. It recovered a little in October and plans to plow more money
into energy.
... ... ...
Brigade Capital Management, which sunk $16 billion into junk-rated energy companies, is
"having its worst stretch since 2008." It fell over 7% this summer and is in the hole for the
year. But it remained gung-ho about energy investments.
... ... ...
But fresh money is already lining up again. They're trying to profit from the blood in the
street. Blackstone raised almost $5 billion for a new energy fund and is waiting to pounce.
Carlyle is trying to raise $2.5 billion for its new energy fund. Someday someone will get the
timing right and come out ahead.
Next year is going to be brutal, explained the CEO of oil-field services giant
Schlumberger. But then, there are dreams of "a potential spike in oil prices." Read… The Dismal
Thing Schlumberger Just Said about US Oil
Important point is that the answer to virtually any economic policy question was "education" is
the neoliberal ploy. This is simply not true in the current environment. It is important what specialty
to choose at the university. And taking into account shifting job market it is difficult to choose right
(decimation of IT is one great story in this respect). Stories of university graduates working as bartenders
are abundant. Especially graduates from such fields as psychology, public relations, English literature,
etc.
Notable quotes:
"... The labor market is no less pivotal to Marxist analyses of capitalism. The treatment of labor
as a commodity, to be bought and sold on a market, is what allows capitalists to acquire more value
from workers than they actually pay for, which explains the accrual of profits. Without labor, there
could be no value. Without labor markets, there could be no capitalism. ..."
"... Marx liked to depict capital as a vampire that sucked the blood from living labor. But the
fantasy of fully automated capitalism contains a different monstrosity altogether: the zombie that no
longer needs us at all. ..."
"... This question lurks in Thomas Piketty's Capital, which highlights how the inheritance of capital
is a far more effective route to riches than the exertion of effort in the workplace. Piketty's account
forces us to pay attention to the family as a source of income - work is an increasingly unlikely path
to acquiring wealth. ..."
"... Theories of financialization, such as those of the economist Costas Lapavitsas or the sociologist
Greta Krippner, point in a similar direction, showing how firms have deliberately sought to shift away
from productive activities and toward balance-sheet manipulation and financial innovations as sources
of profit. ..."
"... The neoliberal ploy that each individual be treated as a chunk of capital was present in the
discourse of the 1990s knowledge economy, and the answer to virtually any economic policy question was
education. This no longer feels adequate ..."
"... An economy in which capital has replaced labor may witness the rise of a few thousand well-paid
YouTube stars, but it would also feature a promulgation of unpaid internships, adults living off their
parents, and unpaid workfare contracts. ..."
"... Ford advocates a basic income guarantee, an idea that is accumulating support right now. If
the labor market will not provide the income that people need, some other institution will be required
to take its place. He makes the case well, dismissing the simplistic policy narrative that people need
to be cajoled and incentivized to work or else the economy will grind to a halt. On the contrary, neoliberal
economies seem to be teeming with people wanting to do fulfilling and creative things but struggling
to get paid for them. ..."
"... Piketty's proposal for a global wealth tax, they require not only greater political coordination
than seems available right now, but also a wholesale inversion of policy orthodoxy. Neoclassical economics,
which provides the basis for so much policy, starts from the assumption that resources and time are
scarce. ..."
Since the Victorian era, the labor market has been the arena in which the virtues and injuries
of capitalism can been seen. Classical economic liberals look at the labor market and see a platform
for social mobility, one in which individual effort is matched by monetary reward. The neoliberals
of the 20th century took this optimism further still, adding the notion of human capital - that people
could augment themselves through education or self-branding so as to increase their own value in
the market.
The labor market is no less pivotal to Marxist analyses of capitalism. The treatment of labor
as a commodity, to be bought and sold on a market, is what allows capitalists to acquire more value
from workers than they actually pay for, which explains the accrual of profits. Without labor, there
could be no value. Without labor markets, there could be no capitalism.
Marx liked to depict capital as a vampire that sucked the blood from living labor. But the
fantasy of fully automated capitalism contains a different monstrosity altogether: the zombie that
no longer needs us at all. As the economist Joan Robinson has written, if there is one thing
worse than being exploited by capital, it is not being exploited by capital. The vision that Kaplan
and Ford put before us is of a world in which machines don't even bother to extract value from us
any longer - they're too busy trading with one another. What might capitalism look like if labor
markets lose their political centrality? Would this even be capitalism?
This question lurks in Thomas Piketty's Capital, which highlights how the inheritance of capital
is a far more effective route to riches than the exertion of effort in the workplace. Piketty's account
forces us to pay attention to the family as a source of income - work is an increasingly unlikely
path to acquiring wealth.
Theories of financialization, such as those of the economist Costas Lapavitsas or the sociologist
Greta Krippner, point in a similar direction, showing how firms have deliberately sought to shift
away from productive activities and toward balance-sheet manipulation and financial innovations as
sources of profit. The vaudevillian horror show of machines broken free from human control is
mirrored in the anxieties of contemporary political economy. The specter of autonomous machines is
also the specter of autonomous capital, no longer anchored in society via the wage relation.
The neoliberal ploy that each individual be treated as a chunk of capital was present in the
discourse of the 1990s "knowledge economy," and the answer to virtually any economic policy question
was "education." This no longer feels adequate. As Kaplan and Ford point out, the market value
of most qualifications is diminishing all the time. Given the possible scale of automation, Ford
argues, the idea that education can achieve prosperity for all is like "believing that, in the wake
of the mechanization of agriculture, the majority of displaced farmworkers would be able to find
jobs driving tractors."
An economy in which capital has replaced labor may witness the rise of a few thousand well-paid
YouTube stars, but it would also feature a promulgation of unpaid internships, adults living off
their parents, and unpaid workfare contracts. As Ford points out, even where humans are cheaper
than robots to employ, there are various reasons that automation may nevertheless be preferable.
Robots bring less baggage than people. The prospects for inequality under these conditions are terrifying.
... ... ...
Ford advocates a basic income guarantee, an idea that is accumulating support right now. If
the labor market will not provide the income that people need, some other institution will be required
to take its place. He makes the case well, dismissing the simplistic policy narrative that people
need to be cajoled and incentivized to work or else the economy will grind to a halt. On the contrary,
neoliberal economies seem to be teeming with people wanting to do fulfilling and creative things
but struggling to get paid for them.
The chance of such policy ideas being adopted is slim at best. As with Piketty's proposal
for a global wealth tax, they require not only greater political coordination than seems available
right now, but also a wholesale inversion of policy orthodoxy. Neoclassical economics, which provides
the basis for so much policy, starts from the assumption that resources and time are scarce.
Hence the curiosity that as our national productive capacity swells from year to year, political
discourse seems ever more fixated on constraints and cuts.
... ... ...
...there is an unavoidable sense in which the robots can't understand what they're doing. Their
inability to complain, which is precisely what makes them attractive to the likes of Uber and Amazon,
is also what renders them somewhat stupid after all. They are locked into what Max Weber termed instrumental
rationality. Endlessly performing, relentlessly producing, they are incapable of ever saying "enough's
enough."
In this they hold up a daunting mirror for us to look in. They represent an impossible benchmark
of success and efficiency, one that recedes so far into the distance ahead that the only sane response
is to abandon the idea of humans as capital altogether.
... ... ...
William Davies is a senior lecturer in politics at Goldsmiths, University of London. He is the
author of The Happiness Industry (Verso, 2015).
"... the wilful DENIAL inherent in U.S. Govt. analysis of the American Labour (Labor) market. Everything is awesome. Repeat till it becomes fact. ..."
"... To me, this is the central problem: the corruption and demise of American democracy, leading to paralysis of fair, efficient, effective government. Instead, government serves as the enactor or enabler of rules, regulations, statutes and laws that protect the kleptocratic crony capitalists. ..."
"... That the US cannot deliver an unemployment rate devoid of trickery and opacity is an indictment of their government, not their labour market, especially when they ride the holier-than-thou-art horse of greater transparency for the private sector, and we are the worlds police in their foreign policy. ..."
"... That, of course, almost every US academic would question, and call you nuts if not worse for standing up to their chicanery. Intelligent, honest people, on the other hand, would say that in 2014, the unambiguous US unemployment figure was 12 per cent. Your whole piece is not about splitting hairs, or even splitting limbs, but more to the point-breaking families. ..."
"... The reasons: death from drug overdoses, suicide, other addictions and diseases resulting therefrom, i.e. kidney and liver failure. Perhaps this is a sign that something is indeed very wrong with the whole U.S. Neoliberal capitalist system which regards citizens as mere cogs in its money machine. ..."
"... American newspapers are quite droll by comparison because frank discussions of on-the-ground realities in this country are strictly taboo. Much more important is the burning question of which bathroom should be used by trans students, or - as in the New York Times - what are the best recipes for your next dinner party. ..."
"... Wolf has a point. Im in the U.S., in my prime at 52, and have stopped looking for for work after losing a job for no fault of my own. My undergraduate and graduate education was at elite universities in technical disciplines, and I have much experience. Im also very physically fit and energetic. But after more than a year of hearing that I was well-qualified but too senior, I stopped looking. ..."
"... ordinary people who rely on jobs to supply lifes necessities - food, clothing and shelter - get short shrift when economic priorities are being set. ..."
"... Maybe it has something to do with the breakdown of the lower middle class family in the US ..."
"... In light of studies showing that low quality jobs are worse for folks mental health than staying unemployed, further deregulation is only an answer to be entertained by sadists. ..."
"... @cg12348 And this is why I read the FT Comments section. Bravo -- One fact was missing: US imports educated foreign naturals more than exported low level jobs. ..."
"... The employment numbers are a political fiction as with all developed economies. Unemployment is much higher than reported. ..."
"... I was amazed to discover that legal immigration averaged one million a year in the 1990s. I suspect estimated illegal immigrant, mostly prime-aged, are included in population estimates but do not appear in household surveys. ..."
"... Trucking companies cannot find drivers and regional airlines cannot find pilots. There are plenty available - but many will not accept the low wages offered. ..."
"... The FT published my letter to the editor in about 2010 that economic concentration in virtually every economic sector of the US had reached unprecedented levels and represented a major threat to the US economy. ..."
"... In virtually every industrial sector of the US economy, the top competitors are way too big and way too dominant. ..."
"... The BLS lists the following factors as primary drivers of the decline in the LFP rate since 2000: (1) the aging of the baby boomer cohort; (2) the decline in the participation rate of those 16-24 years old; (3) the declining LFP rate of women (since its peak in 1999), and (4) the continuous decline of the LFP rate of men (since the 1940s). ..."
"... Perhaps Mr Wolf should follow up this article with one about the abysmal record on male and household median earnings since 1970. Male median earnings are now lower than in 1973, more than 4 decades agao and household median earnings are back to the late 1980s, a generation ago. ..."
"... the evisceration of the middle class by globalisation and other factors that has progressed further and faster in the US than elsewhere, resulting in the proceeds of growth being concentrated on the top 1 per cent, or even the top 10 per cent of the top 1 per cent. His views on why and what should be done would be interesting. ..."
"... @lennerd If you want to look at the data you need to realise the US imported 10-15 million low-skilled, non-English speaking immigrants during the 1990s and 2000s. If you take out the very bottom of the income distribution (note that their income is understated as a good portion of the earnings is off the books ) the results look better. You cannot make an apples to apples comparison between the US labour force of the 1970s and 1980s and the labour force of the 1990s and 2000s. The demographics are very different. ..."
"... You might even say that the US has employed its native population AND created jobs for millions of unskilled, non-English speaking workers who are now earning two or three times what they were in their home countries and sending tens of billions annually back to those countries to increase wealth there. That sounds like a success story (well, I would not classify the current economy or labour market as a success story, but on par it does describe much of the 1990-2006 period). ..."
"... Having experienced both the NHS and the private US system, I promise you the NHS wins hands down in every department, most especially in quality of care. I do know the UK private system, but if you want third world care with chaotic service delivery and outrageous hidden costs, please feel free to come to the US and pay over of thousand per month (for a family) with co-pays for it. ..."
"... I suspect that declining levels of health, especially for those lacking a college degree may account for some of the falling work-force participation rates. Recent studies have uncovered a rise in death rates with this same population that may be part of the same phenomena. Rural populations seem especially venerable with declining access to mental health services and rising levels of substance abuse. Red America may have outsized political power but its leadership has no interest in serving the population it represents. ..."
"... Pensioners with no pensions; they are more reliable at shelf stacking and other such jobs. There are going to be so many people over 60 in the UK working in the future now that final salary schemes have been reducing in number. ..."
The causes are multi factorial, but what is really disturbing is the wilful DENIAL inherent
in U.S. Govt. analysis of the American Labour (Labor) market. 'Everything is awesome'. Repeat
till it becomes fact.
To me, this is the central problem: the corruption and demise of American democracy, leading
to paralysis of fair, efficient, effective government. Instead, government serves as the enactor
or enabler of rules, regulations, statutes and laws that protect the kleptocratic crony capitalists.
The discovery mechanisms in America's so called free markets are terminally broken.
The whole charade is necessary to keep the terrifying monster that circles the deep below the
surface: debt. Irreconcilable, measured in numbers so stupendous it makes Zimbabwe's terminal
hyperinflation seem tame by comparison.
There is only one way the monster of debt can be tamed: war.
E. Scrooge, 3 hours ago
The rise of the underground economy, pay cash and you can get sizable discounts on construction,
repairs, all sorts of things. Many, but not all of those able, are providing products and mainly
services as part of the underground economy. This was and I still believe is the fastest growing
segment of the US economy. Mostly out of necessity, but will likely remain a very significant
part of the overall economy for quite some time, as many of these workers are years away from
Social Security eligible.
ceteris paribus
The irony of this title. The American labour force--the people who do real jobs in the real
economy are working harder than ever, for less and less money to keep themselves afloat. So American
labour does work while the American labour market is apparently on a permanent vacation.
Kevin Alexanderman
"America's labour market is not working"?
You mean "America's government is not working".
That the US cannot deliver an unemployment rate devoid of trickery and opacity is an indictment
of their government, not their labour market, especially when they ride the holier-than-thou-art
horse of "greater transparency" for the private sector, and "we are the world's police" in their
foreign policy.
They can't even competently establish metrics to adequately assess performance of their economy.
Mr. Martin, you say "In all, the proportion of the fall in the unemployment rate because of
lower participation cannot be more than a quarter." Is that your best attempt at one-liner humour?
Are you still mocking Greenspan-speak?
So I gather you are saying that a fall from 10% to 5% is more on the order of a fall from 10%
to 6.25%.
That, of course, almost every US academic would question, and call you "nuts" if not worse
for standing up to their chicanery. Intelligent, honest people, on the other hand, would say that
in 2014, the unambiguous US unemployment figure was 12 per cent. Your whole piece is not about
splitting hairs, or even splitting limbs, but more to the point-breaking families.
Astrophysicist111
Interesting that the author doesn't consider the possible role of the increased death rate
among middle aged U.S. whites - as recently reported, e.g. in the NY Times - to be a factor in
the low labor participation rate. As one economist who studied the data observed: "There are a
half million people dead who shouldn't be". This is over the interval 1993-2014. Prior to 1993
the specific age demographic, 45-64 years old, had enjoyed a 2 percent improvement in life span
- but no more. The reasons: death from drug overdoses, suicide, other addictions and diseases
resulting therefrom, i.e. kidney and liver failure. Perhaps this is a sign that something is indeed
very wrong with the whole U.S. Neoliberal capitalist system which regards citizens as mere cogs
in its money machine.
Legal Tender
For those interested, here is an NPR piece (and follow-up from The Atlantic) on the disability
situation in the US. Note that an adult need not be disabled themselves to collect payments and
leave the workforce. Children are eligible for disability payments in the US for learning disabilities
(including ADD, ADHD, dyslexia, etc) with the income going to the parent (reducing the need for
that parent to enter the workforce).
From 2009 to 2013, there were 2.5 million jobs created in the US while 5.9 million people were
added to the disability system.
One thing I enjoy a great deal is good comedy. And as an American reader I find plenty of fabulous
comedy in these "what's wrong with America" articles. Soaring rates of morbidity among white middle-aged
Americans? How can that be? Pathologically low LFP rates? What could possibly explain that? Billionaire
clowns near the top of opinion polls? Go figure!
After the first course, one then moves on to the comments, littered with the aromatic excretions
of right-wing American idiots. The incredulous replies subsequently posted are often quite hilarious,
because respondents find it so hard to believe the amazing levels of stupidity on display.
American newspapers are quite droll by comparison because frank discussions of on-the-ground
realities in this country are strictly taboo. Much more important is the burning question of which
bathroom should be used by trans students, or - as in the New York Times - what are the best recipes
for your next dinner party.
Thanks FT!
TJG
Thank you Mr. Wolf for pointing out that the declining employment participation rate portends
significant community and social problems. I would like to suggest that two issues play a significant
role in this decline. The low minimum wage combined with the high cost of competent child care
make it financially pointless for a spouse earning less than $10.00/hour to work. Secondly racially
tinged mass incarceration has produced an ever growing number of unemployable people. The moment
an applicant indicates he or she has been incarcerated it is pretty certain the application will
be rejected. Until societal attitudes and public policies change the problems illuminated by Mr.
Wolf's opinion piece will only continue to grow.
JMC22
The title of this piece -- that the US labour market is not working -- is way out of line with
the content. A highly contentious issue regarding the fall in the measured participation rate
is hardly an indication of a non-working labour market, especially given the huge increase in
employment in recent years. One issue not discussed -- the fact of a very considerable increase
in the employment in the grey markets. Self-employed persons, partly growing out of internet activities,
are not properly measured. Nor are those who simply work outside the formal economy, including
many illegal immigrants.
ciwp1
@JMC22 Good points. Worth bearing in mind also, wrt self-employed, there are large numbers
'officially' self-employed who are not doing much; similar irregular work patterns afflict temps,
part-time works, zero hours...
Mark Feldman
Mr. Wolfe, the problem is a lack of education. And I don't mean a lack of degrees.
I'm not an economist (I'm a former math professor.), but it certainly seems to me that if an
economy needs educated (Again, don't confuse that with "degreed".), workers, and they aren't readily
available, then there will be more unemployment.
What I mean by "degreed but uneducated" should be obvious, but I do want to make one point
with an example.
If you learn how to do calculus - just how to do it period - that will not make it easier to
learn how to use a spreadsheet; but, if you really learn calculus, you will find it much easier
to use a spreadsheet. That is because you will have trained your mind to think quantitatively.
It's that simple.
In the 60's students who took calculus learned it. Now, they mainly just get certified in it.
(If you doubt me, just compare today's AP Calculus with the one from 1970.)
This same phenomena is true across all disciplines. It is because the American higher educational
system, as a whole, is corrupt. (In a recent issue,The Economist has done an excellent job reporting
and analyzing the system. Thank you.)
But here is what is even worse.
The effect of this corruption has seeped down to America's K-12 system. To see how, just ask
yourself where high school teachers go to learn, and within what system do "professors" at regional
state schools get their "credentials", and why it might be in the interest of more "elite" schools
to credential them.
For anyone who wants to know more, I have a blog inside-higher-ed that has convincing examples
and documentation.
Veiled One
Wolf has a point. I'm in the U.S., in my prime at 52, and have stopped looking for for
work after losing a job for no fault of my own. My undergraduate and graduate education was at
elite universities in technical disciplines, and I have much experience. I'm also very physically
fit and energetic. But after more than a year of hearing that I was "well-qualified but too senior,"
I stopped looking.
Now, I'm a rentier with 100% free time, and read the FT every morning. I suppose I should be
happy to enjoy the guerdons of a career when very young.
Kevin Alexanderman
@Veiled One ,
Sounds like you are a victim of age-racism. The leftist journalist crowd know the money is
with the older people. Just as they slander the banks, (who have the money), and as the German
national socialists slandered the Jews (who had the money), today's socialists slander older people.
The leftists are preparing some kind of way to swindle more experienced people out of their
money, just haven't figured out how yet.
Gail Johnson
This is a political problem. Ordinary Americans are no longer represented by the national government.
In other major industrialized democracies, the equivalent of US congressional districts include
about 100,000 people. For example, in the UK there are 650 members of the House of Commons representing
about 64 million people. In a district with 100,000 people it is possible to contest an election
without a $1 million war chest.
In the US congressional districts average over 700,000 people. There are 435 representatives
for over 310 million people. Congress has an approval rating on the low teens, and yet in the
last election 95% of incumbents got reelected. Why? Their demonstrated willingness to vote the
way big money tells them to in return for the funds needed to stay in office.
Thus, ordinary people who rely on jobs to supply life's necessities - food, clothing and
shelter - get short shrift when economic priorities are being set.
The US is focused on Austerity. Cultural, Economic and Political Austerity. The right wing
drive to kill everything for everyone ( save for the elite that are rapidly accumulating it all)
has destroyed the infrastructure and the fabric of the country. The US is the laggard in the 'leading
developed countries' of the world and is certainly vectored in the wrong direction.
Michael Moran
I wonder how much of this can be explained by furtive self-employment. The ridiculous tax system
provides every reason for a smart person to try and avoid formal employment through LLCs or other
dodges. The LLC structure and their tax status is unique to the US, after all. It could be part
of the explanation.
RDRAVID
@Michael Moran
If someone is self-employed they would be counted as actively participating in the Labour market.
Rather than self-employment, I think the issue is a growth in informal activity in the US. Its
becoming more common there for people to do undeclared work, whether of the handyman, domestic
helper or running a mobile food shack.
The bottom 20% in the US are effectively living a third world style life.
Isaias
I always said that if US unemployment was measured by Spain unemployment standards ( the strictest
in the EU ), it would probably be around 12 % if not more.
What free market?
While Martin Wolf explains a deeply worrying trend, particularly for those who have given up
the struggle to find work, there is another bar to job creation.
Small businesses find the bureaucratic hassle of taking on staff a nightmare: the intrusion
of form filling, record keeping, the tax authorities, local authorities etc, all of which have
their own, separate agendas, is sufficient deterrent to employing anyone except on a casual basis
- which the very young and old are happy to engage with the process.
The only common strategy for bureaucrats and tax men is job creation - theirs and those of
the ilk - their role is job destructive in the real economy.
gkjames
@What free market? Really? How so? What "bureaucratic hassle"? Are standard record-keeping
and accounting practices an "intrusion" or, more likely, a useful mechanism by which shareholders
can track the health of the enterprise? In most US states, by the way, it takes all of a single
form and a modest fee to incorporate. As for the alleged "common strategy for bureaucrats and
tax men," you do realize, presumably, that it is elected legislatures who write the tax laws,
laws that reflect extensive (and, not infrequently, exclusive) input from the business community.
What free market?
Yes, it is BIG business that controls the output of legislatures, small business does not get
a look in - those running them are too busy running their businesses and coping with bureaucracy.
It is often overlooked that rules and regulations that are imposed universally suit big business
but place a disproportionate burden on small business who have to comply with the same dictats
but without the administrative cohort and infrastructure that large firms can justify.
What free market?
Indeed, without sounding too conspiratorial, I would say there is an unwritten pact between
big business and legislators that allows big business to comply with onshore rules and forces
competing small business to do the same.
Meanwhile offshore, big business can engage in tax evasion on a massive scale using offshore
tax havens, transfer pricing and the freedom from jurisdictional control that obviates their need
to remit revenues that would be taxable (viz Apple) . Small businesses are captive, they have
to be 100% complient and that suits big business as the administrative burden crushes incipient
competition from small business.
Anon2
Maybe it has something to do with the breakdown of the lower middle class family in the
US and the subsequent poor performance in school, crime, prison etc. I guarantee those not
participating exhibit a higher percentage of having had no father in the home as a child.
LJH
@Anon2 Yes, we don't like poor people in the US, or minorities - including women. The problem
is the ruling class of white rich men is morally and intellectually bankrupt.
Those that create the problems are usually not the first to suffer the consequences. That comes
later as the empire crumbles.
M_T
@Hell No -- Given the minimal welfare in the US, and that it seems implausible that one in eight
American working age men are starving, my personal assumption would be that a large proportion
of the remainder are working in the unregistered economy. That includes crime but would also include
casual work where the employer doesn't pay proper taxes etc.
RiskAdjustedReturn
@M_T @Hell No --
"... casual work where the employer doesn't pay proper taxes etc."
In my local bank, on a Saturday morning, one will see lines of middle-aged white guys standing
in line to take out thousands of dollars each in cash, which I'm assuming is meant to pay their
workers
Adam Bartlett
An issue that's only going to get more severe and widespread as technological unemployment
continues its advance.
In light of studies showing that low quality jobs are worse for folk's mental health than
staying unemployed, further deregulation is only an answer to be entertained by sadists.
The choice facing us is probably between the statist solution of a massive increase in public
sector employment, or the relatively libertarian option of a generous universal basic income.
Let's pray it won't be too many years before such options get to the table.
pangloss
Surely an American (or any other) worker is worth no more than say a Chinese worker + some
translation factor. The translation factor includes the presence of infrastructure and human capital
on both sides. The low skill worker suffers first because of an early and easy shift in the translation
factors. Sooner or later the high-end designers of Silicon Valley will suffer the same fate. Excluding
nuclear war there is likely to be a flattening of wages across the developed world. This is especially
bad news for those at the lower end of the ability scale, no credible amount of education or training
will make enough difference. There are limits to human capital. Start thinking about redistribution
and the niches that are immune from this effect.
nonuthin
The question that bothered me through this is what do they actually do if they're not "working".
Clearly not all sustained by welfare, does this indicate a significant increase in either the
black economy, the criminal economy or both. E.g. it would be statistically fascinating ( if politically
unachievable) to see the impact of a legally licenced drugs trade on the employment participation
rates.
Adam Bartlett
@nonuthin Some in single earner households, having to accept a lower material quality of life
than they would if both adults could earn. Others drawing down savings and living frugally. Many
dependent on food banks and other forms of charity. Others subsisting in the informal economy,
but activity one would call 'grey' at worst, not the black or criminal economy.
Big Dipper
There is more to life's responsibilities than your "men and women whose responsibilities should
make earning a good income". Perhaps you could consider high-quality child raising, other care
activity, community and education. The ratio is dangerous.
cg12348
Every week Martin Wolf reminds me why the self proclaimed experts are really idiots - you can
make stats sing if you know what you are doing........but the reality is easy to see. Americans
have a work force that is seeing its jobs exported - notice he does not give the stats on companies
moving out of the US over the past 30 years. Again the experts say we could not stop It - NO they
cant stop it that is true - but there is a way to stop it.
They would further tell you that the 11 million immigrant workers have little to no effect
because they take jobs that we don't want - wrong again. As you age your are happy to be employed
even if the job does not hold the allure of your previous job. What immigrant workers do is they
take less money because they are willing to live at a lower standard. They will live many families
to one home etc. In fact if they were not here to take the job the job would get done when the
pay increased to attract a willing worker - FACT. Finally what stats do not capture is the moral
of a work force.
There is nothing "decent" about our unemployment stats. We are not a nation of any one race
we are a nation of opportunity with one of the most powerful economies and plenty of natural resources
and demand and opportunity for innovation - so what sickness has befallen the US - large government
- corporate taxation - political mediocrity - the same thing that has recently become apparent
in Germany and France - idiots who give away what we worked hard for and expect us to pay more
for those they choose to support.
Todays social programs breed a generation that no longer asks what they can do for their nation
- but what their nation can do for them. Obama and his ilk have handed the world to those who
were unwilling to fight to fix their own countries - instead they want to come here for opportunity
that did not exist at home and then in a great act of irony turn our land into theirs - we do
not want to be Europe - nor do we want to be Mexico and we certainly do not want to be the middle
east - instead what we want those who love our opportunity to come here and become American -
but in numbers and within a legal process that does not exacerbate or marginalize those who were
born here and should have the right to the first jobs here.
Profitsee
@cg12348 And this is why I read the FT Comments section. Bravo -- One fact was missing:
US imports educated foreign naturals more than exported "low level" jobs. Even as a Democrat,
I confess, you provide a lucid argument.
Tiger II
The employment numbers are a political fiction as with all developed economies. Unemployment
is much higher than reported. Sclerotic labor laws and regulations make it impossible to
create many jobs that can produce more than they cost, especially given the dumbing down of the
work force by public monopoly schools. Regulated labor markets are one of the biggest drivers
of unemployment on both sides of the Atlantic and should be abolished.
Brian Reading
While not disputing in any way Martin Wolf's analysis, the devil may still be in the detail.
Population estimates by age cohorts come from ten-yearly census data - the denominator for participation
rates. These estimates are interpolated between censuses from births, deaths and migration data.
The numerator, the number in each age cohort at work or seeking work, comes from regular household
sample surveys. Using one source for denominator and another for numerator, which cannot be avoided,
entails a margin of error. In looking into this, I was amazed to discover that legal immigration
averaged one million a year in the 1990s. I suspect estimated illegal immigrant, mostly prime-aged,
are included in population estimates but do not appear in household surveys.
DougInCalifornia
What I am seeing where I live is the emergence of a part-time, informal service economy. You
might call it the Craigslist/Ebay/PayPal economy. I think that a lot of people make a (minimal)
living this way. And my guess is that most of it doesn't get picked up in official statistics.
I think that "employment" will need to be measured differently in the post-internet era.
RiskAdjustedReturn
@cg12348 @Boston1
"Show me a middle class kid that expects to work his way up and willing to start at the bottom
and I will show you..."
...a recent immigrant.
WL - Minneapolis
One clue into the declining labor force participation rate may have been discovered in a study
reported in the NY Times today, that may account for a substantial portion. The death rate among
middle-aged (45-54) whites with high school education or less has increased in recent years, reversing
a long-term trend. The cause appears to be poor health/chronic pain/mental health issues that
result in death by drug/alcohol abuse and/or suicide.
Clearly unskilled and low-skilled workers have more trouble finding well paying jobs, and the
wages for those jobs have fallen around 19% since 2000 in real, inflation-adjusted terms. But
an increase in health problems of one sort or another may also be the cause of the lower participation
rate as well.
Excellent article on education difficulties in the US by Edouardo Porter in today's NYT. One
problem is that children living in poverty in the US struggle to learn in the education system
partially because overall public support for impoverished families is so poor in the US.
If we think the current labor market is not working, wait till the Trans Pacific Partnership
(TPP) trade deal passes the US Congress & signed into law .
Capital ($), aided by misguided policies of the US economic elites, will prevail over (skilled)
Labor.
Paul A. Myers
A major contributor to lack of hiring men age 25-54 is the massive underinvestment in infrastructure
in the U.S. This is a prime age for construction employment and this industry provides a ladder
of advancement from low and semi-skilled labor up to more skilled labor. My experience with construction
contractors in Southern California is that they are interested in individuals who can get to the
job site and do the work and are often willing to overlook criminal records. A dollar of public
spending on construction puts American workers to work, not someone in Korea. You can't import
a highway or a building from the Far East.
The other major failure is the large urban school district. These "too big to succeed" institutions
have a record for over a half a century of failure to turn out skilled young people. In the massive
Los Angeles Unified School District, they shut down skill-based vocational education during the
period 1970-1990 with the lame excuse of everyone is going to college. The duopoly of a wooden-headed
educational establishment fostered by graduate schools of education and powerful job-protecting,
mediocrity-fostering teachers unions have created the largest statist failure since the collapse
of East Germany. (And you can remember how much Germany paid to clean up that mess!)
There are recent reports that there are 4-5 million unfilled jobs in the US due to lack of
skilled applicants.
A crummy labor market is almost always the creation of bad public policy. And today's America
swims in bad public policies.
beforethecollapse.com
@Paul A. Myers As an educator, I wonder what role poor nutrition plays in the US?
beforethecollapse.com
Also, I must say that the family unit is far more influential and important to the youth than
any teacher. The teacher can operate as a third parent, or second parent if the family breaks
down, but a youth needs a stable environment for healthy emotional and instinctual development.
Excellent diet, physical exercise and regimented sleep patterns are essential. It's easy for parents
to blame teachers but I have noted that such complaints arise from personalities that resent strong
authority figures and duty enforces. As such, they are incapable of disciplining their own child.
In China, society encourages the family to be unconditionally supportive to the child, this
is balanced by the teacher who is a strict disciplinarian, often by way of corporeal punishment.
Philip Verleger
@Paul A. Myers A crummy labor market can also be the result of increased monopsonistic power
of employers. Trucking companies cannot find drivers and regional airlines cannot find pilots.
There are plenty available - but many will not accept the low wages offered. The employers
cannot offer more because their customers - the large airlines and the big shippers will not pay
more. The trained workers are there. They just will not accept the scarps.
The public policy mistake was allowing the creation of such large monopolies/monopsonies.
Look outside your silo!
Paul A. Myers
@Philip Verleger @Paul A. Myers Good points. The FT published my letter to the editor in
about 2010 that economic concentration in virtually every economic sector of the US had reached
unprecedented levels and represented a major threat to the US economy. (I think I was seriously
outside my silo and I think the FT editors were very receptive to this argument--then and now.)
Oligopolies (the only kind of major corporations and markets in the US today) produce lower
volumes, at higher prices, and with fewer employees than a more competitive economic sector would
employ, produce, price.
In virtually every industrial sector of the US economy, the top competitors are way too
big and way too dominant. In the 1950s and 60s, it used to be the Big Three in most sectors;
today is at most the Big Two.
The Progressives understood the economic concentration argument; the Democratic Leadership
Council generation embraces concentration's contributory support.
Philip Verleger
@Paul A. Myers @Philip Verleger
Could not agree more. I am on the board of a family firm. We cannot find truck drivers although
we pay well and train (to move gasoline - it takes an extra license). There is just little interest
in joining the profession because the large companies keep wages down.
The FTC and Justice Department unfortunately failed to do their jobs.
BelCan
Mr Wolf seems to have missed the fact that the FT already covered this issue on 16 October.
The BLS lists the following factors as primary drivers of the decline in the LFP rate since
2000: (1) the aging of the baby boomer cohort; (2) the decline in the participation rate of those
16-24 years old; (3) the declining LFP rate of women (since its peak in 1999), and (4) the continuous
decline of the LFP rate of men (since the 1940s).
The main factors that keep the aggregate LFP rate from falling further are the increase of
the LFP rate of those 55 and older and the strong attachment to the labor force of Hispanic and
Asian people, who constitute the main share of the immigrant population.
Henry C
@nb Your good post is reinforced plenty by the more recent talk by Bullard. He notes:
"If you know only one aspect of the data on labor force participation, it should be this: Labor
force participation used to be relativelylow, it rose during the 1970s, 1980s and 1990s,peaking
in 2000, and it has generally been declining since 2000.From 1948 to 1966, the labor force participation
rate was relatively low and relatively stable, averaging 59.1 percent. That's substantially lower
than today's value of 63 percent. It is important to note that we normally consider the U.S. economy
to have performed relatively well during this period, especially during the long expansion of
the 1960s.
Evidently, low labor force participation does not equate with weak economic growth. Surely
this is because the factors driving economic growth are different from the factors driving labor
force participation."
Why are you surprised? You genuflected to my employer.. The People's Republic of China.
Where slavery is a tool for political control. Perhaps you should have thought harder and better
when you and your friends were nattering on about The Great Moderation. What was your long game?
Did you think there would be a revolution or revolt that you could manipulate? Or were you a true
believer in The Circular Theory of Income?
Action? What action? How are you going to move production back to the West? How can you undo
what you are responsible for?
As to family support, the other aspect one might look at is whether US household disposable
income growth has been deficient relative to other G7 countries (which all have higher LFPR).
But that's not the case: see
So on the face of it, it seems to take a higher LFPR in other G7 countries to match the same
approximate growth in US disposable income in the long run.
L'anziano
"What might explain the extent to which prime-aged men and women have been withdrawing
from the labour market in the US over a long period?"
Heartless as this sounds (and I am sure I will not gain any friends for this on this page)
the reason on the male side of the equation is that it is much easier to fire ineffective, unproductive,
middle-aged, male dinosaurs in the US than it is in the UK, France or Japan. At least this has
always been the case in every global firm in which I have worked. I am acutely aware of this as
a middle aged man myself.
lennerd
Perhaps Mr Wolf should follow up this article with one about the abysmal record on male
and household median earnings since 1970. Male median earnings are now lower than in 1973, more
than 4 decades agao and household median earnings are back to the late 1980s, a generation ago.
This, of course, is the evisceration of the middle class by globalisation and other factors
that has progressed further and faster in the US than elsewhere, resulting in the proceeds of
growth being concentrated on the top 1 per cent, or even the top 10 per cent of the top 1 per
cent. His views on why and what should be done would be interesting.
Olaf von Rein
@lennerd Those income statistics right? Frightening.
Legal Tender
@lennerd If you want to look at the data you need to realise the US imported 10-15 million
low-skilled, non-English speaking immigrants during the 1990s and 2000s. If you take out the very
bottom of the income distribution (note that their income is understated as a good portion of
the earnings is "off the books") the results look better. You cannot make an "apples to apples"
comparison between the US labour force of the 1970s and 1980s and the labour force of the 1990s
and 2000s. The demographics are very different.
If Europe admits millions of refugees over the next few years, I can assure you it will depress
average male household earnings. But you always need to look at what has changed in the composition
of the data before drawing conclusions about the data. The fact that there might be millions of
Middle Eastern and African arrivals earning very little (officially) would impact the overall
data for wages but may not accurately describe the experience of the pre-existing labour force.
You might even say that the US has employed its native population AND created jobs for
millions of unskilled, non-English speaking workers who are now earning two or three times what
they were in their home countries and sending tens of billions annually back to those countries
to increase wealth there. That sounds like a success story (well, I would not classify the current
economy or labour market as a success story, but on par it does describe much of the 1990-2006
period).
Cuibono
As somebody who has worked in both Europe and the US I would add to the list of underlying
causes mentioned. First employee rights in the US are abysmal. Poor conditions, no training or
upward mobility, little or no personal privacy, cult like "motivation" exercises, passive aggressive
annual reviews, drug testing, binding non-compete contracts that disallow moving to competitors
for long periods of time and now declining benefits. The list goes on and on.
The employer gets everything and gives nothing more than an "at-will" commitment to continue
employment.
It gets to a point where it's not profitable to bother.
Raver
@Cuibono Yes it's gotten pretty bad. The benefit packages are barely cheaper than what you
can buy in the health insurance marketplace, maybe $20 less a month if you're lucky.
Banker
@Cuibono yea but salaries are 2-3x as much as in the UK.
Cuibono
@Banker @Cuibono Right, until you factor in the cost of health care and college tuition for
your kids.
Banker
@Cuibono @Banker @Cuibono Ahm? Most ivies have $0 fees for families under $60k and a lot of
support. Health insurance also provided from employer covers everything. Have you even got any
idea how expensive private healthcare is in the UK? Unless you want to use 3rd world NHS ofcourse.
All public universities also charge minimum Ł9k/year fees here.
Learn your facts before you post.
Cuibono
Well I believe I know facts. I also have manners, and you apparently don't. So get off your
high horse before you post!
Having experienced both the NHS and the private US system, I promise you the NHS wins hands
down in every department, most especially in quality of care. I do know the UK private system,
but if you want third world care with chaotic service delivery and outrageous hidden costs, please
feel free to come to the US and pay over of thousand per month (for a family) with co-pays for
it.
You 9k per year number is, frankly hilarious to any middle class US parent. Try 60k per year
for fees and board for a good university.
And if you are earning 60k per year how are you going to afford the basic second level education,
complete with top SAT scores and cultural experiences that will get you selected to the mythical
ivy.- especially if you are white and without legacy connections? You should take your own advice
and read up on US colleges and their outrageous manipulation of statistics to hide the fact that
they are little more than vehicles that allow the elite to transfer status across generations.
You are upset about an opinion I expressed based on my own experiences and you set yourself
up as the comment police to challenge that opinion without.
Something to think about. . .
US corporations have the developed world's highest remuneration scale to executives and the
lowest benefits to other employees. How else can these corporate executive maintain their life
style without hiring from the two employee pools (young and old) that work for such low wages?
Young are beginning and old augmenting income.
ForgottenHistory
I recall how in the Netherlands and in Germany (and i think to a lesser degree also in France
but haven't got a clue on the UK in this matter) policymakers and governments were very concerned
for just this: an increase in the longer -and ultimately eternally- unemployed. Therefore people
weren't just been laid off but held on and send on courses or only half-employed(=50% or so) and
the government added some funds to that.
This way people retained and even improved their skills, in stead of losing skills and become
unemployable and ultimately end up being a costly burden for society.
It doesn't surprise me at all this didn't happen in the US, as the US has equal opportunities(supposed
to) but no proper sense of community in the sense of a government with a long term-planning; US
has been doing the opposite, e.g. cutting-off anything which would help the unemployed, poor,
or disadvantaged -that's equal opportunities in reality.
Smyrna Cracker
I suspect that declining levels of health, especially for those lacking a college degree
may account for some of the falling work-force participation rates. Recent studies have uncovered
a rise in death rates with this same population that may be part of the same phenomena. Rural
populations seem especially venerable with declining access to mental health services and rising
levels of substance abuse. Red America may have outsized political power but its leadership has
no interest in serving the population it represents.
Mr Passive
Pensioners with no pensions; they are more reliable at shelf stacking and other such jobs.
There are going to be so many people over 60 in the UK working in the future now that final salary
schemes have been reducing in number.
Is it another function of very low bond yields & therefore pension rates, the side-effects
of QE we may call it.
Time for the CBs to hold up their hands and admit they've done all they can and at the margin
further extra-ordinary measures will be counter productive.
Massachusetts
@Mr Passive In the US the only age group that has seen incomes increase consistently is the
65-74 decile. I cannot speak to the UK.
Suppose the government issued a financial asset that, adjusted for risk and liquidity, promised
a higher rate of return than any alternative asset. The government can do this, because it has the
power to tax. Everybody prefers holding that government-issued financial asset to any other asset.
There would be an excess demand for that government-issued asset. The only way to eliminate that
excess demand would be for the government to buy up all the other assets in exchange for that asset.
The government would be operating one big closed-end mutual fund, that owned all the assets in the
economy, with people owning shares in that mutual fund. And the rate of return on those mutual fund
shares would be guaranteed by the government's power to tax.
Most people would be against that policy. Perhaps we could call the few people who supported it
"Mutual Fund Marxists"?
Now let's suppose that particular government-issued financial asset is also used as the medium
of exchange. An excess demand for the medium of exchange causes a recession. Each individual tries
to ensure that the flow of money leaving his pocket is less than the flow of money entering his pocket,
so the stock of money in his pocket increases over time. This is possible for each individual, but
impossible in aggregate (unless the government increases the aggregate stock sufficiently quickly
over time), but the attempt by each to do something they cannot all do causes a recession.
So we would have a permanent recession, unless the government implemented Mutual Fund Marxism,
by buying up all the assets in the economy in exchange for government-issued money, to eliminate
that excess demand for government-issued money.
The threat of permanent recession I have just described is usually called "secular stagnation".
The proposed cures of ever-expanding central bank balance sheets and national debts are the first
steps towards Mutual Fund Marxism.
Should we blame the economy for secular stagnation, or should we blame the government for issuing
a financial asset that promises a more attractive rate of return than other assets, and that also
is used as medium of exchange?
Would private financial institutions, that lack the power to tax, ever do the same thing?
Some might reasonably argue that the twin threats of permanent recession or Mutual Fund Marxism
themselves lower the expected rate of return on other assets.
Just a slightly different way of looking at some old questions. Secular stagnation is the same
question as the Optimum Quantity of Money.
Addendum: If we want to avoid having to choose between secular stagnation or Mutual Fund Marxism,
we need to increase the yield spread between government-issued money and other assets. One way would
be to target NGDP level path, with a suitably high growth rate for NGDP (presumably a rough proxy
for the nominal rates of return on other assets). A second way would be to raise the inflation target.
A third way would be a Gesellian tax (negative interest rate) on money.
Benoit Essiambre
Exactly!
I don't understand why there isn't a immense sense of urgency from central banks, governments
and the economic profession to fix this.
People argue about details meanwhile central banks like the ECB are maintaining an asset that
is directly subsidizing disinvestment and economic inactivity and leading to colossal amounts
of needless suffering and a relative decline of the western world.
"... Is economics, as some assert, little more than a means of dressing up ideological arguments in scientific clothing? ..."
"... This certainly happens, especially among economists connected to politically driven think tanks – places like the Heritage Foundation come to mind. Economists who work for businesses also have a tendency to present evidence more like a lawyer advocating a particular position than a scientist trying to find out how the economy really works. ..."
"... No - we dont allow MDs to prescribe or treat on the basis of theory alone. Its unethical for any professional practitioner to give advice that is not supported by compelling evidence demonstrating that the advise is both safe and effective - First, do no harm. ..."
"... To a man, professional economists shill for the view that they are morally free to treat real economies and real people as their personal lab rats. As a group, economists are an ethically challenged bunch in this respect, and probably in other respects too. ..."
"... The rich plutocrats have a major stake in advocating very specific narratives, so they will throw large sums behind those narratives (and the fight against anything conflicting with them). ..."
"... What sort of opinions are economists allowed to have if they want tenure, want to be published in the major journals or want to make a living? ..."
"... Keynes concluded that government direction was necessary for a viable economy. Keynes interpreters in the US buried that idea, and thus became very important economists - guys like Paul Samuelson. The first ( and only) US book to faithfully represent Keynes ideas faded away soon after publication: http://news.stanford.edu/pr/93/931011Arc3112.html ..."
"... It is impossible to talk about economics without making essentially ideological distinctions. Private property and wage labor are not natural categories. Their adequacy as human practices therefore needs to be either defended or criticized. To simply take them as given is an ideological waffle that begs THE question. ..."
"... Economists thus SHOULD have, acknowledge and fully disclose their ideological biases. When evaluating evidence they should make every effort to set aside and overcome their biases. And they need to stay humble about how Sisyphean, incongruous and incomplete their attempts at objectivity are. ..."
"... And so - though we proceed slowly because of our ideologies, we might not proceed at all without them. - Joseph Schumpeter ..."
Do Economists Promote Ideology as Science?: Which is more important in determining the policy
positions of economists, ideology or evidence? Is economics, as some assert, little more than
a means of dressing up ideological arguments in scientific clothing?
This certainly happens, especially among economists connected to politically driven think tanks
– places like the Heritage Foundation come to mind. Economists who work for businesses also have
a tendency to present evidence more like a lawyer advocating a particular position than a scientist
trying to find out how the economy really works.
But what about academic economists who are supposed
to be searching for the truth no matter the political implications? Can we detect the same degree
of bias in their research and policy positions? ...
rayward said...
Thoma's assessment seems fair enough. I'd make the point that, for some academic economists, no
amount of evidence is sufficient to overcome their bias. "Where's the proof" is the refrain one hears
often. And then there's the question: what is evidence? The availability of lots of data is often
used to "prove" this or that theory, even when the "proof" is contrary to the historical evidence
one can see with her own eyes. Data used as obfuscation rather than clarification. I appreciate that
one historical event following another historical event does not prove causation, but what's better
proof than history.
RogerFox said...
"Shouldn't theory be a guide when the empirical evidence is unconvincing one way or the other?"
No - we don't allow MDs to prescribe or treat on the basis of theory alone. It's unethical for
any professional practitioner to give advice that is not supported by compelling evidence demonstrating
that the advise is both safe and effective - 'First, do no harm.'
To a man, professional economists shill for the view that they are morally free to treat real
economies and real people as their personal lab rats. As a group, economists are an ethically challenged
bunch in this respect, and probably in other respects too.
DeDude said...
Economics as a science is mainly hurt by two things.
The rich plutocrats have a major stake in advocating very specific narratives, so they will
throw large sums behind those narratives (and the fight against anything conflicting with them).
Economics does not have anything resembling the double blind placebo controlled trials that
help medicine fight off the narratives of those with money and power.
RGC said...
What sort of opinions are economists allowed to have if they want tenure, want to be published
in the major journals or want to make a living?
Keynes concluded that government direction was necessary for a viable economy. Keynes' "interpreters"
in the US buried that idea, and thus became very important economists - guys like Paul Samuelson.
The first ( and only) US book to faithfully represent Keynes' ideas faded away soon after publication: http://news.stanford.edu/pr/93/931011Arc3112.html
pete said...
I did not know there was a debate. Krugman summed it all up in Peddling Prosperity. Folks know
who pays the rent, and opine accordingly.
Syaloch said...
I think problems arise when economists are called upon by politicians or the media to give expert
advice.
Within the sciences, "We don't know the answer to that" is a perfectly acceptable response, and
in scientific fields where the stakes are low that response is generally accepted by the public as
well. "What is dark matter made of?" "We don't know yet, but we're working on it." But in politics,
where the stakes are higher, not having a definitive answer is viewed as a sign of weakness. How
often do you hear a politician responding to a "gotcha" question admit that they don't know the answer
rather than trying to BS their way through?
Given the timeliness of news coverage the media prefer to consult experts who offer definitive
answers, especially given their preference for pro/con type interviews which require experts on both
sides of an issue. Economists who are put on the spot this way feel pressured to ditch the error
bars and give unambiguous answers, even answers based purely on theory with little to no empirical
backing, and the more often they do this the more often they're invited back.
It is impossible to talk about economics without making essentially ideological distinctions.
Private property and wage labor are not "natural" categories. Their adequacy as human practices therefore
needs to be either defended or criticized. To simply take them "as given" is an ideological waffle
that begs THE question.
Economists thus SHOULD have, acknowledge and fully disclose their ideological biases. When evaluating
evidence they should make every effort to set aside and overcome their biases. And they need to stay
humble about how Sisyphean, incongruous and incomplete their attempts at objectivity are.
Let's not forget that "The End of Ideology" was a polemical tract aimed at designating the ideology
of the managers and symbol manipulators "above" and beyond ideology. Similarly, Marx's brilliant
critique of ideology degenerated into polemic as its practitioners adopted the mantle of "science."
The End of Ideology: On the Exhaustion of Political Ideas in the Fifties is a collection of essays
published in 1960 by Daniel Bell, who described himself as a "socialist in economics, a liberal in
politics, and a conservative in culture". He suggests that the older, grand-humanistic ideologies
derived from the nineteenth and early twentieth centuries had been exhausted, and that new, more
parochial ideologies would soon arise. He argues that political ideology has become irrelevant among
"sensible" people, and that the polity of the future would be driven by piecemeal technological adjustments
of the extant system.
A very big question! Like "what is the meaning of life?" At least a semester-long upper division
seminar course. ;-)
In a nutshell (to put it crudely), Marx labelled as ideologists a cohort of
German followers of Hegel's philosophy who envisioned historical progress as the result of the progressive
refinement of intellectual ideas. Marx argued instead that historical change resulted from struggle
between social classes over the material conditions of life, fundamental to which was the transformation
of nature through human intervention into means of subsistence.
Marx labelled as ideologists a cohort of German followers of Hegel's philosophy who envisioned historical
progress as the result of the progressive refinement of intellectual ideas. Marx argued instead that
historical change resulted from struggle between social classes over the material conditions of life,
fundamental to which was the transformation of nature through human intervention into means of subsistence.
[ What a superb introductory or summary explanation. I could not be more impressed or grateful. ]
Well said. I would add "markets" to that list of relatively recent cultural constructs that needs
greater scrutiny.
Chuck said...
"And so - though we proceed slowly because of our ideologies, we might not proceed at all without
them."
- Joseph Schumpeter, "Science and Ideology," The American Economic Review 39:2 (March 1949), at 359 http://www.jstor.org/stable/1812737
Many guys are not driven by ideology, rather than evidence. The problem with this article is that
we cannot compare with other professions and say "economists are more/less prone to promote ideology
than the average".
DrDick said in reply to Ignacio...
All human endeavors are shaped by "ideology" in many different ways. What is important is to be aware
of and explicit about their influences on our thought and action.
RC AKA Darryl, Ron said in reply to RC AKA
Darryl, Ron...
If there are two sides to an argument that radically disagree then it is possible that both sides
may be ideology, but both sides cannot be science. Only the correct argument can be science. Of course
ideology is a bit too kind of a word since the incorrect argument is actually just a con game by
people out to lay claim on greater unearned wealth.
ken melvin said...
Economists seem content with trying to figure out how to make 'it' work. Far better, I think, to
try and figure out how it should be.
It was philosophers such as Hume, Locke, Marx, Smith, Rawls, ... who asked the right questions. Laws
and economics come down to us according to how we think about such things; they change when we change
the way we think. Seems we're in a bit of a philosophical dry patch, here. Someday, we will have
to develop a better economic system, might be now. Likewise, there are laws rooted in antiquity that
were wrong then and are wrong still.
RC AKA Darryl, Ron said in reply to ken melvin...
Exactly! They all know what they are doing. Some of them are just trying to do the wrong thing.
Arne said...
"Ideology certainly influences which questions academic researchers believe are the most important,
but there is nothing wrong with that."
No "experiment" in economics comes with the degree of control
that experiments in physical sciences take for granted, so there is tremendous room for ideology
to come into the discussion of whether a data set really represents the conditions the model is supposed
to consider. Since reviewing another economist's study entails asking questions those questions...
DrDick said in reply to Arne...
Please describe the "experimentation" which takes place in astronomy and geology. Ideologies also
play important roles in experimental sciences, such as biology (for which we have a lot of evidence.
Yves here. Tax is a major way to create incentives. New York City increased taxes dramatically
on cigarettes, and has tough sanctions for trying to smuggle meaningful amounts of lower-taxed smokes
in. Rates of smoking did indeed fall as intended.
Thus the debate about whether corporations should pay more taxes is not "naive" as the plutocrats
would have you believe; in fact, they wouldn't be making such a big deal over it if it were. In the
1950s, a much larger percentage of total tax collections fell on corporations than individuals. And
the political message was clear: the capitalist classes needed to bear a fair share of the total
tax burden. Similarly, what has been the result of the preservation of a loophole that allows the
labor of hedge fund and private equity fund employees to be taxed at preferential capital gains rates?
A flood of "talent" into those professions at the expense of productive enterprise.
And the result of having lower taxes on companies has been a record-high corporate profit share
of GDP, with none of the supposed benefits of giving businesses a break. Contrary to their PR, large
companies have been net saving, which means liquidating, since the early 2000s. The trend has become
more obvious in recent years as companies have borrowed money to buy back their own stock.
In the past year, scandal after scandal has exposed companies using loopholes in the tax system
to avoid taxation. Now more than ever, it is becoming clear that citizens around the world are paying
a high price for the crisis in the global tax system, and the discussion about multinational corporations
and their tax tricks remains at the top of the agenda. There is also a growing awareness that the
world's poorest countries are even harder impacted than the richest countries. In effect, the poorest
countries are paying the price for a global tax system they did not create.
A large number of the scandals that emerged over the past year have strong links to the EU and its
Member States. Many eyes have therefore turned to the EU leaders, who claim that the problem is being
solved and the public need not worry. But what is really going on? What is the role of the EU in
the unjust global tax system, and are EU leaders really solving the problem?
This
report – the third
in a series of reports – scrutinises the role of the EU in the global tax crisis, analyses developments
and suggests concrete solutions. It is written by civil society organisations (CSOs) in 14 countries
across the EU. Experts in each CSO have examined their national governments' commitments and actions
in terms of combating tax dodging and ensuring transparency.
Each country is directly compared with its fellow EU Member States on four critical issues: the fairness
of their tax treaties with developing countries; their willingness to put an end to anonymous shell
companies and trusts; their support for increasing the transparency of economic activities and tax
payments of multinational corporations; and their attitude towards letting the poorest countries
have a seat at the table when global tax standards are negotiated. For the first time, this report
not only rates the performance of EU Member States, but also turns the spotlight on the European
Commission and Parliament too.
This report covers national policies and governments' positions
on existing and upcoming EU level laws, as well as global reform proposals.
Overall, the report finds that:
• Although tweaks have been made and some loopholes have been closed, the complex and dysfunctional
EU system of corporate tax rulings, treaties, letterbox companies and special corporate tax regimes
still remains in place. On some matters, such as the controversial patent boxes, the damaging
policies seem to be spreading in Europe. Defence mechanisms against 'harmful tax practices' that
have been introduced by governments, only seem partially effective and are not available to most
developing countries. They are also undermined by a strong political commitment to continue so-called
'tax competition' between governments trying to attract multinational corporations with lucrative
tax reduction opportunities – also known as the 'race to the bottom on corporate taxation'. The
result is an EU tax system that still allows a wide range of options for tax dodging by multinational
corporations.
• On the question of what multinational corporations pay in taxes and where they
do business, EU citizens, parliamentarians and journalists are still left in the dark, as are
developing countries. The political promises to introduce 'transparency' turned out to mean that
tax administrations in developed countries, through cumbersome and highly secretive processes,
will exchange information about multinational corporations that the public is not allowed to see.
On a more positive note, some light is now being shed on the question of who actually owns the
companies operating in our societies, as more and more countries introduce public or partially
public registers of beneficial owners. Unfortunately, this positive development is being somewhat
challenged by the emergence of new types of mechanisms to conceal ownership, such as new types
of trusts.
• Leaked information has become the key source of public information about tax dodging by multinational
corporations. But it comes at a high price for the people involved, as whistleblowers and even
a journalist who revealed tax dodging by multinational corporations are now being prosecuted and
could face years in prison. The stories of these 'Tax Justice Heroes' are a harsh illustration
of the wider social cost of the secretive and opaque corporate tax system that currently prevails.
• More than 100 developing countries still remain excluded from decision-making processes when
global tax standards and rules are being decided. In 2015, developing countries made the fight
for global tax democracy their key battle during the Financing for Development conference (FfD)
in Addis Ababa. But the EU took a hard line against this demand and played a key role in blocking
the proposal for a truly global tax body.
Not one single EU Member State challenged this approach and, as a result, decision-making on global
tax standards and rules remains within a closed 'club of rich countries'.
A direct comparison of
the 15 EU countries covered in this report finds that:
France, once a leader in the demand for public access to information about what multinational
corporations pay in tax, is no longer pushing the demand for corporate transparency. Contrary
to the promises of creating 'transparency', a growing number of EU countries are now proposing
strict confidentiality to conceal what multinational corporations pay in taxes.
Denmark and Slovenia are playing a leading role when it comes to transparency around the true owners
of companies. They have not only announced that they are introducing public registers of company
ownership, but have also decided to restrict, or in the case of Slovenia, avoided the temptation
of introducing, opaque structures such as trusts, which can offer alternative options for hiding
ownership. However, a number of EU countries, including in particular Luxembourg and Germany,
still offer a diverse menu of options for concealing ownership and laundering money.
Among the
15 countries covered in this report, Spain remains by far the most aggressive tax treaty negotiator,
and has managed to lower developing country tax rates by an average 5.4 percentage points through
its tax treaties with developing countries.
The UK and France played the leading role in blocking developing countries' demand for a seat at
the table when global tax standards and rules are being decided.
To read a summary of the report,
please click here.
Class Actions vs. Individual Prosecutions
Jed S. Rakoff NOVEMBER 19, 2015 NYRB
Entrepreneurial Litigation: Its Rise, Fall, and Future
by John C. Coffee Jr.
Harvard University Press, 307 pp., $45.00
"... They assume infinite growth of resources and opportunities for profits, income and wealth. Ad infinitum. Though rich and brilliant, American capitalists have a childlike, irrational conviction that they can indefinitely produce, mine, grow, fish, dump and extract resources from the planet's limited supply, without ever paying a steep price or planning for the day the planet's resources are exhausted. Hence their bizarre opposition to all carbon pollution-taxation and regulation. ..."
"... Stiglitz warns that today's zombies all have a definite conservative bias on political issues. Economic courses taught at Harvard, for example, use a textbook written by a former member of President Bush's Council of Economic Advisors that pushes "a particular ideological view that markets work perfectly." ..."
"... Today the "Atlas Shrugged" ideology of Ayn Rand is the core of Frankenstein economics, having replaced Adam Smith's original capitalism. It is now in a war to the death with liberalism. This extremism is now the conventional wisdom of conservative politicians: "When I say 'capitalism,' I mean a pure, uncontrolled, unregulated laissez-faire capitalism." It is "the only system that can make freedom, individuality, and the pursuit of values possible." Compromise is impossible. ..."
"... Today Rand's ideology is not only deeply embedded in conservative economic thought, it has emerged as a conspiracy of a Super Rich elite and the political right, in a dangerous spiral repetition of the historical patterns Acemoglu and Robinson warn we are closing the door to America's future, setting up the collapse of our economy and our nation's failure. ..."
Halloween once was the family favorite across America, loads of fun. But this year, it seems zombies,
ghouls, vampires all de-materializing, draining all the bloody spirit out of Halloween. America's
Frankenstein economy is in line with Daron Acemoglu and James Robinson predictions in "Why Nations
Fail: The Origins of Power, Prosperity, and Poverty": Nations grow. Wealth concentrates at the top.
The elite manipulate to protect their wealth. They close doors that got them to the top. Economies
collapse. Nations fail.
This Halloween that same pattern is accelerating across America as wealth rapidly concentrates
at the top, GDP growth keeps declining. This time, however, the door is also closing on entrenched
zombie capitalists as the inequality gap widens. They are losing the battle to control government,
threatening insiders, setting up revolutions. Here are seven signs of this classic pattern:
1. Frankenstein economics is a mausoleum for trickle-down capitalism
This theory that policies that help the rich get richer will "ultimately help everybody," has
been with us a long time. Foreign Policy says it was coined by the great urban philosopher Will Rogers
when he commented on Herbert Hoover's 1928 tax cuts: "The money was all appropriated for the top
in the hopes that it would trickle down to the needy," but the president didn't "know that money
trickles up."
Since the presidency of Ronald Reagan, zombie capitalists have turned trickle-up into a flood.
Forbes Global Billionaires list rocketed from 322 in 2000 to 1,826 in 2015. By 2099 Credit Suisse
predicts 11 trillionaires. But for the rest of the world, capitalism is a cancer: A billion live
on less than two dollars a day. And as global population explodes to 10 billion by 2050, the widening
inequality gap will trigger revolutions, pandemics, starvation, an overheated planet. Trillionaires?
Or GDP below 1% by 2099?
2. Frankenstein economy is now America's new Invisible Hand
Adam Smith was a moral philosopher, believed the Invisible Hand of a divine power would act to
the benefit of all. Unfortunately, today's capitalists took away control of the Invisible Hand, transformed
it into a blood-sucking vampire, into "mutant capitalism" as Jack Bogle calls it, an egocentric materialism
with no moral compass that justifies America's obsession with celebrity power and personal wealth.
Nobel Economist Joseph Stiglitz warned of this new "Frankenstein economy" mythology. Lacking any
scientific proof of their own ideologies, insiders use computer technology, math and physics to justify
their ideological biases, dismissing the economic impact of climate change, research on the predictably
irrational, often evil behavior of all humans.
As a result, today's capitalists often become climate deniers, ignore social issues, focusing
instead on justifying the self-serving behavior of billionaires maximizing profits, accumulating
massive wealth, dangerously widening the inequality gap. They pretend their myth-based economy works,
even as they drain our GDP's soul of blood.
3. Frankenstein capitalism is trapped in a Myth of Perpetual Growth
Capitalism's Frankenstein economics is failing America: by relying on its core Myth of Perpetual
Growth. They assume infinite growth of resources and opportunities for profits, income and wealth.
Ad infinitum. Though rich and brilliant, American capitalists have a childlike, irrational conviction
that they can indefinitely produce, mine, grow, fish, dump and extract resources from the planet's
limited supply, without ever paying a steep price or planning for the day the planet's resources
are exhausted. Hence their bizarre opposition to all carbon pollution-taxation and regulation.
4. Frankenstein capitalists have short-term-thinking brains
Wall Street bankers, corporate insiders, and other capitalists tend to focus on today's stock
prices, quarterly earnings, annual bonuses. Most of these Frankenstein capitalists are alpha-males,
aggressive short-term thinkers, says Jeremy Grantham, while America's next generation needs new leaders
for 2050 with a "historical perspective." But unfortunately our leaders have grown into "an army
of left-brained immediate doers" which "guarantees" they "will always to miss" the next big one.
5. Frankenstein capitalism has a conservative GOP political bias
Stiglitz warns that today's zombies all have a definite conservative bias on political issues.
Economic courses taught at Harvard, for example, use a textbook written by a former member of President
Bush's Council of Economic Advisors that pushes "a particular ideological view that markets work
perfectly."
Moreover, they tend to see environmental issues as liberal myths, and back GOP politicians committed
to climate-science denialism. And yet, politically biased economic theories, whether conservative
or liberal, are dangerous to America's future. Future leaders need to be flexible, open to compromise,
making decisions on broader public policies, not, for example, locked on some rigid version of Adam
Smith's theories. Time to bury that corpse.
6. Frankenstein capitalism is accelerating disasters, famine, pandemics
Flash forward: The planet is incapable of feeding the 10 billion people projected on Earth by
2050, warns Jeremy Grantham, whose firm manages over $120 billion. And yet, most economists today
work for banks and businesses that ignore demographics, except as a source of consumer marketing
data, trapped in a self-destructive climate-science-denial bubble.
Snap out of it, reread "The Shock Doctrine: The Rise of Disaster Capitalism." See why this kind
of thinking will require a disaster of epic proportions, a World War III, worldwide famine or global
pandemic to shock the Frankenstein capitalist mind-set, awaken their conscience, revive the original
moral core of Adam Smith's economic soul.
7. Frankenstein economy trapped between uncompromising ideologies
Today the "Atlas Shrugged" ideology of Ayn Rand is the core of Frankenstein economics, having
replaced Adam Smith's original capitalism. It is now in a war to the death with liberalism. This
extremism is now the conventional wisdom of conservative politicians: "When I say 'capitalism,' I
mean a pure, uncontrolled, unregulated laissez-faire capitalism." It is "the only system that can
make freedom, individuality, and the pursuit of values possible." Compromise is impossible.
Today Rand's ideology is not only deeply embedded in conservative economic thought, it has
emerged as a conspiracy of a Super Rich elite and the political right, in a dangerous spiral repetition
of the historical patterns Acemoglu and Robinson warn we are closing the door to America's future,
setting up the collapse of our economy and our nation's failure.
Happy Halloween, the good news is that this war will soon come to a predictably irrational end:
By the 2020 presidential election when Clinton is reelected. By then the GOP will have been looking
at 16 long years out of the presidency.
Plus by 2020, the grim realities of global warming will force Big Oil and the worldwide fossil-fuel
industry to wake up and accept the need for controlling global warming. And finally, that will break
the conspiracy trapping GOP politicians like Donald Trump, Sen. Ted Cruz, Sen. Marco Rubio, and even
Sen. James Inhofe in the mythic greed of climate-science denialism.
Now isn't that a truly scary thought for Frankenstein capitalists on this wonderful Happy Halloween?
Paul B. Farrell is a MarketWatch columnist based in San Luis Obispo, Calif. Follow him on Twitter
@MKTWFarrell.
"... Lehman was engaging in blatant misreporting, treating these "repos" (in which a bank still shows them on its balance sheet as sold with the obligation to repurchase) as sales ..."
"... "It also emerges that the NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations…." ..."
"... Although I hope the bank's newly appointed CEO is able to implement measures to rectify these problems, if DB "goes Lehman", I suspect it will occur much as Lehman did: quite suddenly. ..."
"... The 5% "fee" referred to in the fourth paragraph of the FT excerpt above is not the interest rate charged on the loan but instead is the over-collateralization amount provided by Lehman in exchange for a short-term cash loan. A normal repo loan is over-collateralized at perhaps 2%. Lehman's and its outside auditors Ernst Young's 'genius' was in discovering some language in 2001 or so in the then recently amended FAS 157 accounting guidance (all such guidance has been revised and renumbered in the meantime) which suggested indirectly that if the rate of over-collateralization was bumped up enough, you could pretend you sold the collateral instead of pledging it as collateral. So instead of pledging the normal 102% of the loan amount in collateral, Lehman asked lenders to please take more than that: 105%, hence "Repo 105." ..."
"... Most of Lehman's lenders wouldn't touch the scam because it was so obvious, but a few non-U.S. banks were happy to oblige Lehman. One was Deutsche Bank, to the tune of many billions of dollars over the years. Not that that had anything to do with ex-Deutsche General Counsel for the Americas Rob Khuzami's decision, once he became Obama's Enforcement Head at the SEC beginning in 2009, to give Lehman, EY, Deutsche and the other lenders a pass on all that. ..."
"... In no way did the drafters of the accounting guidance ever say, here's a way to scam the market, have at it. But then again those drafters are a committee of CPAs from all the big firms and elsewhere, including several from EY. So who knows how deliberate the set up was. ..."
"... Deutsche Bank has hugely profited from the end of the Deutschland AG at which head it once was. Thanks to chancellour Schroeder and his finance minister Eichle (the successor after Lafontaine was kicked who went on to found the left party) Deutsche and the other big German banks got to sell their industry portfolios without paying a penny of tax. It is common knowledge among industry watchers that this money ended up as bonuses for the "masters of the universe" at the Anglo-Saxon part of the bank which basically took over the whole bank. First invisibly and then all to visible when Jain became CEO. German industry is now owned by Blackrock and the like. Homi soit qui mal y pense ..."
"... Geithner's amorality and dereliction of duty has been apparent since his testimony in Starr v USA. Somehow these big names are protected by the supine media. ..."
"... Couldn't the NY State Superintendent of Financial Services pull Deutsche's U.S. Banking License? I thought this is what Ben Lawsky was intimating in this (nearly) one year old interview on Bloomberg, in which he (hints at?) the pulling of Deutsche's license, even though he was not at the time talking about Repo 105 ..."
Lehman was engaging in blatant misreporting, treating these "repos" (in which a bank still
shows them on its balance sheet as sold with the obligation to repurchase) as sales
Thank you for writing this bit. All the explanations I've read of Repo 105 seemed to be missing
the step where liabilities were actually reduced – because what's the difference between an asset
and an obligation/contract to buy said asset in X hours time?
So I'm glad a more financially astute mind than mind wrote down what I'd suspected, that real
liabilities weren't actually reduced by Repo 105 and it's just window dressing to fool the regulators.
I'd hazard that it actually makes the situation worse, because it's pretty expensive window dressing
and that's real cash that has to head out the door once a quarter.
tawal
Turning all the brokerages into bank holding companies, where now they all have a calendar
year end and can't temporarily hide their trash on each other's books, but can all hide it on
the Fed's unaudited balance sheet.
Why isn't Deutsche Bank doing this too, and are UBS, Barclays and HSBC the next to fail?
fresno dan
"It also emerges that the NY Fed, and thus Timothy Geithner, were at a minimum massively derelict
in the performance of their duties, and may well be culpable in aiding and abetting Lehman in
accounting fraud and Sarbox violations…."
Upon finding this out, tire squeal, sirens wail, lights flash, and grim faced men rush to take
into custody little Timmy Geithner and serve warrants a the New York FED….
LOL – of course not. Most government officials, of BOTH parties, would say Timmy Geithner and
his ilk performed fantastically…. After all, he worked hard to prop it up…. If you remove the corruption, the double and self dealing,
price fixing, fraud, ad infinitum, and how could the system continue as constituted? And the people
at the top of the system thinks it works very well indeed.
Chauncey Gardiner
This issue is unsurprising to me. Many signs over the past couple years of deeply troubling
matters at this TBTF: CEO resignations, NY Fed criticisms of systems and financial reporting (as
Yves pointed out), participation in market manipulations, billions in writedowns, suicide death
of bank's regulatory lawyer, massive derivatives exposures, central bank calls for increased capital,
etc.
Although I hope the bank's newly appointed CEO is able to implement measures to rectify these
problems, if DB "goes Lehman", I suspect it will occur much as Lehman did: quite suddenly.
Recalling Ernest Hemingway in "The Sun Also Rises": "How did you go bankrupt?" Bill asked. "Two ways," Mike said. "Gradually and then suddenly."
JustAnObserver
Deutche Bank = Germany's RBS (Royal Bank of Scotland) ?
All the Eurozone's nightmares since 2010 have been down to a desperate attempt to postpone
DB's "Minsky Moment" ?
I did see a report that DB is withdrawing from a number of countries but Wall Street wasn't
on that list. Interestingly the list includes all the Scandinavian countries as well as the usual
suspects – Mexico, Turkey, Saudi, etc.
Oliver Budde
The 5% "fee" referred to in the fourth paragraph of the FT excerpt above is not the interest
rate charged on the loan but instead is the over-collateralization amount provided by Lehman in
exchange for a short-term cash loan. A normal repo loan is over-collateralized at perhaps 2%.
Lehman's and its outside auditors Ernst & Young's 'genius' was in discovering some language in
2001 or so in the then recently amended FAS 157 accounting guidance (all such guidance has been
revised and renumbered in the meantime) which suggested indirectly that if the rate of over-collateralization
was bumped up enough, you could pretend you sold the collateral instead of pledging it as collateral.
So instead of pledging the normal 102% of the loan amount in collateral, Lehman asked lenders
to please take more than that: 105%, hence "Repo 105."
Most of Lehman's lenders wouldn't touch the scam because it was so obvious, but a few non-U.S.
banks were happy to oblige Lehman. One was Deutsche Bank, to the tune of many billions of dollars
over the years. Not that that had anything to do with ex-Deutsche General Counsel for the Americas
Rob Khuzami's decision, once he became Obama's Enforcement Head at the SEC beginning in 2009,
to give Lehman, EY, Deutsche and the other lenders a pass on all that.
The few banks who did dare to help out Lehman of course charged higher than market rates for
those loans, even though they held an extra 3% in collateral, which was always made up of high
quality Treasury bonds and the like. Those lenders charged more anyway, because they knew what
Lehman was up to and knew they could wring out some extra cash in exchange for 'aiding' Lehman
in its needs. Lehman gladly paid the higher interest.
In no way did the drafters of the accounting guidance ever say, here's a way to scam the market,
have at it. But then again those drafters are a committee of CPAs from all the big firms and elsewhere,
including several from EY. So who knows how deliberate the set up was.
The scam began in 2001 or so and while it may not have been what blew up Lehman in 2008, it
did importantly mislead a lot of people in 2007 and 2008, when its use was ramped up dramatically.
And it put extra bonus money into the Lehman executives' pockets, year in and year out. No wonder
others seek to emulate it.
Tom
Deutsche Bank has hugely profited from the end of the Deutschland AG at which head it once
was. Thanks to chancellour Schroeder and his finance minister Eichle (the successor after Lafontaine
was kicked who went on to found the left party) Deutsche and the other big German banks got to
sell their industry portfolios without paying a penny of tax. It is common knowledge among industry
watchers that this money ended up as bonuses for the "masters of the universe" at the Anglo-Saxon
part of the bank which basically took over the whole bank. First invisibly and then all to visible
when Jain became CEO. German industry is now owned by Blackrock and the like. Homi soit qui mal
y pense
RBHoughton
Geithner's amorality and dereliction of duty has been apparent since his testimony in Starr
v USA. Somehow these big names are protected by the supine media.
Thank Heavens for NC – one of the most important of a handful of sites that fearlessly report.
Fingers crossed we can build a new media industry around this nexus of quality.
Pearl
Yves,
Couldn't the NY State Superintendent of Financial Services pull Deutsche's U.S. Banking License? I thought this is what Ben Lawsky was intimating in this (nearly) one year old interview on
Bloomberg, in which he (hints at?) the pulling of Deutsche's license, even though he was not at
the time talking about Repo 105:
If enough folks became vocal (enough) about the issue–couldn't we make a difference this time?
("We," as in ordinary housewives from Roswell, GA and humble bloggers such as the illustrious
Yves Smith?".) ;-)
I think you are waaaay more famous than you think you are, Yves. Indeed, you are universally
one of the most well-respected and straight-shooting authors/academics/authorities on such subjects.
And I think Mr. Lawsky would take your call or reply to an email if written by you.
I spoke with his staff (yes, me–a housewife from Roswell, GA) when he was at DFS during my
"Ocwiteration Perseveration" days of yore, and his staff was unusually generous with their time
and they seemed genuinely appreciative to get info and feedback from just regular folks.
I think Mr. Lawsky himself would be thrilled to hear from someone like you. And I think the two of you would be an extremely formidable team.
I just don't want to give up on this. It's too important. At the very least, I will forward
to him this post of yours.
This game became really interesting if prices will remain low for oil all 2016. That's
another 200 billion stimulus for the US economy. People are genetically biased against change,
because change means potential danger. People are also genetically biased against acknowledging this
bias, because they wish to see themselves as being able to cope with both change and danger. Put
together, this means that when changes come, people are largely unprepared or underprepared. This
little bit of psychology 101 may seem redundant, but it is indispensable if we are talking about the
current oil price slump...
Notable quotes:
"... The average estimate from the banks for oil prices is for Brent to average just $58 per barrel in 2016, and WTI to trade for $54 per barrel. But just a few months ago, the same survey showed that the banks expected oil prices to average $70 per barrel in 2016. ..."
"... U.S. oil output is down to around 9.1 million barrels per day from a peak of 9.6 million barrels per day reached in April 2015. ..."
"... ... ... ... ..."
"... However, while the Permian will slow oil market balancing, it won't be able to compensate for the loss of production elsewhere. Overall, U.S. production is in decline. Most of the loss in U.S. output has come from the Eagle Ford in South Texas, which has shed over 227,000 barrels per day in output since April. ..."
A group of investment banks are becoming increasingly gloomy about the direction of oil prices
in the near-term. A Wall Street Journal survey of 13 investment banks found a growing degree of
pessimism about the oil markets.
The average estimate from the banks for oil prices is for Brent to average just $58 per
barrel in 2016, and WTI to trade for $54 per barrel. But just a few months ago, the same survey
showed that the banks expected oil prices to average $70 per barrel in 2016.
The growing pessimism is in part due to the potential slowdown in demand, particularly from
China. At the same time, Russia and OPEC nations continue to produce at elevated levels. Only
U.S. production appears to be declining in any substantial way. U.S. oil output is down to
around 9.1 million barrels per day from a peak of 9.6 million barrels per day reached in April
2015.
... ... ...
... producing in places like the Permian Basin is still very much profitable today, even with
prices at $50 per barrel or lower. While North Dakota, Louisiana, or Colorado have seen drilling
grind to a halt, drilling in the Permian Basin in West Texas is still going strong. In fact, many
oil companies are scrapping drilling in other parts of their portfolio and expanding their
footprint in the Permian. As a result, production from the Permian is still rising. The Permian
stands out because of the abundance of oil and gas in place, making each well more lucrative than
a similar well in another basin.
However, while the Permian will slow oil market balancing, it won't be able to compensate
for the loss of production elsewhere. Overall, U.S. production is in decline. Most of the loss in
U.S. output has come from the Eagle Ford in South Texas, which has shed over 227,000 barrels per
day in output since April.
"... Nevertheless, the truth is that the United States economy is not exactly in good health. The labour market data published during the 12 months before March of 2015 is not as robust as was presumed by the Federal Reserve: the Department of Labor recognized recently that it had overestimated the jobs created by the private sector by at least 255,000 [3]. ..."
"... The policies of the Federal Reserve are not capable of increasing the economy by their own efforts [6]. Yellen bet everything on a reduction of the unemployed, hence businesses would be pressured to increase wages, so that the acquisitive power of families and price levels would increase (inflation). ..."
"... This has not happened. While the rate of unemployment fell from 5.7 to 5.1% between January and September of this year, hourly wages hardly increased 2.2% in annual terms the past month, still far from the levels reached before the crisis, when increases above 4% were noted. Inflation has not succeeded in passing 2% in more than 3 years, the objective of the US central bank [7]. ..."
The ego of Janet Yellen has broken into a thousand pieces. The new data published some days ago
by the US Department of Labor confirms the hypothesis of the economist Ariel Noyola Rodríguez, who
had maintained since last year that the United States' labour market was much more fragile than was
presumed by the head of the Federal Reserve. If the situation of the North American economy continues
to get worse it is probable that in coming weeks new measures will be taken to mitigate structural
unemployment.
In her public discourses, the president of the Federal Reserve, Janet Yellen, has avoided the
serious problems that the United States economy suffers. When in mid-September the Federal Open Market
Committee (FOMC) took the decision to maintain the federal funds rate between zero and 0.25% the
target of Yellen's worries was directed to China [1] and the debts of emerging economies [2].
In accord with the President of the Federal Reserve, the process of recovery of the North American
economy has been strengthening for considerable time. And, because of this, if the FOMC has not raised
the cost of credit is due, above all, to a high rate of "obligation" and "responsibility" with the
rest of the world.
Nevertheless, the truth is that the United States economy is not exactly in good health. The labour
market data published during the 12 months before March of 2015 is not as robust as was presumed
by the Federal Reserve: the Department of Labor recognized recently that it had overestimated the
jobs created by the private sector by at least 255,000 [3].
On the other hand, during the month of September the non-agricultural employment reached 143,000,
much less than the 200,000 hoped for [4]. The greatest reversals were in sectors tied to external
trade and energy. The rise of the dollar, and the fall in prices of commodities and the extreme weakness
of global demand with the rest of the world precipitated the structural deterioration of the US economy.
The bad news does not end here: the numbers of the jobs generated in July and August were also
lower [5]. Now we know that in August only 136,000 jobs were created, rather than the 176,000 originally
reported: while in the month of July there were created 21,000 fewer jobs than those counted in the
previous revision.
Hence with the data actualized by the Department of Labor, in the United States there were registered
an average of 167,000 new jobs between July and September, an amount that represents less than 65%
of the 260,000 (average per month) that were created during the previous year.
The policies of the Federal Reserve are not capable of increasing the economy by their own efforts
[6]. Yellen bet everything on a reduction of the unemployed, hence businesses would be pressured
to increase wages, so that the acquisitive power of families and price levels would increase (inflation).
This has not happened. While the rate of unemployment fell from 5.7 to 5.1% between January and
September of this year, hourly wages hardly increased 2.2% in annual terms the past month, still
far from the levels reached before the crisis, when increases above 4% were noted. Inflation has
not succeeded in passing 2% in more than 3 years, the objective of the US central bank [7].
Hence it is now clear that the fall of the unemployment rates in recent months depends more on
the reduction of the rate of participation in the labour market - as a consequence of the despair
of thousands of US citizens - and less on the creation of quality long range jobs: on Friday October
2 it was announced that in September 350,000 persons abandoned the search for work [8]. There is
no turning around, in the United States job growth has been submerged in stagnation.
"... And even though Chevron said in July that its cost-cutting initiatives would be "completed by
mid-November of 2015" it decided to surprise everyone moments ago when on its earnings call it
announced it would not only slash its capex by another 25%, but will shortly distribute another
7,000 pink slips. The reason: another terrible quarter in which the $2 billion in earnings were a
73% plunge from a year earlier. ..."
Back in January, in the aftermath of the first plunge in commodity prices, and oil in
particular, oil major Chevron had the unsavory distinction of being the first US oil giant to
admit cash flow "constraints" when it was forced to scrap its buyback. And since oil's dead cat
bounce fizzled just around the summer before resuming is slide, it was inevitable that Chevron
would proceed with trimming even more cash outflows.
It did so for the first time in July, when as we reported at the time, Chevron would layoff 1,500
jobs globally, saying that "the cost reductions due to cuts in the corporate center are expected
to total $1 billion with additional cost savings expected across the company."
And even though Chevron said in July that its cost-cutting initiatives would be "completed by
mid-November of 2015" it decided to surprise everyone moments ago when on its earnings call it
announced it would not only slash its capex by another 25%, but will shortly distribute another
7,000 pink slips. The reason: another terrible quarter in which the $2 billion in earnings were a
73% plunge from a year earlier.
"... The difficulty we have in the economics profession, I fear, is a great deal of herd instinct and concern about what others may say. And when the Fed runs their policy pennants up the flagpole, only someone truly secure in their thinking, or forsworn to some strong ideological interpretation of reality or bias if we are truly honest, dare not salute it. ..."
"... But it makes the point which I have made over and again, that all of the economic models are faulty and merely a caricature of reality. And therefore policy ought not to be dictated by models, but by policy objectives and a strong bias to results, rather than the dictates of process or methods. In this FDR had it exactly right. If we find something does not stimulate the broader economy or effect the desired policy objective, like tax cuts for the rich, using that approach over and over again is certainly not going to be effective. ..."
"... Economics are a form of social and political science. And with the political and social process corrupted by big money, what can we expect from would be philosopher kings. ..."
"... The interconnectedness of the global system with its massive and underregulated TBTF Banks, the widespread and often fraudulent mispricing of risk, all make cause for a financial system to be fragile. In this thinking Nassim Taleb is far ahead of the common economic thought as a real systems thinker. The Fed is not a systemic thinking organization because they are owned by the financial status quo, and real systemic reform rarely comes from within. ..."
"... So Mr. Baker, rather than looking for the bubble, lets say we have a fragile system still disordered and mispricing risk, with a few very large banks engaging in reckless speculation, mispricing risk for short term profits, manipulating markets, and distorting the processes designed to maintain a balance in the economy. Rather than hold out for a new bubble as your criterion, perhaps we may also consider that the patient is still on full life support after the last bubble and crisis. Why do we need to find a new source of malady when the old one is still having its way? ..."
"... A new crisis does not have to happen. This is the vain comfort in these sorts of black swan events, being hard to predict. But they can be more likely given the right conditions, and I fear little will be done about this one until even those who are quite personally comfortable with things as they are begin to feel the pain, ..."
"... neither Irwin nor anyone else has even identified a serious candidate. Until someone can at least give us their candidate bubble, we need not take the financial crisis story seriously. ..."
"... If we take this collapse story off the table, then we need to reframe the negative scenario. It is not a sudden plunge in output, but rather a period of slow growth and weak job creation. This seems like a much more plausible story... ..."
I like Dean Baker quite well, and often link to his columns.
On most things we are pretty much on the same page.
And to his credit he was one of the few 'mainstream'
economists to actually see the housing bubble developing, and call it out. Some may claim to have
done so, and can even cite a sentence or two where they may have mentioned it, like Paul Krugman
for example. But very few spoke about doing something about it while it was in progress. The
Fed was aware according to their own minutes, and ignored it.
The difficulty we have in the economics profession, I fear, is a great deal of herd instinct and
concern about what others may say. And when the Fed runs their policy pennants up the flagpole, only
someone truly secure in their thinking, or forsworn to some strong ideological interpretation of
reality or bias if we are truly honest, dare not salute it.
Am
I such a person? Do I actually see a fragile financial system that is still corrupt and highly levered,
grossly mispricing risks? Or am I just seeing things the way in which I wish to see them?
That difficulty arises because economics is no science. It involves judgment and principles,
and weighs the facts far too heavily based upon 'reputation' and 'status.' And of course I have none
of those and wish none.
But it makes the point which I have made over and again, that all of the economic models are faulty
and merely a caricature of reality. And therefore policy ought not to be dictated by models,
but by policy objectives and a strong bias to results, rather than the dictates of process or methods.
In this FDR had it exactly right. If we find something does not stimulate the broader economy
or effect the desired policy objective, like tax cuts for the rich, using that approach over and
over again is certainly not going to be effective.
Economics are a form of social and political science. And with the political and social
process corrupted by big money, what can we expect from would be 'philosopher kings.'
The housing bubble was no 'cause' of the latest financial crisis. More properly it was the tinder
and the trigger event. The S&L crisis was just as great, if not greater. Why then did it not bring
the global financial system to its knees?
The interconnectedness of the global system with its massive and underregulated TBTF Banks, the
widespread and often fraudulent mispricing of risk, all make cause for a financial system to be 'fragile.'
In this thinking Nassim Taleb is far ahead of the common economic thought as a real 'systems thinker.'
The Fed is not a systemic thinking organization because they are owned by the financial status quo,
and real systemic reform rarely comes from within.
I see the same fragility which existed from 1999 to 2008 still in the system, only grown larger,
global, and more profoundly influencing the political processes.
The only question is what 'trigger event' might set it spinning, and how great of a magnitude
will it have to be in order to do so. The more fragile the system, the less that is required to knock
it off its underpinnings.
And a crisis is not a binary event. There is the 'trigger' and the dawning perception of risks,
and the initial responses of the political, social, and regulatory powers.
There is no point in debating this, because the regulators and powerful groups like the Fed are
caught in a credibility trap, which prevents them from seeing things as they are, and saying so.
So Mr. Baker, rather than looking for the bubble, let's say we have a fragile system still disordered
and mispricing risk, with a few very large banks engaging in reckless speculation, mispricing risk
for short term profits, manipulating markets, and distorting the processes designed to maintain a
balance in the economy. Rather than hold out for a 'new bubble' as your criterion, perhaps we may also consider that the
patient is still on full life support after the last bubble and crisis. Why do we need to find
a new source of malady when the old one is still having its way?
I think if one exercises clear and open judgement, they can see that we have stirred up the same
pot of witches brew that has made the system fragile and vulnerable to an exogenous shock, and has
kept it so.
A new crisis does not have to happen. This is the vain comfort in these sorts of 'black swan'
events, being hard to predict. But they can be more likely given the right conditions, and
I fear little will be done about this one until even those who are quite personally comfortable with
things as they are begin to feel the pain,
The problem is not a 'bubble.' The problem is pervasive corruption, fraud, and lack of meaningful
reform. The 'candidate' is the financial system itself, with its outsized hedge funds and the
TBTF Banks with their serial crime sprees and accommodative regulators in particular.
And if one cannot see that in this rotten system with its brazenly narrow rewarding of a select
few with the bulk of new income, then there is little more that can be said.
Neil Irwin, a writer for the NYT Upshot section, had
an interesting debate with himself about the likely future course of the economy. He got the
picture mostly right in my view, with a few important qualifications.
"First, his negative scenario
is another recession and possibly a financial crisis. I know a lot of folks are saying this stuff,
but it's frankly a little silly. The basis of the last financial crisis was a massive amount of
debt issued against a hugely over-valued asset (housing). A financial crisis that actually rocks
the economy needs this sort of basis.
If a lot of people are speculating in the stock of Uber or other wonder companies, and reality
wipes them out, this is just a story of some speculators being wiped out. It is not going to shake
the economy as a whole. (San Francisco's economy could take a serious hit.)
Anyhow, financial crises don't just happen, there has to be a real basis for them. To me the
housing bubble was pretty obvious given the unprecedented and unexplained run-up in prices in
the largest market in the world. Perhaps there is another bubble out there like this, but neither
Irwin nor anyone else has even identified a serious candidate. Until someone can at least
give us their candidate bubble, we need not take the financial crisis story seriously.
If we take this collapse story off the table, then we need to reframe the negative scenario.
It is not a sudden plunge in output, but rather a period of slow growth and weak job creation.
This seems like a much more plausible story...
Anyhow, a story of slow job growth and ongoing wage stagnation would look like a pretty bad
story to most of the country. It may not be as dramatic as a financial crisis that brings the
world banking system to its knees, but it is far more likely and therefore something that we should
be very worried about."
"... In classic totalitarianism, thinking here now about the Nazis and the fascists, and also even
about the communists, the economy is viewed as a tool which the powers that be manipulate and utilize
in accordance with what they conceive to be the political requirements of ruling. And they will take
whatever steps are needed in the economy in order to ensure the long-run sustainability of the political
order. In other words, the sort of arrows of political power flow from top to bottom. ..."
"... in inverted totalitarianism, the imagery is that of a populace which is enshrined as the leadership
group but which in fact doesnt rule, but which is turned upside down in the sense that the people are
enshrined at the top but dont rule. And minority rule is usually treated as something to be abhorred
but is in fact what we have. ..."
"... I think Webers critique of capitalism is even broader. I think he views it as quintessentially
destructive not only of democracy, but also, of course, of the sort of feudal aristocratic system which
had preceded it. Capitalism is destructive because it has to eliminate the kind of custom / m re z/,
political values, even institutions that present any kind of credible threat to the autonomy of the
economy. And its that -- thats where the battle lies. Capitalism wants an autonomous economy. They want
a political order subservient to the needs of the economy. And their notion of an economy, while its
broadly based in the sense of a capitalism in which there can be relatively free entrance and property
is relatively widely dispersed its also a capitalism which, in the last analysis, is [as] elitist as
any aristocratic system ever was. ..."
"... I think the system that was consciously and deliberately constructed by the founders who framed
the Constitution -- that democracy was the enemy. ..."
"... the framers of the Constitution understood very well that this would mean -- would at least
-- would jeopardize the ruling groups that they thought were absolutely necessary to any kind of a civilized
order. And by ruling groups , they meant not only those who were better educated, but those who were
propertied, because they regarded property as a sign of talent and of ability, so that it wasnt just
wealth as such, but rather a constellation of virtues as well as wealth that entitled capitalists to
rule. And they felt that this was in the best interests of the country. ..."
"... in Politics and Vision , as in Democracy Inc. , you talk about the framing of what Dwight Macdonald
will call the psychosis of permanent war, this constant battle against communism, as giving capital
the tools by which they could destroy those democratic institutions, traditions, and values that were
in place. How did that happen? What was the process? ..."
"... I think it happened because of the way that the Cold War was framed. That is, it was framed
as not only a war between communism and capitalism, but also a war of which the subtext was that communism
was, after all, an ideology that favored ordinary people. Now, it got perverted, theres no question
about that, by Lenin and by Stalin and into something very, very different. ..."
"... the plight of ordinary people under the forms of economic organization that had become prominent,
the plight of the common people had become desperate. There was no Social Security. There were no wage
guarantees. There was no union organization. ..."
"... They were powerless. And the ruling groups, the capitalist groups, were very conscious of what
they had and what was needed to keep it going. And thats why figures like Alexander Hamilton are so
important, because they understood this, they understood it from the beginning, that what capitalism
required in the way not only of so-called free enterprise -- but remember, Hamilton believed very, very
strongly in the kind of camaraderie between capitalism and strong central government, that strong central
government was not the enemy of capitalism, but rather its tool, and that what had to be constantly
kind of revitalized was that kind of relationship, because it was always being threatened by populist
democracy, which wanted to break that link and cause government to be returned to some kind of responsive
relationship to the people. ..."
"... the governing groups manage to create a Cold War that was really so total in its spread that
it was hard to mount a critical opposition or to take a more detached view of our relationship to the
Soviet Union and just what kind of problem it created. And it also had the effect, of course, of skewing
the way we looked at domestic discontents, domestic inequalities, and so on, because it was always easy
to tar them with the brush of communism, so that the communism was just more than a regime. It was also
a kind of total depiction of what was the threat to -- and complete opposite to our own form of society,
our old form of economy and government. ..."
"... that ideological clash, therefore any restriction of capitalism which was defined in opposition
to communism as a kind of democratic good, if you want to use that word, was lifted in the name of the
battle against communism, that it became capitalism that was juxtaposed to communism rather than democracy,
and therefore this empowered capital, in a very pernicious way, to dismantle democratic institutions
in the name of the war on communism. ..."
"... the notion that you first had to, so to speak, unleash the great potential capitalism had for
improving everybodys economical lot and the kind of constraints that had been developed not only by
the New Deal, but by progressive movements throughout the 19th century and early 20th century in the
United States, where it had been increasingly understood that while American economic institutions were
a good thing, so to speak, and needed to be nurtured and developed, they also posed a threat. They posed
a threat because they tended to result in concentrations of power, concentrations of economic power
that quickly translated themselves into political influence because of the inevitably porous nature
of democratic representation and elections and rule, so that the difficultys been there for a long time,
been recognized for a long time, but we go through these periods of sleepwalking where we have to relearn
lessons that have been known almost since the birth of the republic, or at least since the birth of
Jeffersonian democracy, that capitalism has its virtues, but it has to be carefully, carefully watched,
observed, and often controlled. ..."
Chris Hedges, whose column is published Mondays on Truthdig, spent nearly two
decades as a foreign correspondent in Central America, the Middle East, Africa and the Balkans. He
has reported from more than 50 countries and has worked for The Christian Science Monitor, National
Public Radio, The Dallas Morning News and The New York Times, for which he was a foreign correspondent
for 15 years. He has written nine books, including "Empire of Illusion: The End of Literacy and the
Triumph of Spectacle" (2009), "I Don't Believe in Atheists" (2008) and the best-selling "American
Fascists: The Christian Right and the War on America" (2008). His book "War Is a Force That Gives
Us Meaning" (2003) was a finalist for the National Book Critics Circle Award for Nonfiction.
CHRIS HEDGES, PULITZER PRIZE-WINNING JOURNALIST: Hi. I'm Chris Hedges. And we are here in Salem,
Oregon, interviewing Dr. Sheldon Wolin, who taught politics for many years at Berkeley and, later,
Princeton. He is the author of several seminal works on political philosophy, including Politics
and Vision and Democracy Inc.. And we are going to be asking him today about the state
of American democracy, political participation, and what he calls inverted totalitarianism.
So let's begin with this concept of inverted totalitarianism, which has antecedents. And in your
great work Politics and Vision, you reach back all the way to the Greeks, up through the present
age, to talk about the evolution of political philosophy. What do you mean by it?
SHELDON WOLIN, PROF. POLITICS EMERITUS, PRINCETON: Well, I mean by it that in the inverted idea,
it's the idea that democracy has been, in effect, turned upside down. It's supposed to be a government
by the people and for the people and all the rest of the sort of rhetoric we're used to, but it's
become now so patently an organized form of government dominated by groups which are only vaguely,
if at all, responsible or even responsive to popular needs and popular demands. But at the same time,
it retains a kind of pattern of democracy, because we still have elections, they're still relatively
free in any conventional sense. We have a relatively free media. But what's missing from it is a
kind of crucial continuous opposition which has a coherent position, and is not just saying, no,
no, no but has got an alternative, and above all has got an ongoing critique of what's wrong and
what needs to be remedied.
HEDGES: You juxtapose inverted totalitarianism to classical totalitarianism -- fascism, communism
-- and you say that there are very kind of distinct differences between these two types of totalitarianism.
What are those differences?
WOLIN: Well, certainly one is the -- in classic totalitarianism the fundamental principle is the
leadership principle and the notion that the masses exist not as citizenry but as a means of support
which can be rallied and mustered almost at will by the dominant powers. That's the classical one.
And the contemporary one is one in which the rule by the people is enshrined as a sort of popular
message about what we are, but which in fact is not really true to the facts of political life in
this day and age.
HEDGES: Well, you talk about how in classical totalitarian regimes, politics trumps economics,
but in inverted totalitarianism it's the reverse.
WOLIN: That's right. Yeah. In classic totalitarianism, thinking here now about the Nazis and
the fascists, and also even about the communists, the economy is viewed as a tool which the powers
that be manipulate and utilize in accordance with what they conceive to be the political requirements
of ruling. And they will take whatever steps are needed in the economy in order to ensure the long-run
sustainability of the political order. In other words, the sort of arrows of political power flow
from top to bottom.
Now, in inverted totalitarianism, the imagery is that of a populace which is enshrined as
the leadership group but which in fact doesn't rule, but which is turned upside down in the sense
that the people are enshrined at the top but don't rule. And minority rule is usually treated as
something to be abhorred but is in fact what we have.
And it's the problem has to do, I think, with the historical relationship between political orders
and economic orders. And democracy, I think, from the beginning never quite managed to make the kind
of case for an economic order that would sustain and help to develop democracy rather than being
a kind of constant threat to the egalitarianism and popular rule that democracy stands for.
HEDGES: In your book Politics and Vision, you quote figures like Max Weber who talk about
capitalism as in fact being a destructive force to democracy.
WOLIN: Well, I think Weber's critique of capitalism is even broader. I think he views it as
quintessentially destructive not only of democracy, but also, of course, of the sort of feudal aristocratic
system which had preceded it. Capitalism is destructive because it has to eliminate the kind of custom
/ˈmɔːreɪz/, political values, even institutions that present any kind of credible threat to the autonomy
of the economy. And it's that -- that's where the battle lies. Capitalism wants an autonomous economy.
They want a political order subservient to the needs of the economy. And their notion of an economy,
while it's broadly based in the sense of a capitalism in which there can be relatively free entrance
and property is relatively widely dispersed it's also a capitalism which, in the last analysis, is
[as] elitist as any aristocratic system ever was.
HEDGES: You talk in the book about about how it was essentially the engine of the Cold War, juxtaposing
a supposedly socialist Soviet Union, although like many writers, including Chomsky, I think you would
argue that Leninism was not a socialist movement. Adam Ulam talks about it as a counterrevolution,
Chomsky as a right-wing deviation. But nevertheless, that juxtaposition of the Cold War essentially
freed corporate capitalism in the name of the struggle against communism to deform American democracy.
And also I just want to make it clear that you are very aware, especially in Politics and Vision,
of the hesitancy on the part of our founding fathers to actually permit direct democracy. So we're
not in this moment idealizing the system that was put in place. But maybe you could talk a little
bit about that.
WOLIN: Well, I think that's true. I think the system that was consciously and deliberately
constructed by the founders who framed the Constitution -- that democracy was the enemy. And
that was rooted in historical realities. Many of the colonial governments had a very strong popular
element that became increasingly prominent as the colonies moved towards rebellion. And rebellion
meant not only resisting British rule, but also involved the growth of popular institutions and their
hegemony in the colonies, as well as in the nation as a whole, so that the original impulses to the
Constitution came in large measure from this democratizing movement. But the framers of the Constitution
understood very well that this would mean -- would at least -- would jeopardize the ruling groups
that they thought were absolutely necessary to any kind of a civilized order. And by "ruling groups",
they meant not only those who were better educated, but those who were propertied, because they regarded
property as a sign of talent and of ability, so that it wasn't just wealth as such, but rather a
constellation of virtues as well as wealth that entitled capitalists to rule. And they felt that
this was in the best interests of the country.
And you must remember at this time that the people, so-called, were not well-educated and in many
ways were feeling their way towards defining their own role in the political system. And above all,
they were preoccupied, as people always have been, with making a living, with surviving. And those
were difficult times, as most times are, so that politics for them could only be an occasional activity,
and so that there would always be an uneasy relationship between a democracy that was often quiescent
and a form of rule which was constantly trying to reduce, as far as possible, Democratic influence
in order to permit those who were qualified to govern the country in the best interests of the country.
HEDGES: And, of course, when we talk about property, we must include slaveholders.
WOLIN: Indeed. Indeed. Although, of course, there was, in the beginning, a tension between the
northern colonies and the southern colonies.
HEDGES: This fear of direct democracy is kind of epitomized by Thomas Paine, --
WOLIN: Yeah. Yeah.
HEDGES: -- who was very useful in fomenting revolutionary consciousness, but essentially turned
into a pariah once the Revolution was over and the native aristocracy sought to limit the power of
participatory democracy.
WOLIN: Yeah, I think that's true. I think it's too bad Paine didn't have at his disposal Lenin's
phrase "permanent revolution", because I think that's what he felt, not in the sense of violence,
violence, violence, but in the sense of a kind of conscious participatory element that was very strong,
that would have to be continuous, and that it couldn't just be episodic, so that there was always
a tension between what he thought to be democratic vitality and the sort of ordered, structured,
election-related, term-related kind of political system that the framers had in mind.
HEDGES: So let's look at the Cold War, because in Politics and Vision, as in Democracy
Inc., you talk about the framing of what Dwight Macdonald will call the psychosis of permanent
war, this constant battle against communism, as giving capital the tools by which they could destroy
those democratic institutions, traditions, and values that were in place. How did that happen? What
was the process?
WOLIN: Well, I think it happened because of the way that the Cold War was framed. That is,
it was framed as not only a war between communism and capitalism, but also a war of which the subtext
was that communism was, after all, an ideology that favored ordinary people. Now, it got perverted,
there's no question about that, by Lenin and by Stalin and into something very, very different.
But in the Cold War, I think what was lost in the struggle was the ability to see that there was
some kind of justification and historical reality for the appearance of communism, that it wasn't
just a freak and it wasn't just a kind of mindless dictatorship, but that the plight of ordinary
people under the forms of economic organization that had become prominent, the plight of the common
people had become desperate. There was no Social Security. There were no wage guarantees. There was
no union organization.
HEDGES: So it's just like today.
WOLIN: Yeah. They were powerless. And the ruling groups, the capitalist groups, were very
conscious of what they had and what was needed to keep it going. And that's why figures like Alexander
Hamilton are so important, because they understood this, they understood it from the beginning, that
what capitalism required in the way not only of so-called free enterprise -- but remember, Hamilton
believed very, very strongly in the kind of camaraderie between capitalism and strong central government,
that strong central government was not the enemy of capitalism, but rather its tool, and that what
had to be constantly kind of revitalized was that kind of relationship, because it was always being
threatened by populist democracy, which wanted to break that link and cause government to be returned
to some kind of responsive relationship to the people.
HEDGES: And the Cold War. So the Cold War arises. And this becomes the kind of moment by which
capital, and especially corporate capital, can dismantle the New Deal and free itself from any kind
of regulation and constraint to deform and destroy American democracy. Can you talk about that process,
what happened during that period?
WOLIN: Well, I think the first thing to be said about it is the success with which the governing
groups manage to create a Cold War that was really so total in its spread that it was hard to mount
a critical opposition or to take a more detached view of our relationship to the Soviet Union and
just what kind of problem it created. And it also had the effect, of course, of skewing the way we
looked at domestic discontents, domestic inequalities, and so on, because it was always easy to tar
them with the brush of communism, so that the communism was just more than a regime. It was also
a kind of total depiction of what was the threat to -- and complete opposite to our own form of society,
our old form of economy and government.
HEDGES: And in Politics and Vision, you talk about because of that ideological clash,
therefore any restriction of capitalism which was defined in opposition to communism as a kind of
democratic good, if you want to use that word, was lifted in the name of the battle against communism,
that it became capitalism that was juxtaposed to communism rather than democracy, and therefore this
empowered capital, in a very pernicious way, to dismantle democratic institutions in the name of
the war on communism.
WOLIN: Oh, I think there's no question about that, the notion that you first had to, so to
speak, unleash the great potential capitalism had for improving everybody's economical lot and the
kind of constraints that had been developed not only by the New Deal, but by progressive movements
throughout the 19th century and early 20th century in the United States, where it had been increasingly
understood that while American economic institutions were a good thing, so to speak, and needed to
be nurtured and developed, they also posed a threat. They posed a threat because they tended to result
in concentrations of power, concentrations of economic power that quickly translated themselves into
political influence because of the inevitably porous nature of democratic representation and elections
and rule, so that the difficulty's been there for a long time, been recognized for a long time, but
we go through these periods of sleepwalking where we have to relearn lessons that have been known
almost since the birth of the republic, or at least since the birth of Jeffersonian democracy, that
capitalism has its virtues, but it has to be carefully, carefully watched, observed, and often controlled.
HEDGES: Thank you. Please join us for part two later on with our interview with Professor Sheldon
Wolin.
Sheldon Wolin RIP...
This is part 2 of 8 of his interview with Chris Hedges made a year before his death...
Notable quotes:
"... n all totalitarian societies theres a vast disconnect between rhetoric and reality, which, of course, would characterize inverted totalitarianism as a species of totalitarianism. ..."
"... I think Id probably qualify that, because Id qualify it in the sense that when you look at Naziism and fascism, they were pretty upfront about a lot of things -- leadership principle, racist principles -- and they made no secret that they wanted to dominate the world, so that I think there was a certain kind of aggressive openness in those regimes that I think isnt true of our contemporary situation. ..."
"... And we have, as superpower, exactly replicated in many ways this call for constant global domination and expansion that was part of what you would describe as classical totalitarianism. And that -- youre right, in that the notion of superpower is that its global and that that constant global expansion, which is twinned with the engine of corporate capitalism, is something that you say has diminished the reality of the nation-state itself -- somehow the nation-state becomes insignificant in the great game of superpower global empire -- and that that has consequences both economically and politically. ..."
"... I think one of the important tendencies of our time -- I would say not tendencies, but trends -- is that sovereign governments based on so-called liberal democracy have discovered that the only way they can survive is by giving up a large dose of their sovereignty, by setting up European Unions, various trade pacts, and other sort of regional alliances that place constraints on their power, which they ordinarily would proclaim as natural to having any nation at all, and so that that kind of development, I think, is fraught with all kinds of implications, not the least of [them] being not only whether -- what kind of actors we have now in the case of nation-states, but what the future of social reform is, when the vehicle of that reform has now been sort of transmuted into a system where its lost a degree of autonomy and, hence, its capacity to create the reforms or promote the reforms that people in social movements had wanted the nation-state to do. ..."
"... And part of that surrender has been the impoverishment of the working class with the flight of manufacturing. And I think its in Politics and Vision you talk about how the war that is made by the inverted totalitarian system against the welfare state never publicly accepts the reality that it was the system that caused the impoverishment, that those who are impoverished are somehow to blame for their own predicament. And this, of course, is part of the skill of the public relations industry, the mask of corporate power, which you write is really dominated by personalities, political personalities that we pick. And that has had, I think (I dont know if you would agree), a kind of -- a very effective -- it has been a very effective way by which the poor and the working class have internalized their own repression and in many ways become disempowered, because I think that that message is one that even at a street level many people have ingested. ..."
"... The problem of how to get a foothold by Democratic forces in the kind of society we have is so problematic now that its very hard to envision it would take place. And the ubiquity of the present economic system is so profound (and its accompanied by this apparent denial of its own reality) that it becomes very hard to find a defender of it who doesnt want to claim in the end that hes really on your side. ..."
"... when a underdeveloped part of the world, as theyre called, becomes developed by capitalism -- it just transforms everything, from social relations to not only economic relations, but prospects in society for various classes and so on. No, its a mighty, mighty force. And the problem it always creates is trying to get a handle on it, partly because its so omnipresent, its so much a part of what were used to, that we cant recognize what were used to as a threat. And thats part of the paradox. ..."
"... I think theyre conservative on sort of one side of their face, as it were, because I think theyre always willing to radically change, lets say, social legislation thats in existence to defend people, ordinary people. I think theyre very selective about what they want to preserve and what they want to either undermine or completely eliminate. ..."
"... Thats, of course, the kind of way that the political system presents itself in kind of an interesting way. That is, you get this combination of conservative and liberal in the party system. I mean, the Republicans stand for pretty much the preservation of the status quo, and the Democrats have as their historical function a kind of mild, modest, moderate reformism thats going to deal with some of the excesses without challenging very often the basic system, so that it kind of strikes a wonderful balance between preservation and criticism. The criticism -- because the preservation element is so strong, criticism becomes always constructive, in the sense that it presumes the continued operation of the present system and its main elements. ..."
"... Yeah, political debate has become either so rhetorically excessive as to be beside the point, or else to be so shy of taking on the basic problems. But again youre back in the kind of chasing-the-tail problem. The mechanisms, i.e. political parties, that we have that are supposed to organize and express discontent are, of course, precisely the organs that require the money that only the dominant groups possess. I mean, long ago there were theories or proposals being floated to set up public financing. But public financing, even as it was conceived then, was so miniscule that you couldnt possibly even support a kind of lively political debate in a modest way. ..."
CHRIS HEDGES, PULITZER PRIZE-WINNING JOURNALIST: Welcome back to part three of our discussion with
Professor Sheldon Wolin.
You talk in both of your books, Politics and Vision and Democracy Incorporated,
about superpower, which you call the true face of inverted totalitarianism. What is superpower?
How do you describe it?
SHELDON WOLIN, PROF. EMERITUS POLITICS, PRINCETON: Well, I think it's important to grasp that
superpower includes as one of its two main elements the modern economy. And the modern economy,
with its foundations in not only economic activity but scientific research, is always a dynamic economy
and always constantly seeking to expand, to get new markets, to be able to produce new goods, and
so on. So the superpower's dynamism becomes a kind of counterpart to the character of the modern
economy, which has become so dominant that it defines the political forms.
I mean, the first person to really recognize this -- which we always are embarrassed to say -- was
Karl Marx, who did understand that economic forms shape political forms, that economic forms are
the way people make a living, they're the way goods and services are produced, and they determine
the nature of society, so that any kind of government which is responsive to society is going to
reflect that kind of structure and in itself be undemocratic, be elitist in a fundamental sense,
and have consumers as citizens.
HEDGES: And Marx would also argue that it also defines ideology.
WOLIN: It does. It does define ideology. Marx was really the first to see that ideology had become
a kind of -- although there are antecedents, had become a kind of preconceived package of ideas and
centered around the notion of control, that it represented something new in the world because you
now had the resources to disseminate it, to impose it, and to generally make certain that a society
became, so to speak, educated in precisely the kind of ideas you wanted them to be educated in. And
that became all the more important when societies entered the stage of relatively advanced capitalism,
where the emphasis was upon work, getting a job, keeping your job, holding it in insecure times.
And when you've got that kind of situation, everybody wants to put their political beliefs on hold.
They don't want to have to agonize over them while they're agonizing over the search for work or
worrying about the insecurity of their position. They're understandably preoccupied with survival.
And at that point, democracy becomes at best a luxury and at worst simply an afterthought, so that
its future becomes very seriously compromised, I think.
HEDGES: And when the ruling ideology is determined by capitalism -- corporate capitalism; you're
right -- we have an upending of traditional democratic values, because capitalist values are about
expansion, exploitation, profit, the cult of the self, and you stop even asking questions that can
bring you into democratic or participatory democracy.
WOLIN: I think that's true to an extent. But I would amend that to say that once the kind of supremacy
of the capitalist regime becomes assured, and where it's evident to everyone that it's not got a
real alternative in confronting it, that I think its genius is it sees that a certain relaxation
is not only possible, but even desirable, because it gives the impression that the regime is being
supported by public debate and supported by people who were arguing with other people, who were allowed
to speak their minds, and so on. And I think it's when you reach that stage -- as I think we have
-- that
the problematic relationship between capitalism and democracy become more and more acute.
HEDGES: And yet we don't have anyone within the mainstream who questions either superpower or
capitalism.
WOLIN: No, they don't. And I don't think it's -- it may be a question of weakness, but I think
-- the
problem is really, I think, more sort of quixotic. That is, capitalism -- unlike earlier forms of economic
organization, capitalism thrives on change. It presents itself as the dynamic form of society, with
new inventions, new discoveries, new forms of wealth, so that it doesn't appear like the old regime
-- as
sort of an encrusted old fogey type of society. And I think that makes a great deal of difference,
because in a certain sense you almost get roles reversed. That is, in the old regime, the dominant
powers, aristocracy and so on, want to keep the lid on, and the insurgent democracy, the liberalizing
powers, wanted to take the lid off.
But now I think you get it -- as I say, I think you get it kind of reversed, that democracy, it
now wants -- in its form of being sort of the public philosophy, now wants to keep the lid on and becomes,
I think, increasingly less -- more adverse to examining in a -- through self-examination, and becomes
increasingly, I would say, even intolerant of views which question its own assumptions, and above
all question its consequences, because I think that's where the real issues lie is not so much with
the assumptions of democracy but with the consequences and trying to figure out how we've managed
to get a political system that preaches equality and an economic system which thrives on inequality
and produces inequality as a matter of course.
HEDGES: Well, in all totalitarian societies there's a vast disconnect between rhetoric and reality,
which, of course, would characterize inverted totalitarianism as a species of totalitarianism.
WOLIN: Well, I guess that's true. I think I'd probably qualify that, because I'd qualify it in
the sense that when you look at Naziism and fascism, they were pretty upfront about a lot of things
-- leadership
principle, racist principles -- and they made no secret that they wanted to dominate the world, so
that I think there was a certain kind of aggressive openness in those regimes that I think isn't
true of our contemporary situation.
HEDGES: And yet in the same time, in those regimes, I mean, you look at Stalin's constitution
as a document, it was very liberal, --
WOLIN: Sure.
HEDGES: -- it protected human rights and free speech. And so on the one hand -- at least in terms
of civil liberties. And we have, as superpower, exactly replicated in many ways this call for constant
global domination and expansion that was part of what you would describe as classical totalitarianism.
And that -- you're right, in that the notion of superpower is that it's global and that that constant
global expansion, which is twinned with the engine of corporate capitalism, is something that you
say has diminished the reality of the nation-state itself -- somehow the nation-state becomes insignificant
in the great game of superpower global empire -- and that that has consequences both economically and
politically.
WOLIN: Well, I think it does. I think one has to treat the matter carefully, because a lot of
the vestiges of the nation-states still are, obviously, in existence. But I think one of the important
tendencies of our time -- I would say not tendencies, but trends -- is that sovereign governments based
on so-called liberal democracy have discovered that the only way they can survive is by giving up
a large dose of their sovereignty, by setting up European Unions, various trade pacts, and other
sort of regional alliances that place constraints on their power, which they ordinarily would proclaim
as natural to having any nation at all, and so that that kind of development, I think, is fraught
with all kinds of implications, not the least of [them] being not only whether -- what kind of actors
we have now in the case of nation-states, but what the future of social reform is, when the vehicle
of that reform has now been sort of transmuted into a system where it's lost a degree of autonomy
and, hence, its capacity to create the reforms or promote the reforms that people in social movements
had wanted the nation-state to do.
HEDGES: And part of that surrender has been the impoverishment of the working class with the flight
of manufacturing. And I think it's in Politics and Vision you talk about how the war that
is made by the inverted totalitarian system against the welfare state never publicly accepts the
reality that it was the system that caused the impoverishment, that those who are impoverished are
somehow to blame for their own predicament. And this, of course, is part of the skill of the public
relations industry, the mask of corporate power, which you write is really dominated by personalities,
political personalities that we pick. And that has had, I think (I don't know if you would agree),
a kind of -- a very effective -- it has been a very effective way by which the poor and the working class
have internalized their own repression and in many ways become disempowered, because I think that
that message is one that even at a street level many people have ingested.
WOLIN: Yeah. I think you're right about that. The problem of how to get a foothold by Democratic
forces in the kind of society we have is so problematic now that it's very hard to envision it would
take place. And the ubiquity of the present economic system is so profound (and it's accompanied
by this apparent denial of its own reality) that it becomes very hard to find a defender of it who
doesn't want to claim in the end that he's really on your side.
Yeah, it's a very paradoxical situation. And I don't know. I mean, I think we all have to take
a deep breath and try to start from scratch again in thinking about where we are, how we get there,
and what kind of immediate steps we might take in order to alter the course that I think we're on,
which really creates societies which, when you spell out what's happening, nobody really wants, or
at least not ordinary people want. It's a very strange situation where -- and I think, you know, not
least among them is, I think, the factor that you suggested, which is the kind of evaporation of
leisure time and the opportunities to use that for political education, as well as kind of moral
refreshment. But, yeah, it's a really totally unprecedented situation where you've got affluence,
opportunity, and so on, and you have these kinds of frustrations, injustices, and really very diminished
life prospects.
HEDGES: You agree, I think, with Karl Marx that unfettered, unregulated corporate capitalism is
a revolutionary force.
WOLIN: Oh, indeed. I think it's been demonstrated even beyond his wildest dreams that it
-- yeah,
you're just -- you just have to see what happens when a underdeveloped part of the world, as they're
called, becomes developed by capitalism -- it just transforms everything, from social relations to
not only economic relations, but prospects in society for various classes and so on. No, it's a mighty,
mighty force. And the problem it always creates is trying to get a handle on it, partly because it's
so omnipresent, it's so much a part of what we're used to, that we can't recognize what we're used
to as a threat. And that's part of the paradox.
HEDGES: You take issue with this or, you know, point out that in fact it is a revolutionary force.
And yet it is somehow, as a political and economic position, the domain of people as self-identified
conservatives.
WOLIN: Yeah, it is. I think they're conservative on sort of one side of their face, as it were,
because I think they're always willing to radically change, let's say, social legislation that's
in existence to defend people, ordinary people. I think they're very selective about what they want
to preserve and what they want to either undermine or completely eliminate.
That's, of course, the kind of way that the political system presents itself in kind of an interesting
way. That is, you get this combination of conservative and liberal in the party system. I mean, the
Republicans stand for pretty much the preservation of the status quo, and the Democrats have as their
historical function a kind of mild, modest, moderate reformism that's going to deal with some of
the excesses without challenging very often the basic system, so that it kind of strikes a wonderful
balance between preservation and criticism. The criticism -- because the preservation element is so
strong, criticism becomes always constructive, in the sense that it presumes the continued operation
of the present system and its main elements.
HEDGES: Of both corporate capitalism and superpower.
WOLIN: Absolutely.
HEDGES: And yet you say that at this point, political debate has really devolved into what you
call nonsubstantial issues, issues that don't really mean anything if we talk about politics as centered
around the common good.
WOLIN: Yeah, political debate has become either so rhetorically excessive as to be beside the
point, or else to be so shy of taking on the basic problems. But again you're back in the kind of
chasing-the-tail problem. The mechanisms, i.e. political parties, that we have that are supposed
to organize and express discontent are, of course, precisely the organs that require the money that
only the dominant groups possess. I mean, long ago there were theories or proposals being floated
to set up public financing. But public financing, even as it was conceived then, was so miniscule
that you couldn't possibly even support a kind of lively political debate in a modest way.
You know, politics has become such an expensive thing that I think really the only way to describe
it realistically is to talk about it as a political economy or an economic kind of political economy.
It's got those -- those two are inextricable elements now in the business of the national or state
governments, too.
HEDGES: And yet I think you could argue that even the Democratic Party under Clinton and under
Obama, while it continues to use the rhetoric of that kind of feel-your-pain language, which has
been part of the Democratic establishment, has only furthered the agenda of superpower, of corporate
capitalism, and, of course, the rise of the security and surveillance state by which all of us are
kept in check.
WOLIN: Yeah, I think that's true, because the reformers have simply hesitated -- really, really
hesitated -- to undertake any kind of a focus upon political reform.
HEDGES: Haven't the reformers been bought off, in essence?
WOLIN: I think it's the no-no subject. I don't think it even has to be bought off anymore. I think
that it is such a kind of third rail that nobody wants to touch it, because I think there is a real
in-built fear that if you mess with those kind of so-called fundamental structures, you're going
to bring down the house. And that includes messing with them even by constitutional, legal means,
that it's so fragile, so delicate, so this that and the other thing that inhibit all kinds of efforts
at reforming it. As the phrase used to go, it's a machine that goes of itself -- so they think.
HEDGES: Thank you.
Stay tuned for part four, coming up, of our interview with Professor Sheldon Wolin.
Two days ago
we reported
that the saga of Rohit Bansal, Goldman's "leaker" at the Fed is coming to a close
with the announcement of a criminal case filed against Goldman's deep throat who had previously spent
7 years at the NY Fed, and was about to spend some time in prison, and who had been providing Goldman
with confidential information sourced from his contact at the NY Fed for months, as a result of which
Goldman would be charged a penalty.
Moments ago the NY DFS announced that the best connected hedge fund in the world would pay $50
million to the New York State Department of Financial Services and "accept a three-year voluntary
abstention from accepting new consulting engagements that require the Department to authorize the
disclosure of confidential information under New York Banking Law"
Goldman Sachs would also admit that a Goldman employee engaged in the criminal theft of Department
confidential supervisory information; Goldman Sachs management failed to effectively supervise its
employee to prevent this theft from occurring; and Goldman failed to implement and maintain adequate
policies and procedures relating to post-employment restrictions for former government employees.
Below are the unbelievable, details of just how Goldman was getting material information from
the NY Fed, from the FDS:
Violation of Post-employment Restrictions
On July 21, 2014, an individual began work at Goldman, Sachs & Co. as an Associate in the Financial
Institutions Group ("FIG") of the Investment Banking Division ("IBD"). The Associate reported to
a Managing Director and a Partner at Goldman.
Prior to his employment at Goldman, from approximately August 2007 to March 2014, the Associate
was a bank examiner at the U.S. Federal Reserve Bank of New York ("the New York Fed").
His
most recent position at the New York Fed was as the Central Point of Contact ("CPC") – the primary
supervisory contact for a particular financial institution – for an entity regulated by the Department
(the "Regulated Entity").
In March 2014, the Associate was required to resign from his position at the New York Fed for,
among other reasons, taking his work blackberry overseas without obtaining prior authorization to
do so and for attempting to falsify records to make it look like he had obtained such authorization,
and for engaging in unauthorized communications with the Federal Reserve Board.
The Associate was hired in large part for the regulatory experience and knowledge he had gained
while working at the New York Fed. Prior to hiring him, the Partner and other senior personnel interviewed
and called the Associate several times, and the Partner took him out to lunch and dinner.
Prior to starting at Goldman, in May 2014, the Associate informed the Partner of potential restrictions
on his work, due to his previous employment at the New York Fed, and specifically as the CPC for
the Regulated Entity. The Partner advised the Associate to consult the New York Fed to obtain clarification
regarding any applicable restrictions.
Accordingly, the Associate inquired with the New York Fed Ethics Office and was given a "Notice
of Post-Employment Restriction," which he completed and signed with respect to his supervisory work
for the Regulated Entity. The Associate provided this form to Goldman. This Notice of Post-Employment
Restriction read that the Associate was prohibited "from knowingly accepting compensation as an employee,
officer, director, or consultant from [the Regulated Entity]" until February 1, 2015.
On May 14, 2014, the Associate forwarded this notice of restriction to the Partner, the Managing
Director, and an attorney in Goldman's Legal Department. In his email, the Associate also included
guidance from the New York Fed, stating, in short, that a person falls under the post-employment
restriction if that person "directly works on matters for, or on behalf of," the relevant financial
institution.
Despite receiving this notice and guidance,
Goldman placed the Associate on Regulated Entity matters from the outset of his employment.
As further detailed below, the Associate also schemed to steal confidential regulatory and government
documents related to that same Regulated Entity in advising that client.
Unauthorized Possession and Dissemination of Confidential Information
During his employment at Goldman, the Associate
wrongfully obtained confidential information, including approximately 35 documents, on approximately
20 occasions, from a former co-worker at the New York Fed (the "New York Fed Employee").
These documents constituted confidential regulatory or supervisory information – many marked as "internal,"
"restricted," or "confidential" – belonging to the Department, the New York Fed or the Federal Deposit
Insurance Corporation (the "FDIC"). The Associate's main conduit for receiving information
from the New York Fed was his former coworker, the New York Fed Employee, who has since been terminated
for this conduct. While still employed at the New York Fed, the New York Fed Employee would
email documents to the Associate's personal email address, and the Associate would subsequently forward
those emails to his own Goldman work email address.
On numerous occasions, the Associate provided this confidential information to various
senior personnel at Goldman, including the Partner and the Managing Director, as well as a Vice President
and another associate who perform quantitative analysis for Goldman. In several instances
where the Associate forwarded confidential information to other Goldman personnel, the Associate
wrote in the body of the email that the documents were highly confidential or directed the recipients,
"Please don't distribute." At least nine documents that the Associate provided to Goldman constituted
confidential supervisory information under New York Banking Law § 36(10). Pursuant to the statute,
such confidential supervisory information shall not be disclosed unless authorized by the Department.
The documents included draft and final versions of memoranda regarding and examinations of the Regulated
Entity, as well as correspondence related to those examinations.
At least 17 confidential documents that the Associate had improperly received from the
New York Fed – seven of which constituted confidential supervisory information under New York Banking
Law § 36(10) – were found in hard copy on the desk of the Managing Director. Additional
hard copy documents were found on the desks of the Vice President and the other associate, including
at least one document constituting confidential supervisory information under New York Banking Law
§ 36(10).
On August 18, 2014, the Associate shared three documents pertaining to enterprise risk management
with the Managing Director, writing, "Below is the ERM request list, work program and assessment
framework we used for ERM targets. Again this is highly confidential as its not public and has not
been issued a[s] guidance yet. Not sure where it is at anymore due to internal politics. I worked
on this framework and guidance within the context of a system working group with the Fed system.
We ran several pilots to test it was well. Please don't distribute." The Managing Director replied,
"I won't. Will review on plane tomorrow to DC." The documents were marked as "Internal-FR" or "Restricted-FR."
Part of Goldman's work for the Regulated Entity included advisory services with respect to a potential
transaction. A certain component of the Regulated Entity's examination rating was relevant to the
transaction. The Regulated Entity's examinations were conducted jointly by the FDIC, DFS and the
New York Fed. As described below, the Associate used confidential information regarding the Regulated
Entity's examination rating – obtained both from his prior employment at the New York Fed and from
his contacts there – and conveyed this information to the Managing Director, who then conveyed the
information to the Regulated Entity on September 23, 2014, in advance of it being conveyed by the
regulators.
On August 16, 2014, the Associate emailed the Managing Director regarding the regulators' perspective
on the Regulated Entity's forthcoming examination rating, writing "You need to speak to [the CEO
of the Regulated Entity] about scheduling a meeting with all 3 agencies ASAP. He needs to meet with
them and display and discuss all the improvements and corrections they have made during the last
examination cycle."
On September 23, 2014, the Associate attended the birthday dinner of the New York Fed
Employee at Peter Luger Steakhouse, along with several other New York Fed employees. Immediately
after the dinner, the Associate emailed the Managing Director, divulging confidential information
concerning the Regulated Entity, specifically, the relevant component of the upcoming examination
rating. The Associate wrote, "…the exit meeting is tomorrow and looks like no [change]
to the [relevant] rating. I heard there won't be any split rating… [The Regulated Entity] should
have listened to you with the advice…hopefully [the CEO] will now know you didn't have phony info."
In this email, the Associate also provided advice to relay to the Regulated Entity's management,
stating that they should "keep their cool, not get defensive and not say too much unless the regulators
have a blatant fact wrong" as it "will go off better for them in the long run. Believe it or not
the regulator's [sic] look for reaction and level of mgmt respectiveness [sic] during these exit
meetings." The Managing Director replied "Let's discuss . . . I'm seeing [the CEO of the
Regulated Entity] tmw afternoon alone."
Later that night, the Associate followed up with another email to the Managing Director, writing,
"I feel awful not being there to wrap up 2013. I would have been able to pull all this through. I
was a real advocate for all the work they have done." He also offered to join a meeting with the
CEO of the Regulated Entity if the Managing Director wanted.
On September 26, 2014, Goldman had an internal call regarding the calculation of certain asset
ratios, during which there was disagreement over the appropriate method. During the call,
the Associate circulated an internal New York Fed document – which the Associate had recently obtained
from the New York Fed Employee – relating to the calculation, to the call participants, writing,
"Pls keep confidential?" Following the group call, the Partner called the Associate to discuss
the document, including where he had obtained it, and the Associate told him that he had obtained
it from the New York Fed. The Partner then called the Global Head of IBD Compliance to report the
matter and forwarded the document.
Compliance Failures, Failure to Supervise and Violation of Internal Policies
After receiving notice of the Associate's prohibition on working on matters for the Regulated
Entity, Goldman, including the Partner and the Legal Department, failed to take any steps to screen
the Associate from such prohibited work. Instead, Goldman affirmatively placed the Associate
on matters for the Regulated Entity beginning on his first day, and added the Associate to the official
Goldman database as a member of the Regulated Entity "Team" – a team led by the Partner.
Goldman failed to provide training to personnel regarding what constituted confidential supervisory
information and how it should be safeguarded. While Goldman policies provided that confidential information
received from clients should only be shared on a "need to know" basis, Goldman did not distinguish
between this broader category of confidential information and the type of confidential supervisory
information belonging to a regulator or other government agency, which is protected by law, such
as confidential supervisory information under New York Banking Law § 36(10). Indeed, Goldman policies
failed to adequately address Department confidential supervisory information.
As noted above, the Associate also violated Goldman's internal policy on "Use of Materials from
Previous Employers," which states that work that personnel have done for previous employers, and
confidential information gained while working there, should not be brought into Goldman or used or
disclosed to others at Goldman without the express permission of the previous employer.
* * *
The Managing Director is safe, as are all other Goldman employees: nobody aside for Bansal who
was merely trying to impress his superiors, has anything to worry about.
Anyone else found to have obtained at least "35 confidential documents" from the Fed on at least
"20 occassions" would be sent straight to jail with a prison sentence anywhere between several decades
and life.
Goldman's punishment? 0.6% of its 2014 Net Income.
Duc888
How could this happen? Seriously. Aren't the FED and GS separate entities?
Oh, wait.....
LetThemEatRand
The fact that these documents were sent via email only tells me how widespread this is.
Most of these guys are probably smart enough to put a paper copy in their briefcase and
deliver it to Goldman the old fashioned way bankers do things (over drinks and coke at a strip
bar).
But when "everyone is doing it," a guy may get careless and start using email, figuring
what the fuck.
Urban Redneck
Did Goldman's Marketing Department write that release for their FRBNY subsidiary??? They
deserve the $50 million fine for being an embarrassment to scheming bankers everywhere. This
is a company that has destroyed companies, entire economies, and countless (not so little)
investors by placing their own financial interests above their clients and regularly using
inside information and access to do so. Then Goldman is "caught" when they turn themselves in
(not that they had a lot of choice given the amateur hour performance) for actually "helping"
one of their clients (for once)... This whole thing stinks, in more ways than one.
Sudden Debt
What a joke!!!
GS and JPM ARE THE FED!!!
and that "fine"... THAT'S THEIR DONUT BUDGET!!
J J Pettigrew
Bagels....please!
Elliott Eldrich
"Feel sorry for the poor schmuck, cuffed and heading to a sallyport, to be booked,
and serve 6 months in jail, for stealing a carton of ciggs..."
Little crimes are punished with great fervor, while the biggest criminals get their wrists
slapped. This is outrageous, and I just have to ask how much more we are supposed to bear
before breaking?
Lord Ariok
I Love my Country and Hate Our Government. But If our government isn't "Gangster" well
believe it there will be another "Government" that is even more "Gangster" then ours to take
the number 1 spot in the Syndicate. The way I see it if we have to do this in order to compete
with China's Level of Corruption. Damn Chinese Efficiency. ~ Lord Ariok
venturen
they have Bill Dudley...they were worried that this underling would do something. Heck
Goldman gives the orders not the other way around
Bay of Pigs
The William Dudley is the main man at the FED (and the BIS), not Yellin or Fischer.
"Prior to joining the Bank in 2007, Mr. Dudley was a partner and managing director at Goldman,
Sachs & Company and was the firm's chief U.S. economist for a decade. Prior to joining Goldman
Sachs in 1986, he was a vice president at the former Morgan Guaranty Trust Company. Mr. Dudley
was an economist at the Federal Reserve Board from 1981 to 1983.
In 2012, Mr. Dudley was appointed chairman of the Committee on the Global Financial System of
the Bank for International Settlements (BIS). Previously, Mr. Dudley served as chairman of the
former Committee on Payment and Settlement Systems of the BIS from 2009 to 2012. He is a
member of the board of directors of the BIS and chairman of the Economic Club of New York."
"... if you look at what is supporting equity prices - how much of that support is coming
from real economic activity versus from using stock buybacks, using cash on balance sheet
for stock buybacks, or mergers and acquisitions, to reduced competition in the marketplace.
These
are the sort of stories that if there were a small increase in interest rates, you would
temper some of that frothiness.
Eliminating the incentive to engage in that kind of activity seems
to me to be a good idea... There would be a proportion of the population that would have
less capital gains - but they've been enjoying very big capital gains, and it is a narrow
segment of the population."
...Look at basic staples eggs, beef, chicken and other foods, rent/housing, education, even
transportation and telecommunication cost are "effectively" raising, not to mention medical
care, all those things people need to live are raising precipitously.
Even those 1%-ters facing massive inflation forced to buy risky bonds at unbelievable high
prices to get any yield at all. The global inflation bubble is here while global demand is
dying and commodity nominal prices are collapsing as we speak since with such a high "real"
prices everybody expects loss or severe decline of income or profit in the future expressed by
a dead body of CapEx and consumption.
On the top of it typical the inflation hiding maneuvers of the retailers producing serving
size inflation, quality collapse inflation, component substitution inflation, choice narrowing
inflation, package cost and quality inflation, air conditioning, freezing/heating power
limitation inflation, shopping experience quality collapse inflation, and other manipulations
to keep so called nominal "at the store" price marginal increase of few percent only per year
but even that was impossible in 2015 so far.
.. ... ...
More on the scam of evaluating inflation in various forms including CPI I found at:
The reduction in product sizes and quality is not so much a measure of inflation as a
measure of the declining wealth of the population. People can afford less so the manufacturers
change product size/quality to match.
The area I live in now has high inflation but salaries are growing at a faster pace. So I
notice a gradual increase in quality and size of products. That said, if you can afford to pay
premium prices, you can get good quality pretty much anywhere.
Canoe Driver
American culture is based on financial rape of the working class by a criminal elite.
Always was. Part of the system is the illusion fed the common man that his interests are
represented by the political class, who in reality are merely business agents for the rich.
This illusion dies hard.
ebworthen
"1/2 gallon" of ice cream now 3 pints instead of 4 pints, canned vegetables going to 14 oz
instead of 16 oz, "1 pound" bacon now transforming to 12 oz "healthier" packages with a "great
price".
I swear to God they are going to sell a "bakers dozen" of 10 eggs instead of 12 for the same
price 'ere long.
TeamDepends
It's nuts, sometime over the summer the cans of tomatoes we buy went from 14.75 oz to 14.0.
Are they going to start making the cans thicker? Will the cans shrink to G.I. Joe size? Times
is tough, people!
Whodathunkit
Buy the imported brand from Europe. They haven't caught on to the smaller size package same
amount of $. YET
Escapeclaws
Not true that Europe doesn't have the same problem. Just look at tuna: smaller can,
half-full, higher price. Same with everything. Inflation gets going because of corporate
greed, which they "justify" by saying their costs are going up. It's a scam through and
through. About time someone does a study to analyze when their costs really go up as opposed
to them "claiming" their costs are going up.
This inflation is a form of SYSTEMIC PRICE FIXING. Because it is systemic it is not
considered price fixing as such from a legal point of view, so they get away with it. Like
everything the elite does, they have total control and we are obliged to accept it.
Same story with "gotcha capitalism". They pump a bag of potato chips full of air and
then use the excuse that the the chips, which are cozily nestled in the bottom quarter of the
bag, are being protected that way. Kind of like the mafia killing one of your kids and then
offering to protect the others for a small stipend.
The Yurpeans also pay much higher prices due to how things are packaged. I buy dried beans and
pressure cook them, but even there, you cannot buy beans in bulk. Instead you must pay an arm
and a leg for a small package. It has gotten to the point that if a bean falls to the floor, I
search for it like the widow searching for her lost penny. Pretty soon they will be packaging
single beans. I figured that out using mathematical induction.
Eventually, we former middle class people will enjoy the same standard of living as the
poor in the third world.
This reminds me of Ferfal's The Modern Survival Manual:
Surviving the Economic Collapse, written by a guy who lived
through the collapse in Argentina. There are so many paralells to
what's going on in the US, they're hard to count. Highly
recommended...
That's "Ferfal." For what it's worth, he's super accessible via his own website forums and
a couple of the larger survival forums (I think the ones on ar15.com and ovet at
survivalistsboards.com) He's got a recent posting with information from people in the Ukraine
that's especially interesting.
If anyone has any doubts about these adjustments, just buy a roll of TP and compare it to the
size of the TP holder in any house older than 10 years, it's quite obvious. I have TP that
predates the '08 collapse of the identical brand and product line, and it's at least 1/2"
wider and wrapped more densely as well.
There is substantial inflation, and it's covered up, and there's no interest being paid by
banks but they're charging the average credit card holder something around 14.9 percent.
Meanwhile 51% of workers in the US now make under 30K a year. The financial system is
absolutely raping the common people in the US, in part due to greed and in part in a desperate
attempt to save itself from collapsed caused by their greed accumulated over the past 100
years.
TBT or not TBT
I am shocked, shocked, to find stealth inflation going on in this establishment!
Supernova Born
Every ZH'er should support FerFAL's books (it is the 7.62x51 rifle his "name" is
referencing, FAL being an acronym for Fusil Automatique Léger ("Light Automatic Rifle"), and
the first three letters are from his first name, Fernando).
Surviving the Economic Collapse is filled with great insights and has proven prophetic.
First thing I think when I see shrinking retail packaging and lowered quality (diluted in the
case of SodaStream) was FerFAL said this would happen...
OceanX
Ya'll slam Castro and what he did was kick out the banksters you profess to hate. The way I
see it, what happened to Cuba was the retalliation of the banksters. He was blocked from
global trade and financing.
In addition, the conservation of their natural resources have preserved Florida's fishing
waters!
"... The collapse of oil prices has forced drillers to become more efficient, adding more wells per well pad, drilling longer laterals, adding more sand per frac job, etc. That allowed companies to continue to post gains in output despite using fewer and fewer rigs. ..."
"... However, the efficiency gains may have been illusory, or at best, incremental progress instead of revolutionary change. Rather than huge innovations in drilling performance, companies were likely just trimming down on staff, squeezing suppliers, and drilling in the best spots – perhaps all sensible stuff for companies dealing with shrinking revenues, but nothing to suggest that drilling has leaped to a new level of efficiency. Reuters outlined this phenomenon in detail in a great October 21 article. ..."
"... Production gains from new rigs – which have increased steadily over the past three years – have run into a wall in the major U.S. shale basins. Drillers are starting to run out of ways to squeeze more oil out of wells from their rigs. Take a look at the below charts, which show drilling productivity flat lining in the Bakken, the Eagle Ford, and the Permian. ..."
Much has been made about the impressive gains in efficiency and productivity in the shale
patch, as new drilling techniques squeeze ever more oil and gas out of new wells. But the limits
to such an approach are becoming increasingly visible. The U.S. shale revolution is running out
of steam.
The collapse of oil prices has forced drillers to become more efficient, adding more wells
per well pad, drilling longer laterals, adding more sand per frac job, etc. That allowed
companies to continue to post gains in output despite using fewer and fewer rigs.
However, the efficiency gains may have been illusory, or at best, incremental progress
instead of revolutionary change. Rather than huge innovations in drilling performance, companies
were likely just trimming down on staff, squeezing suppliers, and drilling in the best spots –
perhaps all sensible stuff for companies dealing with shrinking revenues, but nothing to suggest
that drilling has leaped to a new level of efficiency. Reuters outlined this phenomenon in detail
in a great October 21 article.
For evidence that the productivity gains have run their course, take a look at the latest
Drilling Productivity Report from the EIA. Production gains from new rigs – which have
increased steadily over the past three years – have run into a wall in the major U.S. shale
basins. Drillers are starting to run out of ways to squeeze more oil out of wells from their
rigs. Take a look at the below charts, which show drilling productivity flat lining in the Bakken,
the Eagle Ford, and the Permian.
No, the "atmosphere is not well," because again, the Saudis are out to achieve "ancillary diplomatic
benefits" (i.e. geopolitical advantages) by keeping crude prices low, and those benefits include
squeezing the Russians and perhaps limiting the revenue Tehran can bring in when Iran returns to
the market.
As you can see, all of this is inextricably linked and it looks as though Russia and Iran may
be on the verge of attempting to challenge the Saudis for domination of the oil market (don't forget
Moscow surpassed Riyadh as the number one supplier to China for the second time this year in September).
Is a "new oil order" in the works? We shall see.
pot_and_kettle
Can someone point out when Syria didn't sign off on the Qatar - Turkey pipeline and when the
pipeline was first proposed? This is news to me and seems like the watershed event for what the
zio-US fomented in that part of the world.
Next step: open that eastern front on the Arabian Peninsula.
Freddie
Persia has been around thousands of years.
A person may not like the Russians or Iranaians but they "ain't" going anywhere. They are also
pretty tough on the battlefield (see Hezbollah). They also stood up for Syrian and the Syrian
people including Syrian Christians.
Persians are a lot smarter than Saudis too.
alphahammer
Yea lets take a look. Good of you to point that out.
---
China Not So In Love With Russia After All
JUN 17, 2015
Shunned by the West, Russia may want to promote its new Chinese love affair to the world these
days, but Czar Romeo shouldn't get his hopes up.
Russia's second biggest lender, VTB Bank, said that most Chinese banks have foregone doing
business with them. The reason? Western sanctions against VTB. China lenders don't want to get
caught up in the drama and - having more business with the U.S. and Europe than with Russia -
have opted to play it safe.
"China's ambiguous position regarding Russian banks in the wake of US and EU sanctions is a
key issue holding back progress toward greater bilateral cooperation," VTB Bank First Deputy Chairman
Yuri Soloviev write in an op-ed published by the FinanceAsia news agency on Tuesday.
Freddie
Anything that smacks the shit out of the Saudis or Qatar makes me happy. What they did to Syria
with the help of the USA, Turkey, UK, Israel and others is sickening.
This is a very expensive oil that Russians now selling at loss. Financial capitalism in action.
Notable quotes:
"... Gazprom Neft began production at the Prirazlomnoye field in 2013 and reached commercial figures last year, with a total output of roughly 5,000 barrels per day (bpd). ..."
"... No more than 10 percent of the equipment applied at the Prirazlomnaya installation is believed to be Russian-made, and this level of disparity is commonplace at both Russia's onshore and offshore fields. ..."
A cursory search of 'Arctic' and 'oil' elicits little in the way of positivity. Certainly,
Shell's
failure
in the Chukchi Sea is notable. Combined with the Obama administration's waffling
distaste for future offshore Arctic development, it marks what should be a period of relative
dormancy in U.S. waters. Still, it's not indicative of the sector globally, which is seeing progress,
albeit at a glacial pace.
The shining example of such development to date is Gazprom Neft's Prirazlomnaya platform.
Located nearly 40 miles offshore in the Pechora Sea, the rig is the world's first Arctic oil project
involving a stationary platform – though the general concept itself has been employed before (see:
BP's
Northstar Island).
Gazprom Neft began production at the Prirazlomnoye field in 2013 and reached commercial figures
last year, with a
total output
of roughly 5,000 barrels per day (bpd). With production well number two (of 19) now
online, output should
reach somewhere between 10,000-15,000 bpd by year's end.
To be fair, several important tests lie ahead for Prirazlomnaya and Russia's Arctic shelf
development in general. Chief among them is rapidly addressing its import dependence – one
of the primary targets of U.S. and EU sanctions. No more than 10 percent of the equipment applied
at the Prirazlomnaya installation is believed to be
Russian-made, and this level of disparity is commonplace at both Russia's onshore and offshore fields.
Attention, domestic and international, has been given to the courting of China, India, and other
backers – both financial and technological – but all eyes should be on the Russian solution, which
will seek to demonstrate its efficacy by 2020.
At the Prirazlomnoye field, the Russian institute Omskneftekhimproekt has
begun work on the modernization of the rig's drilling
installations, technological equipment, and safety and telecommunications systems. The primary objectives
are to
boost production capacity (to ~120,000 bpd) toward 2020 and lay the building blocks for the future
development of Russian-sourced platforms.
The work by Omskneftekhimproekt mirrors that of several institutes, companies, and universities
across the country, rallying around the call for import substitution. However, just how much can
actually be accomplished is the billion dollar question.
"... Monthly EIA US Crude + Condensate (C+C) data (the short term energy report) show a decline in US production from 9.6 million bpd in May to 9.0 million bpd in September. The annualized exponential rate of decline, based on May to September data, would be about 20%/year. If this (net) rate of decline were to continue for another year, US C+C production would be down to about 7.4 million bpd in September, 2016. ..."
"... Regarding one of life's little ironies, we keep hearing that oil exports from a net oil importer, the US (with recent four week running average net crude oil imports of 6.8 million bpd), will have a meaningful impact on global oil markets, just as the US is currently showing a 20%/year annualized rate of decline in C+C production, implying that US net oil imports will be increasing in the months ahead, if the production decline continues. ..."
"... If it took trillions of dollars in global upstream capex to keep us on an "Undulating Plateau," in actual global crude oil production (45 and lower API gravity crude, i.e., the quantity of the stuff corresponding to WTI Brent oil prices), what happens to global crude oil production going forward given the ongoing cutbacks in global upstream capex? ..."
"... Haynesville didn't drop because "they ran out of sweet spot" but because the price dropped. There is actually more resource available, now, if we go back to previous prices…because of improvements in drilling and completion efficacy. ..."
"... But for what it's worth (perhaps not much), I think that this is a tremendous buying opportunity, in regard to oil and gas investments. I don't have any idea what Warren Buffet is doing right now, but I would not be surprised to learn that he is aggressively investing in oil and gas. ..."
"... In other words, the available data seem quite supportive of my premise that actual global crude oil production (45 API and lower gravity crude oil) effectively peaked in 2005, while global natural gas production and associated liquids, condensate and NGL, have (so far) continued to increase. ..."
Monthly EIA US Crude + Condensate (C+C) data (the short term energy report) show a decline
in US production from 9.6 million bpd in May to 9.0 million bpd in September. The annualized exponential
rate of decline, based on May to September data, would be about 20%/year. If this (net) rate of
decline were to continue for another year, US C+C production would be down to about 7.4 million
bpd in September, 2016.
Louisiana is an interesting case history. As drilling activity declined in the Hayneville Shale
Gas Play, gas production from the play production initially continued to increase (as operators
worked through the backlog of drilling but uncompleted wells), but production from the play ultimately
showed a sharp decline, with annual marketed natural gas production falling at a rate of 20%/year
from 2012 to 2014. Measured from the monthly peak in December, 2011, it took about two and a half
years for the exponential rate of decline in Louisiana's monthly marketed gas production (from
both shale gas + conventional production) to fall below 20%/year. The three year 12/11 to 12/14
rate of decline was 18.5%/year.
Regarding one of life's little ironies, we keep hearing that oil exports from a net oil
importer, the US (with recent four week running average net crude oil imports of 6.8 million bpd),
will have a meaningful impact on global oil markets, just as the US is currently showing a 20%/year
annualized rate of decline in C+C production, implying that US net oil imports will be increasing
in the months ahead, if the production decline continues.
And the question that I have periodically posed, to-wit:
If it took trillions of dollars in global upstream capex to keep us on an "Undulating Plateau,"
in actual global crude oil production (45 and lower API gravity crude, i.e., the quantity of the
stuff corresponding to WTI & Brent oil prices), what happens to global crude oil production going
forward given the ongoing cutbacks in global upstream capex?
As noted above, it's more than a little ironic that there are so many claims that oil exports
from a net oil importer, the US, will have a material impact on global oil markets, even as US
Crude + Condensate (C+C) production is declining.
In any case, I just noticed something very interesting in the EIA Annual Energy Review data
tables, which provide monthly and/or annual data back to 1950:
Note that US total liquids net imports were up year over year, from 4.9 million bpd in August,
2014 (2014 annual average of 5.1) to 5.6 million bpd in August, 2015, a 14% year over year increase
in net total liquids imports.
Saw some analyst meeting (Genscape maybe) where the person projected rigs continuing to drop
through 1Q16, ending up 200 more down (or about 400 remaining). This was based on prices staying
in this ~$47-50 band, with commensurate strip. [A drop down to ~$40, with commensurate strip would
lead to an additional 200 rigs going away.]
I think the Haynesville is a nice example to show the "lag" effect when rigs drop. And really,
we can already use the US oil production as an example of this already. Another easy example is
2009 in the Bakken.
I would be leery of thinking too much that the Haynesville is some sort of example of Hubbert
peak because a lot of the drop is price caused, not exhaustion. [In a classic Hubbert peak case
for global oil or national gas, you would have the normal curve AND would have Hotelling price
increase. In this case, it's not even constant price…it's reaction to a price crash.] Haynesville
didn't drop because "they ran out of sweet spot" but because the price dropped. There is actually
more resource available, now, if we go back to previous prices…because of improvements in drilling
and completion efficacy. [This is Adelman's point of how you don't just eat away at lower
cost oil and move to higher…yes, you may be doing that. But in addition, knowledge can grow the
pool of available low cost oil or reduce the price of getting out what you already know about.
Both effects can occur and they fight each other and you have to get into the specifics to see
which is winning.]
In addition, concentrating on the Haynesville, when the Marcellus and Utica have occurred is
missing the main story from an economic impact perspective. After all, volume is up and price
is down for natural gas. So for all the H or the B dropped, the M and U more than made up for
it. "The App" is the key place to look at in US natural gas.
In addition, FWIW, H did drop very beautifully in a Hubbert-like manner from the peak of 7,
BUT for the last 18 months has been near flat at 4 BCF/day. Download the excel data (last figure
at bottom of page) and graph it and you will see that. Peak oilers discussing the Haynesville
as some sort of organic product life cycle analogy (born, grow, mature, die), never mention this
key insight (how it has flattened out dramatically now). But it's in the data. Just graph to see
it.
http://www.eia.gov/naturalgas/weekly/
(note this shows the shale only, not the conventional production. EIA DPR as a data source makes
the fat tail look even more prominent, but includes conventional in the region.)
So, given the right price incentives, the sum of the output of discrete sources of oil & gas–that
individually peak and decline–will never peak and decline?
In any case, in regard to price versus production, we have an interesting case history when
it comes to actual crude oil production (generally defined as 45 API and lower crude oil). Following
is an essay, which I sent to some industry acquaintances a few weeks ago:
Regarding oil prices, I may be one of the worst prognosticators around, especially when it
comes to demand side analysis. My primary contribution has been as an amateur supply side analyst,
especially in regard to net exports.
In any case, earlier this year I thought that we had hit the monthly low in Brent prices for
the current oil price decline ($48 monthly average in January, 2015), and I thought we were more
or less following an upward price trajectory, from the 1/15 low, similar to the price recovery
following the 12/08 monthly oil price low ($40 for Brent).
However, a key difference between the 2008/2009 price decline and subsequent recovery and the
2014/2015 decline is that Saudi Arabia cut production from 2008 to 2009 while they increased production
from 2014 to 2015.
But for what it's worth (perhaps not much), I think that this is a tremendous buying opportunity,
in regard to oil and gas investments. I don't have any idea what Warren Buffet is doing right
now, but I would not be surprised to learn that he is aggressively investing in oil and gas.
The bottom line for me is that depletion marches on.
A few years ago, ExxonMobil put the decline from existing oil wells at about 4% to 6% per year.
A recent WSJ article noted that analysts are currently putting the decline from existing oil wells
at 5% to 8% per year (in my opinion, the 8% number is more realistic). At 8%/year, globally we
need about 6.5 MMBPD of new Crude + Condensate (C+C) production every single year, just to offset
declines from existing wells, or we need about 65 MMBPD of new C+C production over the next 10
years, just to offset declines from existing wells. This is equivalent to putting on line the
productive equivalent of the peak production rate of about thirty-three (33) North Slopes of Alaska
over the next 10 years.
It appears quite likely that global crude oil production (45 and lower API gravity crude oil)
has been more or less flat to down since 2005, as annual Brent crude oil prices doubled from $55
in 2005 to $110 for 2011 to 2013 inclusive (remaining at $99 in 2014)–while global natural gas
production and associated liquids, condensate and NGL, have (so far) continued to increase.
Following are links to charts showing normalized production values for OPEC 12 countries and
global data. The gas, natural gas liquids (NGL) and crude + condensate (C+C) values are for 2002
to 2014 (except for gas, which is through 2013, EIA data in all cases). Both data charts show
similar increases for gas, NGL and C+C from 2002 to 2005, with inflection points in both cases
for C+C in 2005. My premise is that condensate production, in both cases, accounts for virtually
all of the post-2005 increase in C+C production.
Currently, we only have crude oil only data for the OPEC 12 countries and for Texas (note that
what the EIA calls "Crude oil" is actually C+C).
Also following is a link to OPEC 12 implied condensate (EIA C+C less OPEC crude) and OPEC crude
only from 2005 to 2014 (OPEC data prior to 2005 was for a different set of exporters than post-2005).
Obviously, data quality is an issue, and the boundary between actual crude and condensate is sometimes
fuzzy. In any case, we have to deal with the data that we have.
As of 2014, OPEC and the US accounted for 53% of global C+C production (41 MMBPD out of 78
MMBPD). Implied OPEC condensate production increased by 1.2 MMBPD from 2005 to 2014 (1.2 to 2.4).
The EIA estimates that US condensate production increased by about 1.0 MMBPD from 2011 to 2014.
I'm estimating that US condensate production may have increased by around 1.2 MMBPD or so from
2005 to 2014. Based on the foregoing, increased condensate production by OPEC and the US may have
accounted for about 60% (about 2.4 MMBPD) of the 4 MMBPD increase in global C+C production from
2005 to 2014.
Combining the US and OPEC estimates, the US + OPEC ratio of condensate to C+C production may
have increased from about 4.6% in 2005 to about 10% in 2014. If this rate of increase in the global
condensate to C+C ratio is indicative of total global data, it implies that actual global crude
oil production (45 and lower API gravity) was approximately flat from 2005 to 2014, at about 70
MMBPD.
In other words, the available data seem quite supportive of my premise that actual global
crude oil production (45 API and lower gravity crude oil) effectively peaked in 2005, while global
natural gas production and associated liquids, condensate and NGL, have (so far) continued to
increase.
If it took trillions of dollars of upstream capex to keep us on an "Undulating Plateau"
in actual global crude oil production, what happens to crude production given the large and ongoing
cutbacks in global upstream capex?
And given the huge rate of decline in existing US gas production (probably on the order of
about 24%/year from existing wells), it's possible that we might see substantially higher North
American gas prices this winter, given the decline in US drilling.
Furthermore, through 2013 we have seen a post-2005 decline in what I define as Global Net Exports
of oil (GNE, the combined net exports from the Top 33 net exporters in 2005), which is a pattern
that appears to have continued in 2014. GNE fell from 46 MMBPD in 2005 to 43 MMBPD in 2013 (total
petroleum liquids + other liquids). The volume of GNE available to importers other than China
& India fell from 41 MMBPD in 2005 to 34 MMBPD in 2013.
Here are the mathematical facts of life regarding net exports:
Given an ongoing, and inevitable, decline in production in the net oil exporting countries,
unless the exporting countries cut their liquids consumption at the same rate as, or at a faster
rate than, the rate of decline in production, the resulting rate of decline in net exports will
exceed the rate of decline in production and the net export decline rate will accelerate with
time.
In addition, while we are currently seeing signs of weak demand in China, given an ongoing,
and inevitable, decline in GNE, unless China & India cut their net oil imports at the same rate
as, or at a rate faster than, the rate of decline in GNE, the rate of decline in the volume of
GNE available to importers other than China & India will exceed the rate of decline in GNE, and
the rate of decline in the volume of GNE available to importers other than China & India will
accelerate with time.
For example, from 2005 to 2013 the rate of decline in the volume of GNE available to importers
other than China & India (2.3%/year) was almost three times the observed rate of decline in GNE
from 2005 to 2013 (0.8%/year).
And a massively under-appreciated aspect of what I call "Net Export Math" is that the rate
of depletion in the remaining cumulative volume of net oil exports, after a net export peak, tends
to be enormous. Saudi Arabia is showing a year over year increase in production and net exports,
but based on available annual data through 2014, Saudi Arabia's net exports fell from 9.5 MMBPD
in 2005 to 8.4 MMBPD in 2014 (total petroleum liquids + other liquids), and I estimate that Saudi
Arabia may have already shipped close to half of their total post-2005 supply of cumulative net
exports of oil.
Nony
"So, given the right price incentives, the sum of the output of discrete sources of oil & gas–that
individually peak and decline–will never peak and decline? "
So again, the argument for imminent decline is some eventual limit to the amount of hydrocarbons
on the entire planet? it is not cherrypicking to emphasize the Haynesville and Barnett as gas plays
"peaking" when overall gas production in the US has grown 40%, even in the face of a huge price drop????
"In any case, in regard to price versus production, we have an interesting case history when it comes
to actual crude oil production (generally defined as 45 API and lower crude oil)."
Nope. Lease condensate (~55) is legally considered crude oil. EF 47 is a normal listed form of oil
in Platts price lists. Light oil and condensate is used to make gasoline and other products and runs
through a refinery. It is easily and routinely blended with heavy oil and is actually needed for that
(not just as a diluent for transport but for optimizing the subunits of complex refinery (non complex
refineres, e.g. those without cokers or visbreakers or with less cracking actually function better on
just light blends to start…the extreme are teakettle refineries).
Condensate and EF crude is withing a few dollars of WTI and correlates with price moves very closely.
EF 47 is actually pricier than heavy sour crudes. Talk to any trader, refinery buyer, or even just a
microeconomist familiar with looking at substitutes. It is crazy to say that growth of 45+ oil has not
affected overall oil prices. Perhaps some small shrinking of spreads between qualities, but often not
even a directionality change. The much larger impact though is on the overall supply demand balance
for C&C. Does any economist think the goods are sufficiently different to justify a separate P-Q curve
for 45- and 45+ oil? [Oh…and the extra funny thing is the peak oil meme of mid 2000s was that we wouldn't
find more light sweet!]
P.s. If you really think 45+ isn't oil, then why not agree to remove the export restriction on at
least them?
"Following is an essay, which I sent to some industry acquaintances a few weeks ago:"
Your cut and pasting the things on the net (ELM stuff, net export arguments) is almost spammy. Total
conversation killer and often ignored by even your compatriots.
Erik Poole
Nony: You make good arguments for lumping crude oil and condensates.
The problem with a net export perspective is that it ignores the global nature of the market place
and at some point, an indifference to whether heavy oil imported into the US refinery complex hails
from western Canada, Venezuela, Mexico or Colombia. Or even Iran some day.
If we could draw and compare distribution curves of oil grades over the last , I suspect we would
see the distributions flattening out over time as extreme grades become more prominent. It may even
be bi-modal at this point.
Given the expense of retooling refineries and the robust growth in US condensate production, one
can see the interest in securing more pipeline access to Canadian bitumen. And perhaps the interest
in hoping/praying for growth in Colombian heavy oil production as Mexican production declines and
the populist Neo-Marxist experiment in Venezuela violently implodes stagnating heavy oil production
in that country.
Jeffrey Brown: I don't want to suggest that the net export perspective is not useful. It
clearly illustrates symptoms of the Resource Curse and the general difficulty experienced
by citizens in weak societies to play and cooperate well together. It does not however say much about
the US cheap energy entitlement and how that attitude has hurt US national security and economic
performance over time. America's well earned reputation for killing grandchildren and grandparents
in part stems from this ill-advized quest for cheap energy security (sic).
Jeffrey J. Brown
Erik,
I'm not arguing the relative merits of crude oil versus condensate, although distillate yield
begins to drop off precipitously over an API gravity of about 40 or so.
I am arguing that the available data strongly suggest that global crude oil production probably
peaked in 2005, while global natural gas production and associated liquids, condensate and natural
gas liquids, have (so far) continued to increase.
In regard to net oil exports, here's the problem: Given an ongoing, and inevitable, decline in
production in a net oil exporting country, unless they cut their liquids consumption at the same
rate as, or at a faster rate than, the rate of decline in production, it's a mathematical certainty
that the resulting rate of decline in net exports will exceed the rate of decline in production and
that the net export decline rate will accelerate with time.
Nony
I don't think it makes economic sense to put lease condensate with NGLs and away from crude. NGLs
are more gas like, so you can put them with gas if you want instead of oil or just make a third grouping.
[But don't forget them! If you cut the total liquid products to being C&C, they still belong somewhere…have
use!]
NGLS are mostly (c2-c4) molecularly pure, separated, gaseous products. [minor amount of C5+ liquid
("plant condensate" obtained at the gas refrigeration separation plant].
Lease condensate is just the associated entrained liquid oil from a primarily gas well. It is obtained
at the atmospheric, three phase separator at the wellhead. Similarly, wet gas is separated from predominantly
oil streams. Eagle Ford 47 isn't even coming out of "gas wells" (in terms of phase) but single phase
liquid oil wells that are very light. Lease condensate and Eagle Ford 47 look like oil, smell like oil,
mess up your Nomex coveralls in a similar manner to 30 API oil. They are each that glorious natural
product that contains a soup of hundreds of different molecules, of different lengths, aromaticities,
branching. Oh and less sulfur (which makes them BETTER oil) but still with some. Lease condensate also
tends to be a bit lower API and more variable in composition versus plant condensate (although higher
than oil), but still pretty similar.
There is a reasonable argument to exclude NGLs entirely from crude time series or at least C3 and
C2 from being lumped in with crude. Ethane in theory competes with naphtha and is an occasional substitute
(and some crackers are convertible), but given the glut, prices have diverged and started to follow
C1 a couple years ago. And like C1, it is quite difficult to transport across oceans. C3 is more exportable,
but still has a pretty different market (mostly heating) than premium liquid petroleum products (mostly
transport fuels: gasoline, diesel, jet). [In a sense, C1 is a substitute for oil, but it's a pretty
weak substitute!]
So yeah, sure, strip out the NGLs. And throw in the C4 and C5+ with being stripped out, since they
are minor…even though ARE mostly used for transport. Either direct gasoline mixing for butane or for
C5+ mixed into crude (at refineries or upstream at heavy oil sites) or used as naphtha in crackers (thus
competing with a refined liquid stream. But fine keep them all apart.
But keeping condensate (or Eagle Ford 47 oil) apart from other grades of crude makes no sense. That
stuff goes through refineries and makes gasoline…a lot of gasoline, which is generally what the refinery
is optimized for. (Other products have value and you go for a global optimum, not a local. Like you
don't optimize production of RFO and make little gasoline! Diesel and jet have value of course and at
times, pricing of diesel can beat out gasoline, but generally gasoline is top in both value. And certainly
in volume (typical refinery cracks some product that could have been diesel to make more gasoline).
Just look at Platts prices and the correlation of EF47 and DJ condensate versus WTI. It's the same stuff,
but slightly different flavors, man. If you look at it on a world basis (where the explosion of light
and super light is export-ban trapped on a continent that wants to refine 28 API), the correlations
will be even stronger. But I bet even in the US, you find a very consistent correlation: maybe just
look at annual average prices for 2008, 2009, 2014 and 2015 YTD. Condensate belongs with crude, from
a supply-demand standpoint. Not with NGLs or with NG.
Nony
Here's a link showing Saudi 50 API crude selling in the same setting as other grades of crude
(i.e. considered a similar good, not considered an NGL). AND at a premium to medium grade Gulf oil.
AND even at a greater premium than other light, but less light oils.
"... Talbot focusses extensively on James Jesus Angleton, the shadowy counterintelligence figure at the heart of the domestic assassinations of the 1960s, and examines the inner-workings of Dulles' ambitious (and dastardly) plot to consolidate and control global political power. "The Devil's Chessboard" is a startling and revelatory masterwork. In terms of easy-to-access assassination research, this book is second only to James Douglass' "JFK and the Unspeakable." In terms of biographies of Dulles and Angleton, two of history's most infamous figures, this work is second to none. ..."
"... A heretofore unanswered question about the JFK assassination is what was Allen Dulles was doing between the time he was fired by JFK as Director of the CIA in 1961 until the moment of the assassination on November 22, 1963. A related question is how was it conceivable for Dulles to have been appointed to the Warren Commission that eventually produced the conclusions that are still accepted by mainstream historians and the media? Talbot's intensive research helps to shed on light on those questions by tracing the arc of development of the career of Allen Dulles as a high-powered attorney at the center of the elitist East Coast establishment, his shocking collaboration with the Nazis while working in the OSS, and his career in clandestine activities at the CIA ..."
"... Talbots research probes not merely the activities of Dulles as Director of the CIA, but explores the broader context of his function over three decades as a power broker, whose efforts were directed not against hostile governments but against his own. ..."
"... the more recent book on Dulles covers the broader scope of how the American government was transformed into the national security state in the years following World War II. Talbots goal in preparing this book is to demonstrate the urgency of coming to terms with our past and how it is essential that we continue to fight for the right to own our history. (p. xii) An excellent place to begin that quest is to own this book. ..."
A Groundbreaking Resource, Second Only to "JFK and the Unspeakable"
A tremendous resource of breathtaking depth and clarity. Talbot builds on the now decades-old
body of research - initiated by investigative reporters Tom Mangold ("Cold Warrior") and David
Wise ("Molehunt"), and largely developed by assassination researchers James DiEugenio and Lisa
Pease ("The Assassinations") - and adds groundbreaking new information.
Talbot focusses extensively on James Jesus Angleton, the shadowy counterintelligence figure
at the heart of the domestic assassinations of the 1960s, and examines the inner-workings of Dulles'
ambitious (and dastardly) plot to consolidate and control global political power. "The Devil's
Chessboard" is a startling and revelatory masterwork. In terms of easy-to-access assassination
research, this book is second only to James Douglass' "JFK and the Unspeakable." In terms of biographies
of Dulles and Angleton, two of history's most infamous figures, this work is second to none.
Note: Be wary of one-star reviews for this book. Some trace back to commissioned-review services,
the same services that give five-star reviews to shady/suspicious health and beauty products.
Go figure.
To read this magnificent book by David Talbot is to understand how the JFK assassination occurred
and how the truth was concealed by officialdom in the Warren Report. Unlike his brother, John
Foster Dulles, the younger Allen Welsh Dulles rarely makes it into American history textbooks.
In this extremely detailed study, the singular importance of Allen Dulles is demonstrated as being
central to a watershed period in the American Century.
First and foremost, "The Devil's Chessboard" is a beautifully written and meticulously researched
volume. Talbot drew upon archives at Princeton University, where the Allen Dulles papers are housed.
He also conducted research in other archives across the country. The documentary work is buttressed
and amplified by interviews with the surviving daughter of Dulles, as well as interviews with
the children of Dulles' colleagues and over 150 officials from the Kennedy administration. Nearly
forty pages of notes serve to document the author's sources.
One of the most revealing moments about Allen Dulles was when he was ten years old and spending
time at the family's lake home in upstate New York. After his five-year-old sister fell into the
lake and was drifting away from him, Allen stood stock still, "strangely impassive. The boy just
stood on the dock and watched as his little sister drifted away." (p. 19) Fortunately, the child
was rescued by the mother. The behavior of young Allen is representative of a lifelong predilection
for observing the imponderables of life as an insider while looking to others to "risk their skins."
For this little boy, the world was already forming into a chessboard with pawns to manipulate
for his self-serving needs. Talbot describes Dulles' rogue actions in allowing Nazi war criminals
to avoid prosecution at the Nuremberg Trials in these chilling words: "Even in the life-and-death
throes of wartime espionage, Dulles seemed untouched by the intense human drama swirling around
him." (p. 120)
In one of the most riveting moments of the book, Talbot describes an interchange between Dulles
and researcher David Lifton at a colloquium on the JFK assassination at the campus of UCLA in
1965. Lifton came prepared to challenge Dulles on major deficiencies of the Warren Report. By
the end of the evening, the students attending the session were more interested in Lifton's findings
than Dulles' unsuccessful attempts to deflect the tough questions. In retrospect, Lifton apparently
claimed that he "was in the presence of 'evil' that night." (p. 591)
A heretofore unanswered question about the JFK assassination is what was Allen Dulles was
doing between the time he was fired by JFK as Director of the CIA in 1961 until the moment of
the assassination on November 22, 1963. A related question is how was it conceivable for Dulles
to have been appointed to the Warren Commission that eventually produced the conclusions that
are still accepted by mainstream historians and the media? Talbot's intensive research helps to
shed on light on those questions by tracing the arc of development of the career of Allen Dulles
as a high-powered attorney at the center of the elitist East Coast establishment, his shocking
collaboration with the Nazis while working in the OSS, and his career in clandestine activities
at the CIA
Talbot's research probes not merely the activities of Dulles as Director of the CIA, but explores
the broader context of his function over three decades as a power broker, whose "efforts were
directed not against hostile governments but against his own." (p. 3) Talbot cites revelations
from the Columbia University sociology professor C. Wright Mills about the secret government of
Allen Dulles, which was comprised of a "power elite" and based on the anti-Constitutional premise
of "organized irresponsibility."
In many ways, "The Devil's Chessboard" is a companion volume to Talbot's essential study "Brothers,"
which focuses on the relationship of John and Robert Kennedy, the assassination of JFK, and the
aftereffects on RFK. But the more recent book on Dulles covers the broader scope of how the American
government was transformed into the national security state in the years following World War II.
Talbot's goal in preparing this book is to demonstrate the urgency of coming to terms with our
past and how "it is essential that we continue to fight for the right to own our history." (p.
xii) An excellent place to begin that quest is to own this book.
"... "don't tell people you're unemployed. Tell them you're semiretired. It changed my self-identity.
I still look for jobs, but I feel better about myself." ..."
"... More and more I have to accept this is the Third Act in Life and working for a traditional
company in a traditional job is no longer a reality ..."
"... Without real income, you eventually become another victim of our perverse, experience-averse
corporate economy. ..."
For those over 50 and unemployed, the statistics are grim. While unemployment rates for Americans
nearing retirement are lower than for young people who are recently out of school, once out of a
job, older workers have a much harder time finding work. Over the last year, according to the Labor
Department, the average duration of unemployment for older people was 53 weeks, compared with 19
weeks for teenagers.
There are numerous reasons - older workers have been hit both by the recession and globalization.
They're more likely to have been laid off from industries that are downsizing, and since their salaries
tend to be higher than those of younger workers, they're attractive targets if layoffs are needed.
Even as they do all the things they're told to do - network, improve those computer skills, find
a new passion and turn it into a job - many struggle with the question of whether their working life
as they once knew it is essentially over.
This is something professionals who work with and research the older unemployed say needs to be
addressed better than it is now. Helping people figure out how to cope with a future that may not
include work, while at the same time encouraging them in their job searches, is a difficult balance,
said Nadya Fouad, a professor of educational psychology at the University of Wisconsin-Milwaukee.
... ... ...
Sometimes simply changing the way you look at your situation can help. My friend Shelley's husband,
Neal, who also asked that I use his middle name, said the best advice he received from a friend was
"don't tell people you're unemployed. Tell them you're semiretired. It changed my self-identity.
I still look for jobs, but I feel better about myself."
He also has friends facing the same issues, who understand his situation. Such support groups,
whether formal or informal, are very helpful, said Jane Goodman, past president of the American Counseling
Association and professor emerita of counseling at Oakland University in Rochester, Mich.
"Legitimizing the fact that this stinks also helps," she said. "I find that when I say this, clients
are so relieved. They thought I was going to say, 'buck up.' "
And even more, "they should know the problem is not with them but with a system that has treated
them like a commodity that can be discarded," said David L. Blustein, a professor of counseling,
developmental and educational psychology at the Lynch School of Education at Boston College, who
works with the older unemployed in suburb of Boston. "I try to help clients get in touch with their
anger about that. They shouldn't blame themselves."
Which, of course, is easy to say and hard to do. "I know not to take it personally," Neal said,
"but sure, I wonder at times, what's wrong with me? Is there something I should be doing differently?"
It is too easy to sink into endless rumination, to wonder if he is somehow standing in his own
way, like a cancer patient who is told that her attitude is her problem, he said.
Susan Sipprelle, producer of the Web site overfiftyandoutofwork.com and the documentary "Set for
Life" about the older jobless, said she stopped posting articles like "Five Easy Steps to get a New
Job." "People are so frustrated," she said. "They don't want to hear, 'Get a new wardrobe, get on
LinkedIn.' "
As one commenter on the Facebook page for Over Fifty and Out of Work said, "I've been told to
redo my résumé twice now. The first 'expert' tells me to do it one way, the next 'expert' tells me
to put it back the way I had it."
Some do land a coveted position in their old fields or turn a hobby into a business. Neal, although
he believes he'll never make as much money as in the past, recently has reason to be optimistic about
some consulting jobs.
But the reality is that the problem of the older unemployed "was acute during the Great Recession,
and is now chronic," Ms. Sipprelle said. "People's lives have been upended by the great forces of
history in a way that's never happened before, and there's no other example for older workers to
look at. Some can't recoup, though not through their own fault. They're the wrong age at the wrong
time. It's cold comfort, but better than suggesting that if you just dye your hair, you'll get that
job."
Flatlander, August 5, 2013
Age discrimination is a sad reality today and always has been. It is also very difficult to
prove in a legal action. From what I have heard,...
Jay, August 5, 2013
Ok, I took some knocks on this, one that I deserve. I really do feel badly for the guys that
didn't make it. I was wrong on that one. Yes,...
Walter, August 5, 2013
This is a great article. I'm in this situation but worse. Trying to entice myself to nowadays
corporations I went and enrolled in a MBA program and got myself into a $40K student loan debt.
I had already paid my previous loans long time ago so I figure, if I update myself educational-wise
and prove these people that my mind is still fresh and sharp at a high level that I could raise
my chances.
Now, I am 56 and I still cant get a job. Taking a minimum wage position is out of the question
for me since all my salary would actually go to pay my debt and I would not have money even for
transportation back and forth to work.
What I find amazing is that employer are failing to understand that old folks like us would
really appreciate the opportunity and work harder to try to excel than probably any of nowadays
young kids, that, like the article mentioned, are more prone to leave the company to get promotions.
I keep telling my friends that I would even sign a contract guaranteeing that I would work for
them until the day I die or retire.
I like the idea presented by one of the readers here that the government should provide some
kind of economic incentive in the way of lower taxation for businesses that hire people over 50.
They do it for career criminals. Why not for qualified and educated/trained people.
This is totally age discrimination and it is a federal offense. However, I try that channel
also and I got no response from the Labor Dept. I thank the NYT for bringing this up.
Jovality, Las Vegas, NV. August 5, 2013
I'm 57 and have or had been employed in the high tech industry for over 25 years with never
a period of more than two weeks unemployment until now. During that time I rose from a software
developer to product manager, to VP of Sales and Marketing. I was laid off from that position
at the end of 2012, but luckily I was able to reach out to an old colleague who was able to sneak
me into a marketing position in his company at less than half my previous salary.
I was surprised by the younger people's reaction to me. They said things to me I had to take
as compliments such as, "You're really cool for an older guy." "I would never expect someone your
age would know so much or be so talented".
Unfortunately the company had a major layoff which I was caught in. Now I am like many of the
others who have posted her, "A ghost with a resume". Since being laid off in June of 2013 I have
sent out 100's of resumes with only a very limited response.
More and more I have to accept this is the "Third Act in Life" and working for a traditional
company in a traditional job is no longer a reality. It's time to take the vast experience
and talents I've built up or an entire career and use them to open my own business. It's a frighten
challenge to be sure.
But as someone once told me there is only one real form of security in life, when life knocks
you down you must have the drive and self-confidence to get up handle the situation and both survive
and succeed.
Jon K. Polis, East Greenwich, Rhode Island August 3, 2013
Bohemienne: In answer to your question; look up the movie " Soylent Green " from 1973, that
starred Charlton Heston and Edward G. Robinson....and see what fate be-fell Mr. Robinson's character....if
our government today offered me the same options/opportunities to me that they offered to him;
I would take advantage of them in a heartbeat...
Glenn, Cary, NC July 31, 2013
"People's lives have been upended by the great forces of history...."
Nonsense. People's lives have been upended by soulless capitalists and their lackeys in Congress
(read Republicans). There are no great forces of history at work here, just good, old-fashioned
GREED.
Rhea Goldman, Sylmar, CA July 31, 2013
I find it strange, very strange indeed, that all of us have so easily accepted our plight of
hardship. Have we been so cowed that collectively we take no action to put a stop to this harsh
treatment from employers? Re-read Dickens' Christmas Carol.....we are allowing the economics of
the United States to make Bob Cratchets of us all.
J. Campbell, Chicago, IL July 31, 2013
I'm amazed that an article from the NYT (to which I subscribe) actually suggests that people
in their 50's who are unemployed can somehow just "accept that they may *never* work again". How
could we live? What legal source of income could we obtain that would bridge us to Social Security
(even for those of us eventually eligible for SS retirement)? What are the people responsible
for this article (including the NYT editors who released it) thinking? What if someone suggested
that *they* accept a future where they never worked again, and had no income?
If there were several major American riots, that involved hundreds of thousands of unemployed
people (a fraction of the millions of current long-term unemployed in the US), the NYT would be
out front in demanding that order be restored *at any cost*. Where is the mainstream press demand
that *economic stability for the working class* be restored at any cost?
Or do you think, because of our current corporate/NSA state, such riots are impossible? If
so, look at Europe--right now.
Sam, Florida July 31, 2013
My husband was just laid off due to company merger. His entire department was eliminated. The
only good news, is that we've been expecting the lay off for about a year or so, as such we had
time to prepare. We also, have worked very hard to get our finances in order since we got married.
We killed all our unsecured debt in 2007, $55,000+, and we have saved a good chunk every year
since then. I'm still working on our lay off budget, but I hope that we will be able to cover
our regular monthly expenses on my salary.
Been there. Done that. It didn't work. The money disappeared - slowly but surely. Without
real income, you eventually become another victim of our perverse, experience-averse corporate
economy.
MJ, New York City August 5, 2013
Actually, it is possible to live on one salary. Best way is to start early on in the marriage,
keeping your first home rather than moving "up." Even if you have moved "up" it is possible and
no shame at all to move "down." It is a brave journey and takes real guts, but in many cases it
can be done.
Sam, Florida July 31, 2013
In addition to the costs to the individual and the families, their is a cost to society. Obviously
there is a cost to support many of these people in their later years, but there is also an uncalculated
cost to workers in their peak earning years, the height of their careers falling out of the job
market.
There is a cost to society to lose this knowledge, to losing their mentoring and training skills
for the next generation, to losing their consumer spending power, etc.
Melanie Dukas, Saugus, mass July 31, 2013
I am 59 years old, and I lost my job during the high tech bust in 2002 as marketing communications
manager at a fiber optic start-up. In Massachusetts, this was for many of us worse than the Great
Recession. At the height of my career at 48 years old, I was determined to get a job and interviewed
for 5 years. I drove a taxi and limo 6 days a week, but still couldn't make ends meet, so I moved
in with my parents 5 years ago and started my own business developing websites and marketing.
I just couldn't take interviewing anymore! It was like heartbreaking, kind of like dating - I
would go on the interview and get so excited and they never called.
It's been a long road, but at I am happy to be working in my field and making a living. Luckily,
I had done this before and although I would have preferred to work at a company full time, at
my age in marketing the jobs are few are far between and I need to work for the rest of my life
because I have no retirement. Even if I get a job, it is unlikely to last and then I would be
back in the same boat. Now I am in.
Henry, New York July 31, 2013
I think people must understand that the nature of WORK is changing. - In the past you worked
from 9-5 for a Company and as long you performed adequately you continued on your Job...
Well, welcome to the New Economy ...
Companies can no longer afford to Hire all the people they need "full time" people. The cost
is becoming prohibitive, especially if you add on the benefits costs ( avg. est. 30 % above salary).
In the future, I believe most people will become Independent Contractors and/or work on a Part-time
basis - to be utilized when needed and working Jobs or "Gigs" for many different employers- with
periods of " downtime."
This type of flexible Work will, soon become the mainstay. Therefore the "grayling" workforce
must adapt and think and plan accordingly. - In fact, there are many Employment Firms or " Headhunters"
who are already adapting this model. - and as the Baby Boomers retire en masse, they will be looking
for people since, in my opinion, there will not be enough "younger" to fill all the jobs needed.
Splenetix, Muskegon August 3, 2013
The conversion of full-time workers into freelancers is an exploitation of capitalism, forcing
you to waste your time self-marketing and administering. You won't have any of the scales of economy
that larger businesses enjoy so you won't be competitive.You won't succeed, you won't be able
to manage and get the work done. It's all about worker repression.
"... Older workers were less likely to lose their jobs during the recession, but those who were
laid off are facing far tougher conditions than their younger colleagues. Workers in their fifties are
about 20% less likely than workers ages 25 to 34 to become re-employed, according to an Urban Institute
study published last year. ..."
"... The point made in several articles of this nature revolve around lack of knowledge and experience
with newer technologies. In an effort to address this issue, I went back to school (again) to obtain
expertise in IT Networking and Security, PMP Path Project Management and ITIL. Now I am being told that
my education is of no value since I do not have the requisite 'Real World' experience using these newly
acquired skills. ..."
On one hand, they're too young to retire. They may also be too old to get re-hired.
Call them the "new
unemployables," say researchers at Boston College.
Older workers were less likely to lose their jobs during the recession, but those who were
laid off are facing far tougher conditions than their younger colleagues. Workers in their fifties
are about 20% less likely than workers ages 25 to 34 to become re-employed, according to
an Urban Institute study published last year.
"Once you leave the job market, trying to get back in it is a monster," said Mary Matthews, 57,
who has teetered between bouts of unemployment and short temp jobs for the last five years. She
applies for jobs every week, but most of the time, her applications hit a brick wall.
Employers rarely get back to her, and when they do she's often told she is "overqualified" for
the position. Sometimes she wonders: Is that just a euphemism for too old?
Her resume shows she has more than 30 years of experience working as a teacher, librarian, academic
administrator and fundraiser for non-profits.
"I've thought about taking 10 years off my resume," she said. "It's not like we're senile. The
average age of Congress is something like 57. Joe Biden is 70. Ronald Reagan was in his 70s when
he was president. So what's the problem?"
... ... ...
About 23,000 age discrimination complaints were filed with the Equal Employment Opportunity Commission
in fiscal 2012, 20% more than in 2007.
Proving discrimination is next to impossible, though, unless it's blatant.
"It's very difficult to prove hiring discrimination, because unless somebody says, 'you're too
old for this job,' you don't know why you weren't hired," said Michael Harper, a law professor at
Boston University.
As a former public servant teaching University Level Econometrics for nearly 15 years and possessing
numerous 'Excellence' awards, this development is nothing short of shameful. I have had dozens
of recruiters and HR 'specialists' debase my public service as not being 'Real World' experience
despite the fact that without my commitment to 'Real World Applications' education, many of those
with whom I apply for employment would not hold a college degree. Indeed, I find many of the hiring
managers with whom I speak regarding positions for which I have both technical and applications
experience, there is impenetrable discrimination once they meet me in person.
The point made in several articles of this nature revolve around lack of knowledge and
experience with newer technologies. In an effort to address this issue, I went back to school
(again) to obtain expertise in IT Networking and Security, PMP Path Project Management and ITIL.
Now I am being told that my education is of no value since I do not have the requisite 'Real World'
experience using these newly acquired skills.
Indeed, to meet the criteria for many positions I find open requires that I be a 'recent college
graduate.' When I point out that I have been continually retraining and taking online courses
to keep my IT skills current, I am once again met with the lack of 'Real World' experience requirement.
For a society that purports itself to value education and hard work, for those among us that have
worked very hard for substandard pay and benefits to be so casually cast aside is absolutely inexcusable.
Paul Stukin, Apr 24, 2015
This is nothing new, especially if you are in IT. I was laid off from IBM in August 2001, then
9/11, and the bottom fell out of the jobs market. I have not worked in IT since. I truncated my
resume to show the last 10 years of "relevant" experience and then got interviews, but never the
job.
DJM22, Apr 24, 2015
@Richard Thwaites
Where does this group turn; what is this demographic to do. For instance in my case based on
the type of work I've done for a lifetime I've been laid off a total of 5 times. The monies you've
had saved during these periods had to be used for survival and take care of family. No it wasn't
wasted.
But now boomers are going into that area where as they are tooyoung to retire in order to just
obtain social security. And then this won't be a whole bunch.
Are we suppose to give up everything we've worked for and live a less than mediocre livelihood?
That's a good 10/15 years away. Then they will say next how the boomers are becoming more of a
problem and mooching in order to survive. I'm not suggesting hand outs, but if ageism is going
to be the problem for boomers then boomers need to press somewhere, someone, something so we don't
end up with problems that will become even more major problems. What a way to end your career
and what a legacy to leave your children.
Look at all the characters in our government. None of them worked, simply kept chairs warmed
and signed papers they were told to sign and as stated they're up in their 70's + and have enough
money to aid their next 10 generations and the normal joe can't even complete his generation.
"... The NC Employment Security agent told a bunch of us to try to conceal our age when interviewing.
When asked if age discrimination wasn't against the law, he said very candidly it is, but there is no
penalty for it in these times. ..."
When the most recent employment report was released, PBS NewsHour
presented
a segment on a group of people over 50 who had been out of work. The participants said that employers
had little interest in even talking to them. Sometimes, when applying for jobs, these older applicants
deleted up to 15 years of experience from their resumes to get through the door, but as soon as the
interviewers saw how old the applicants were, their faces dropped and they cut the interview short.
... ... ...
Add to this mix the results of a recent study that explored the relationship between the number
of weeks of unemployment and the likelihood of receiving a callback after submitting an application.
The researchers submitted fictitious resumes to real online job postings in each of the largest U.S.
metropolitan areas. They sent roughly 12,000 resumes to roughly 3,000 job postings in sales, customer
service, administrative support and clerical job categories. They tried to make their fictitious
resumes look as close as possible to real resumes posted on job boards. In some cases, the resumes
showed the applicant as currently employed, in other cases as unemployed for spells of between one
and 36 months. They found that the callback rate sharply declined during the first eight months of
unemployment – from 7% to 4% – and then stabilized. This 45% decline compares to the results of another
study where black-sounding names received 33% fewer callbacks than white-sounding names.
... ... ...
The problem is that when the stigma of being unemployed is added to the stigma of being old, the
chance of getting a job becomes very, very small. This outcome is not only unfair, but also wasteful
from a national perspective as a substantial amount of experience and talent goes unused. Extended
periods of unemployment also destroy the lives of the individuals affected. They use up their savings,
they tap their 401(k)s, they sell their homes, and then they are left with nothing. And the number
of older unemployed workers is large. As of 2012, almost 2 million people over 50 had been unemployed
for more than six months; 1.3 million for a year or more. We need a jobs corps for these individuals
and we need it fast.
Robert E. Pin, May 15, 2013
I applied for one of the numerous jobs online and they asked point blank - what year did you
graduate HS? OMG! It was a required field so it was either lie, or put 1979. I felt it was good
Karma to say the truth.
So hard to prove age discrimination in this case but boy would I love to give them a piece
of my mind.
Doc y, May 15, 2013
@Brady White What would it do to your karma if you told them you were a child prodigy and graduated
at six years old? Also, for the math challenged, I often give my age as 28 years old, when counting
in base 20.
Sort of like there are 10 types of people: Those who understand binary and those who don't.
Wayne MacNeil, May 15, 2013
Bravo Alicia. Finally someone who understands what is going on. Only the numbers are probably
much higher. Age discrimination is supposed to be against the law. This needs to be enforced just
as strongly as discrimination against women or religion. There is a crisis in unemployment for
those over 50. Many of these people are the best educated and would be among the most capable
workers in the country. Someone has to pave a path requiring companies to employ older capable
workers. This is criminal and as mentioned by the author is destroying people, families, retirements.
People who have been productive for 30 years are losing everything. And younger workers dont seem
to get it. If they dont stand up to this - their time is coming too.
People think they will need to work until they are 70 to pay their debts. The shock comes when
the system wont let the majority work after they are about 50.
Rainier Rollo, May 15, 2013
Wayne -- I once asked a friend in her late 50s who was lamenting her long term unemployment
how many people over the age of 40 she hired when she was in a position to hire --- the answer
was ZERO. So don't just say that today's young people are afflicted with this way of looking at
people. Most of those now unemployed 50+ in poisitons of hiring also passed over older candidates.
Lois Land, May 15, 2013
In that PBS segment, it was amazing to watch that university woman (clearly over 60) talk about
how people become less productive after the age of 40.
Then doesn't she owe it to the university to resign/retire? Or does she think she's special/different?
I might be special/different too. I'm 64 and I've never been sharper or more productive.
Doc y, May 15, 2013
@Lois Land I hate to admit it, but something that has enhanced my productivity now that I am
50+ is I no longer have to leave work to attend kids' events, or take them to their appointments,
etc. I miss my children very much, but they are grown and on their own. I loved doing stuff with
them, and I made their activities my number one priority while they were growing up. Being laid
off three years after the youngest left home was never in the financial plan, and like others
on this site, employers have not been breaking my door down to come work for them.
The NC Employment Security agent told a bunch of us to try to conceal our age when interviewing.
When asked if age discrimination wasn't against the law, he said very candidly it is, but there
is no penalty for it in these times.
richard harris, May 15, 2013
The root cause of massive unemployment in the over 50 crowd is legal immigration. The 2010
census reported 40 million legal immigrants were residing in the US. These 40 million immigrants
translate to about 24 million potential workers. The real unemployment level is 23 million people.
Thus the real unemployment level of 23 million people is approximately equal to the work force
inflation caused by legal immigration.
Thus the only hope for the over 50 chronically unemployed is to ban all further legal immigration.
Zulauf this that this is bear market rally and the slide will resume the next year. His forcast
is at the beginning of the video clip. He expects S&500 drops to 1600 the next year.
Notable quotes:
"... Zulauf says he expects a global stock swoon next year. ..."
Speaking at Barron's Art of Successful Investing conference, Zulauf says he
expects a global stock swoon next year. He sees short-term gains for e-commerce
beneficiaries Amazon, Facebook and Google; longer term, hold bonds.
James 37 minutes ago
"What the American people cant take is their government not being square
with them"
When the #$%$ have they EVER been square with us...the hypocrisy in this
statement hurts my brain
"... The book argued that Saudi Arabia had overstated its oil reserves, that its oil production was
on the cusp of terminal decline, and that prices were set to soar. ..."
"... My view was that peak oil would cause great hardship, but
humanity would survive. We would muddle through and find our way. ..."
"... In hindsight, our view on peak oil was pretty naďve. Global oil production was not about to
fall off a cliff. The potential for increased production was hand-waved away. But higher oil prices
had a much bigger impact on production than most of us would have projected. ..."
"... "Peak oil is a moving target. I think
peak oil is in a different place if oil is $150 versus oil at $100." Then the notion crystallized.
You can't talk about peak oil without talking about oil prices. Why? Because this is what the real
world looks like ..."
"... ... ... ... ..."
"... we can say
with a pretty high degree of certainty "The world has passed peak $20 oil." ..."
"... That doesn't mean that oil prices will never again fall to $20, as supply/demand imbalances do wildly
swing prices at times. It just means that $20 isn't a sustainable price for meeting current global
demand. That also means that the average price of oil in the future will be much greater than $20,
which is why I downplay those predictions of very low oil prices. ..."
"... But has the world passed peak $100/bbl oil? The answer to that is clearly no. When oil was at
$100/bbl, supplies were still rising. Now that prices are less than half that level, global production
looks like it is set to fall. So maybe ..."
"... When prices are rising, oil producers spend money as fast as they
can to build out capacity. New oil plays become economical. Inevitably, supply outpaces demand and
the price crashes. Capital spending slows, marginal oil plays are shut in, and demand catches back
up to supply, which drives the price back up. ..."
"... This time oil didn't drop to $10/bbl, but it did spend a lot of time at $100/bbl.
That is a sign that we are using up the cheapest oil supplies. ..."
"... While maximum oil production is indeed a function of the price of oil, the price of oil that people
can afford to pay is a function of the EROEI of oil extraction. As the oil extraction industry
gets to be a larger and larger part of the overall economy, all the other parts of the economy
suffer from the diversion of resources to oil production, limiting the ability of would-be oil
purchasers to pay higher prices. ..."
"... At some point, the price needed to stimulate new production
will exceed the price purchasers can afford to pay. That will be when we see the peak of production.
$100 oil may very well be incompatible with robust world-wide economic growth. ..."
"... What really worries me about passing the peak is the economic consequence of having a critical
mass of people come to the realization that we are indeed past peak oil. If the substitutes for
oil are by then insufficient for economic growth, people will realize that the world economy will
henceforth be subject to continuous recession, rising unemployment and increasing poverty, with
no remedies in sight. ..."
"... Not entirely. I alluded
to this point, but it depends on the cost of the energy input. You wouldnt use 1 BTU of gasoline
to produce 1 BTU of gasoline, but you might use 3 BTUs of coal to produce 1 BTU of gasoline. ..."
"... You are right as far as the EROEI of oil is concerned, but I believe that Joes comment is
valid in a broader sense, expanded to the EROEI of the total energy supply. What you seem to argue
is that the EROEI of gasoline (or any particular energy carrier) may not have absolute limits.
However, the EROEI of the economy on the whole does matter, as the economy needs free energy to
operate on. ..."
"... Robert, the way I understand Peak Oil was that Hubbert was basically correct with his models
(genius even) for conventional oil production, but that his models do not include unconventional
production and the advance of technology. Most of the worlds historically large oil fields have
gone into decline in the 21st century as Hubbert predicted. But new technologies, partly driven
by higher prices, have opened up vast new resources such as shale that were not considered producible
before. Unconventional resources are quite large and that is why reserves have gone up despite
that accuracy of Hubberts models. ..."
"... One thing I might add to your excellent analysis is the substitution of other hydrocarbon
liquids for crude oil, yet calling it and counting it as crude. Global crude oil production has
been pretty flat since 2005, while production of natural gas liquids, condensate, etc. has increased.
It is interesting that while these do not have the energy content or utility of crude, they are
counted as such. ..."
"... I see this, along with tar sands and light tight oil (LTO, shale) as scraping the bottom of
the barrel, with declining energy profits as you appropriately point out. The peak so far has
been an undulating plateau for ten years, with the worlds oil industry exploring itself into
financial distress during that time trying to find new sources of quality crude, with little to
show for it. Instead we have synthetic crude from Canadian tar sands, dumbbell crude from tight
rock, Saudi Arabia develops its probably last field of heavy sour crude that no one wanted before,
and on and on. Clearly we are chasing the dregs of oil. What else should peak look like? ..."
"... I just read an article on technology that will boost deep ocean recovery something like 30%.
A device that utilizes the oceans depth water pressure to increase pressure differential at oil
recovery zone. Also, articles on future robot technology that is proving itself per drilling equipment
that makes deep water drilling safer and easier. Technology continues to make drilling, recovery,
processing, and oil detection more efficient. ..."
"... Climbing for decades would not make PO bunk , it would only make Hubbert´s estimate a bit
more inaccurate and drag the decline out by a generation.
..."
"... But even ignoring climate
for a second: Humans have not evolved much in the past millennia. The only thing that differentiates
our 200-yr-old industrial society from previous agrarian ones is the reliance on abundant and
cheap fossil fuels and, for the past century, oil. If you think that depleting oil will not hurt,
think again.
..."
"... Isnt it so that Hubbert was largely correct in predicting what would happen in a world of
stability, but he failed to take into account the economic instability caused by oil depletion
itself? That would be quite understandable, as he was a geophysicist, not a social scientist.
Not as if social scientists could predict what will happen when our oil-based society is deprived
of its fuel.... ..."
"... The global economy can not afford $100/bl oil and producers can not increase production
without it. It is debt that has filled the void and
that too is peaking. Next will be peak population. ..."
"... I agree that the issue with Peak Oil isnt that were going to run out of oil. The issue is
that we are running out of economic benefit that is achievable given the cost to extract the oil.
That is the current drag upon the world economy. And I really think that we will eventually be
able to plot that economic benefit / bbl of oil as a function of time, and it will likely be a
very familiar curve. That economic drag will increase no matter what new extraction technologies
come online. ..."
"... If peak oil is a function of oil price (a stance which I largely agree with) then the
key question becomes, what is the highest oil price that the world can sustain. In the advanced
economies around $100 seems sufficient to cause stagnation or decline in demand, but in China
or India demand seemed able to grow robustly at these prices. Presumably because filling your
only moped with petrol gets you more utility than filling up your second SUV. So perhaps somewhere
in the $100-150 range represents a ceiling, for the moment. ..."
"... And what with the more rapid decline rates of newer wells (deepwater and shale decline more
rapidly than onshore conventional) depletion rates will probably accelerate. I think that perhaps
the frequency of booms and busts in the oil price is going to accelerate a bit, as cycles of overinvestment
lead to more gluts, then the price collapses, then underinvestment leads to shortages which manifest
sooner, and so on. Does this sound plausible to you? ..."
"... I think thats going to be different
for different parts of the world. Ironically, $100 oil caused demand to decrease in the U.S.,
but it kept growing strongly across the developing world. ..."
"... The reason is: If the retail price of oil is $4/Gal, the daily per capita consumption price in
the USA is about $11.00. In India the daily per capita consumption price is about 61 cents. 2.7
Gallons versus 2.5 cups. ..."
"... what you wrote above hit me:
Its such a low per capita consumption in developing countries, and just a little more has a big
impact on their lives. So they will drive future consumption. ..."
"... Peak oil isnt just a factor of supply as Hubbard proposed. Nor is it a function of price as
the author proposes. It is a wobbly stool of both these factors couple with the third leg of political
stability. ..."
The scientific study of peak oil began in the 1950′s, when Shell geophysicist M. King Hubbert
reported on the evolution of production rates in oil and gas fields. In a 1956 paper Hubbert suggested
that oil production in a particular region would approximate a bell curve, increasing exponentially
during the early stages of production before eventually slowing, reaching a peak when approximately
half of a field had been extracted, and then going into terminal production decline.
Hubbert applied his methodology to oil production for the Lower 48 US states and offshore areas.
He estimated that the ultimate potential reserve of the Lower 48 US states and offshore areas was
150 billion barrels of oil. Based on that reserve estimate, the 6.6 million barrels per day (bpd)
extraction rate in 1955, and the 52.5 billion barrels of oil that had been previously produced in
the US, Hubbert's base case estimate was that oil production in the US would reach maximum production
in 1965. He also estimated that global oil production would peak around the year 2000 at a maximum
production rate of 34 million bpd.
Hubbert calculated a secondary case that if the US oil reserve increased to 200 billion barrels
(about which he expressed doubts), peak production would occur in 1970, a delay of five years from
his base case. Oil production in the US did in fact peak in 1970, so Hubbert is widely credited with
precisely calling the US peak, but few know that he was actually skeptical that the peak would take
place as late as 1970.
The US has now surpassed Hubbert's most optimistic estimate for US oil production. Through 2014,
cumulative US production stands at ~ 215 billion barrels, with a remaining estimated proved reserve
of 48.5 billion barrels (but with the caveat this reserves estimate is based on crude prices near
$100/bbl).
The Modern Peak Oil Debate
In the ensuing decades since Hubbert's original work, discussion of peak oil ebbed and flowed.
But the modern peak oil debates really heated up a decade ago. In 2005 the late Matt Simmons, an
investment banker to the oil industry, published
Twilight in the Desert.
The book argued that Saudi Arabia had overstated its oil reserves, that its oil production was
on the cusp of terminal decline, and that prices were set to soar.
... ... ...
Peak Oil Camps
At one extreme of this debate was the camp that believed peak oil was happening at that time (~2005),
and that it was going to spell the end of civilization. This camp was often referred to as "doomers",
because they believed that humanity was doomed. (And many haven't changed from that position).
At the other extreme were those who believed technology could continue to squeeze ever more oil out
of the ground. This camp was sometimes referred to as the "technocopians."
Most of us were somewhere in the middle. In 2005 I felt like we still had a few years to go before
we reached peak oil. My general position was that we were 3-5 years away at that time, and I spent
a lot of time debating the evidence with the imminent peakers. I wrote a number of articles addressing
the topic of peak oil (e.g.,
Five
Misconceptions About Peak Oil). My view was that peak oil would cause great hardship, but
humanity would survive. We would muddle through and find our way.
Overconfidence in these discussions over peak oil (and peak natural gas) was prevalent. For instance,
in 2003 Matt Simmons predicted, with
"certainty," that by 2005 the US would begin a long-term natural gas crisis for which the only solution
was "to pray." This sort of confidence was prominent in the debates. If you had argued at that time
that by 2015 US and world oil production would be where they are today, you would have been deemed
certifiably insane.
In hindsight, our view on peak oil was pretty naďve. Global oil production was not about to
fall off a cliff. The potential for increased production was hand-waved away. But higher oil prices
had a much bigger impact on production than most of us would have projected.
I had this idea bouncing around my head that higher prices would spur more oil production, but
I agreed with those who argued that there were limits to this and we had to take steps to address
the risks. The limits wouldn't necessarily be technological, but would rather depend on the amount
of energy required to extract and process the oil. At some point it simply becomes too energy-intensive,
and even if you are using a cheaper source of energy to do the extraction, there comes a point that
the cost of energy inputs exceeds the cost of energy extracted. Since the energy inputs and outputs
are related via price, it's a pretty good argument.
It's Not That Simple
Jeff Rubin - the former chief economist at CIBC World Markets
- eventually crystallized in my mind the relationship between peak oil and oil prices. I saw Rubin
give a presentation in 2011, and he said something like "Peak oil is a moving target. I think
peak oil is in a different place if oil is $150 versus oil at $100." Then the notion crystallized.
You can't talk about peak oil without talking about oil prices. Why? Because this is what the real
world looks like
... ... ...
,,,the bottom line is that there is a lot of oil that will come online at higher oil prices. How
much is truly unknown, but it is estimated to be in the 10′s of millions of barrels per day. (For
those who believe this is unlikely, think back to 2005 and how much chance you would have given for
the current levels of oil production). Similar graphics have been produced for the break-even price
in shale oil plays, and the message is similar: Higher oil prices will spur oil production in more
marginal areas.
So we should really talk about peak oil as a function of oil prices. In that case, we can say
with a pretty high degree of certainty "The world has passed peak $20 oil." If we could magically
freeze the price of oil at $20, we would see the sort of peak that the imminent peakers projected.
That doesn't mean that oil prices will never again fall to $20, as supply/demand imbalances do wildly
swing prices at times. It just means that $20 isn't a sustainable price for meeting current global
demand. That also means that the average price of oil in the future will be much greater than $20,
which is why I downplay those predictions of very low oil prices.
But has the world passed peak $100/bbl oil? The answer to that is clearly no. When oil was at
$100/bbl, supplies were still rising. Now that prices are less than half that level, global production
looks like it is set to fall. So maybe we have past peak $50/bbl oil.
The peak oil story turned out to be more complex than most of us who were debating it could have
imagined back in 2005. What many thought was peak oil at that time was just one more cycle in the
gyrations of the oil industry. When prices are rising, oil producers spend money as fast as they
can to build out capacity. New oil plays become economical. Inevitably, supply outpaces demand and
the price crashes. Capital spending slows, marginal oil plays are shut in, and demand catches back
up to supply, which drives the price back up.
But what we have seen in this most recent cycle is that the trough isn't as deep as it has been
in the past. This time oil didn't drop to $10/bbl, but it did spend a lot of time at $100/bbl.
That is a sign that we are using up the cheapest oil supplies. The world is highly unlikely
to return to an era of $20 oil. The floor has moved higher. Peak oil has moved past the $20 threshold,
and most likely the $50 threshold.
While maximum oil production is indeed a function of the price of oil, the price of oil that people
can afford to pay is a function of the EROEI of oil extraction. As the oil extraction industry
gets to be a larger and larger part of the overall economy, all the other parts of the economy
suffer from the diversion of resources to oil production, limiting the ability of would-be oil
purchasers to pay higher prices.
At some point, the price needed to stimulate new production
will exceed the price purchasers can afford to pay. That will be when we see the peak of production.
$100 oil may very well be incompatible with robust world-wide economic growth. If so, we will
know that we have passed peak oil when oil prices again rise to record highs (over $100/bbl) and
production fails to respond and exceed the volumes that were produced the last time oil was $100/bbl.
What really worries me about passing the peak is the economic consequence of having a critical
mass of people come to the realization that we are indeed past peak oil. If the substitutes for
oil are by then insufficient for economic growth, people will realize that the world economy will
henceforth be subject to continuous recession, rising unemployment and increasing poverty, with
no remedies in sight. If they haven't happened already for other reasons, debt deflation and financial
panic will then exacerbate all our other resource depletion predicaments. It won't be pretty.
"people can afford to pay is a function of the EROEI of oil extraction."
Not entirely. I alluded
to this point, but it depends on the cost of the energy input. You wouldn't use 1 BTU of gasoline
to produce 1 BTU of gasoline, but you might use 3 BTUs of coal to produce 1 BTU of gasoline. So
EROEI is something that tells us about the relative efficiency, but it doesn't address the economics.
Nor does it include a time factor. I could run a society on a process with an EROEI of 1.1 --
as long as I returned that on a daily basis.
"You wouldn't use 1 BTU of gasoline to produce 1 BTU of gasoline, but you might use 3
BTUs of coal to produce 1 BTU of gasoline."
You are right as far as the EROEI of oil is concerned, but I believe that Joe's comment is
valid in a broader sense, expanded to the EROEI of the total energy supply. What you seem to argue
is that the EROEI of gasoline (or any particular energy carrier) may not have absolute limits.
However, the EROEI of the economy on the whole does matter, as the economy needs free energy to
operate on. Your example assumes that coal will continue to have a much higher EROEI than (marginal)
oil, but to the extent oil needs to be cross-subsidized in energy terms, it ceases to be an energy
source to the economy, it just becomes an expensive energy carrier. And the more we subsidize
oil with coal (in energy terms), the faster will the EROEI of coal decline and more of society's
resources will have to be invested in the energy sector.
"I could run a society on a process with an EROEI of 1.1 -- as long as I returned that on
a daily basis."
Let's assume you can run your economy on the "right kind of energy" (let's call it gasoline)
that has an EROEI of 1.1 I.e., every day you need to invest one unit of this energy to get 0.1
unit available to (and sufficient for) the rest of the economy. But if you need three units of
the "wrong kind of energy" (coal) to produce one unit of this gasoline (meaning that gasoline
has an EROEI of 1/3, i.e. it is not a net "source" of energy) and the actual process you are running
the economy on (coal production) has an EROEI of 1.1, then returning that every day would only
give you 1/30 units of gasoline a day, which is only a third of what you need for the rest of
the economy. You would therefore have to return the 1.1 coal energy not on a daily basis, but
every 8 hours to get your fix of gasoline. That would mean having to triple the throughput of
coal, meaning three times more mines, rail transport, power capacity, etc.
Joe's argument may have been simplistic, but I think it is clear that there are limits that
monetary cost cannot represent. Measuring the price of oil in dollars seems to assume that somehow
dollars can represent a value independent of the cost of oil, which is questionable. Higher oil
price cannot postpone peak oil indefinitely, as it can just crush society's ability to maintain
the complexity needed to maintain (let alone increase) oil production from increasingly difficult
places.
I guess its high time on this board that people learn about Liquid fluoride thorium reactors (maybe
you do but you don't act like it). This was the nuclear power we should have had and never got
because a decision was made by the US government to breed Uranium 238 instead of breeding Thorium
232. We proved at Oak Ridge that breeding 232 was feasible. But Uranium 238 won out because it
could be used to make bombs easily while breeding thorium couldn't make bombs easy. Using uranium
we got a two-fer. But a number of Uranium 238 breeder reactors were built and no one ever made
them work successfully. By then though, the Oak Ridge program had been shut down and all of the
developers of the program were either dead or retired.
People need to know that this form of
energy is available to us, and it is capable of powering the world for thousands of years.
Solar and wind are fine for many applications, but if you want to power ships or go to deep
space or even colonize the moon or other places, there are many times they just don't work.
This is the kind of technology the Google Engineering team was talking about when they concluded
that we don't have the weapons to fight climate change.
We ran a reactor for 20,000 hours in the 60's and 70's. It would not take that much to get them
going again if we had the will. I would say that 20,000 hours was a pretty good start at proving
the technology.
And I looked at Euan Means' article. It clearly does not address LFTRs. LFTRs
run in the thermal spectrum, not the fast spectrum.
The reason uranium breeders were not successful is that they ran in the fast spectrum, which
has a target 1/25 the size of the thermal spectrum's target that a neutron has to hit.
It is much easier to breed fertile elements when having a neutron hit a target 25 times as
big and splitting an atom 2/3 of the time than it is to hit a target 1/25 the size and splitting
the atom 90% of the time. That is the difference between breeding in the thermal spectrum and
the fast spectrum. The people who wanted to breed uranium believed uranium could be bred in the
fast spectrum. It proved to be very difficult.
Only thorium breeds in the thermal spectrum. Uranium does not. Breeding thorium was much easier
and consequently it is not surprising we were able to do it at Oak Ridge for 20,000 hours.
The only thorium reactor discussed in Means' article runs in the fast spectrum. Euan Means'
article proves he does not know what LFTRs are and consequently his article is not a valid analysis
of LFTR's capability.
Peak Oil is also a function of demand, if alternate energy sources create an energy price that
is lower than the $20 peak oil price you may end up with a lot of trapped oil that not extractable.
Of course research on both sides seeks innovation to beat the floor price of the competition
Maybe not today. But China has begun work on Liquid Fluoride Thorium Reactors which we pioneered
in the 60's. They hope to have one operational by 2020.
See my post about 4 comments above and
the link I cited.
If the world starts to make them in the 2020's, by 2035 or 40, the world will drastically change
from what it is now. The thorium age will be vastly different from the fossil fuel age.
Robert, the way I understand Peak Oil was that Hubbert was basically correct with his models
(genius even) for conventional oil production, but that his models do not include unconventional
production and the advance of technology. Most of the world's historically large oil fields have
gone into decline in the 21st century as Hubbert predicted. But new technologies, partly driven
by higher prices, have opened up vast new resources such as shale that were not considered producible
before. Unconventional resources are quite large and that is why reserves have gone up despite
that accuracy of Hubbert's models.
There are more unconventional resources to be tapped,
so reserves can continue to grow. Tight oil recovery rates are very low with huge margin for improvement.
CO2-EOR opens up billions of barrels, methane hydrates are massive and yet to be tapped (gas not
oil but the point remains), and synthetic fuels can be produced from coal, biomass and garbage.
I agree that prices drive development, and obviously environmental concerns are huge, so we
must be smart and manage carbon emissions and everything else, but we are certainly not about
to run out of hydrocarbons though they would not be as cheap as they once were.
"Robert, the way I understand Peak Oil was that Hubbert was basically correct with his models..."
He was WAY off on his numbers. He vastly underestimated future production rates. So his peak predictions
are based on production rates that were much lower than they actually were. If he had plugged
in what the numbers actually ended up being, he would have forecast peak years earlier than he
did.
Robert, I suspect he underestimated reserve growth (increase of proven reserves over time) in
US oil over those decades, as well. Variables and unknowns are why long term numbers are seldom
correct.
One thing I might add to your excellent analysis is the substitution of other hydrocarbon
liquids for crude oil, yet calling it and counting it as crude. Global crude oil production has
been pretty flat since 2005, while production of natural gas liquids, condensate, etc. has increased.
It is interesting that while these do not have the energy content or utility of crude, they are
counted as such.
I see this, along with tar sands and light tight oil (LTO, shale) as scraping the bottom of
the barrel, with declining energy profits as you appropriately point out. The peak so far has
been an undulating plateau for ten years, with the world's oil industry exploring itself into
financial distress during that time trying to find new sources of quality crude, with little to
show for it. Instead we have synthetic crude from Canadian tar sands, dumbbell crude from tight
rock, Saudi Arabia develops its probably last field of heavy sour crude that no one wanted before,
and on and on. Clearly we are chasing the dregs of oil. What else should peak look like?
Would it be more accurate to say oil production is a factor of price? As the market will be energized
by future profits that in turn will spur innovation, technology, investment, R&D, tax incentives,
etc..
I just read an article on technology that will boost deep ocean recovery something like 30%.
A device that utilizes the ocean's depth water pressure to increase pressure differential at oil
recovery zone. Also, articles on future robot technology that is proving itself per drilling equipment
that makes deep water drilling safer and easier. Technology continues to make drilling, recovery,
processing, and oil detection more efficient.
I can think of no reason the petrol fossil fuel supply will run out. It will get more expensive,
but the earth makes a good storage container as such the supply will quietly and safely sit in
place until needed. I remember reading of natural gas reserves of 100 or 200 years out, depending
on exports and consumption.
That's the known (current) recoverable reserves of which should increase. Also, coal was rated
the same. Maybe GW concerns will eliminate or limit the fuel source, but the enthusiast of such
planet killing phenomenon seem to be fickle bunch that only concern themselves with political
leadership and solutions of their choosing. For example they claim corn ethanol is worse than
gasoline per CO2. The EPA follows suit with outdated data and unproven penalties and utilize illegal
rule governing power to limit the production of the fuel. Contrast this with Energy department's
evaluation of ethanol fuel upon GW very positive as compared and gaining strength wile the EPA
buries it's head to avoid reality check. Think of the taxpayer cost and politics invested to promote
wind and solar energy without accurate analysis and comparison. Think of the same costs and quality
of evaluations of BEV. Then compare the taxpayer cost of the ethanol fuel solution and hydro power
already in the position of solving problems and reducing cost. What's the holdup if as they say
GW will destroy the planet. Shouldn't environmentalist be shouting for joy, for example, that
a new auto company utilizing all American built material is about to debut it's 2016 production
and drive a spike in auto pollution problems. A simple low cost safe and reliable auto that's
rated at 84 mpg. A $6,800 vehicle that needs no taxpayer subsidy and should replace a large segment
of the used car market. A market of 90 million clunkers that average less than 20 mpg. I don't
hear shouts of joy? Why is that? You could double the GW emission benefit of this vehicle with
mid level blend ethanol fuel. An easy move up to E85 fuel engine that would decrease carbon pollution
85% if fueled with cellulosic ethanol. The Energy Department's rating of Miscanthus grass ethanol
drives the carbon rating to negative. Meaning you actually improve. Shouts of Joy per not needing
horrendous taxpayer investment and no need to lose citizen and private market freedoms per government
regulation should soon spout. Don't hold your breath as they will attempt to kill such solutions
not aligned with their ideals.
More to the point, Peak Oil is bunk, thanks to markets.
When production dips below demand, price
increases until either demand drops or supply increases (or both). May take months or years, but
that's inevitably how it works. There are many options for adding to liquid fuel supply that have
not even been seriously explored and therefore remains available as future options, including
gas-to-liquid, coal-to-liquid, biomass-to-liquid, etc.
The main threat to the system are foolhardy politicians, a species that seem to be out-breeding
the other kind at a most disconcerting rate. When, and only when, one of these dimwits attempt
to put a ceiling on fuel prices, shortages ensue.
At least we still have Nixon to kick around, jackass...
Are you suggesting that the Earth has infinite reserves of oil? If there is no peak oil, then
oil production would need to increase monotonously forever. That is only possible if the Earth
has infinite amounts of the stuff. The volume of the Earth is finite, and most of it is not oil
(consider the core, the mantle, most of the crust, etc.).
"The volume of the Earth is finite, and most of it is not oil..."
Okay, so how much of it IS
oil?
Modern drilling equipment can reach a depth of about 12 thousand meters beneath the surface
of the earth. This makes the volume of the portion of the crust that can be explored by drilling
about 6.2x10^18 cubic meters, equal to 3.9x10^19 barrels. The earth's ultimate recoverable reserves
(URR) of oil has been estimated at two trillion (2x10^12) barrels. If that URR estimate is true,
then the pre-industrial concentration of oil in the earth's crust was about 51 ppbv, or fifty-one
parts per billion by volume.
It isn't possible to quantify any concentration accurately near the detection limit of the
quantitative method. No one knows how to analyze the earth's crust to accurately quantify the
concentration of recoverable oil remaining. It could be 25, 50, 100, 200, or 400 ppbv. When petroleum
engineers or geologists estimate the global oil URR value, they use crude accounting methods that
have very poor sensitivity, so the estimate that they produce is at or below the detection limit
of any analytical method. Instead of two trillion barrels, there may be four trillion, or eight
trillion barrels of recoverable resources yet to be discovered.
You are certainly correct that the earth's crust can only contain a finite quantity of fossil
hydrocarbon resources. But that quantity may be so large that production can continue to climb
monotonously for decades, or even centuries.
"But that quantity may be so large that production can continue to climb monotonously for decades,
or even centuries."
Whether decades or centuries; it will peak (=reach an all-time maximum)
at some point (if it hasn't done so already).
Rereading my earlier comment, I have to correct myself: a monotonous increase would not be
necessary to disprove PO, as production could fluctuate or stabilise. But it would need to be
infinite, which it won´t be.
Climbing for "decades" would not make PO "bunk", it would only make Hubbert´s estimate "a bit"
more inaccurate and drag the decline out by a generation.
Climbing for "centuries" would probably require our understanding of the
climate system to
be proven wrong. I´d welcome that, but doubt that we are that lucky. I consider it more likely
that we shall give up going after oil way before that, either deliberately (less likely) of for
the lack of ability to maintain production.
Basically, as far as your lifespan is concerned, the supply of oil is infinite. It's just a matter
of developing the technology that enables us to tap into those supplies. This is where the markets
serve as an active encouragement to research when demand exceeds supply.
But let's take a step
back and look centuries or millennia down the line, to the point where we really have exhausted
all the planet's available oil: at this point oil prices increase, until some smart inventor,
probably working for Big Oil discovers a process for converting ________* into liquid fuels. Crisis
averted yet again. PO believers repeat their claim that PO will destroy civilization in the
next 25 years. Some things never change.
* For _____ insert your choice of coal, natural gas, agricultural waste, solids municipal waste,
sewage sludge, the one energy crop that might make sense: algae grown in the open ocean or any
combination of the above.
Claims of Peak Oil, Peak Soil, Peak Water, etc. all rely on two assumptions: (1) we keep our
consumption at the same levels as in the past and (2) we aren't able to expand supply beyond what
we use today. Both are foolish assumptions. Both ignore the impact of markets on innovation.
You seem to ignore even the possibility that climate change may play an important role in our ability
to cope or choice of energy. That alone disqualifies you from a civilized discussion. Not because
climate change is a certainty (I think it is as certain as it gets, but it is always legitimate
to ask questions), but to ignore a vast body of evidence that has made even stalwart skeptics
shut up or even convert is simply not serious or honest (yoir choice).
But even ignoring climate
for a second: Humans have not evolved much in the past millennia. The only thing that differentiates
our 200-yr-old industrial society from previous agrarian ones is the reliance on abundant and
cheap fossil fuels and, for the past century, oil. If you think that depleting oil will not hurt,
think again.
Everything you eat comes from soil and oceans. Oceans are wrecked, even cornucopians don't
predict an increase of food from the oceans. You'd better respect soil. Or suggest you eat your
coal.
Wait, you are going to exclude people from the discussion who don't have the same priorities as
you do? I hope you like talking to yourself.
Nice bait and switch, by the way. We were talking
about Peak Oil and suddenly you want to exclude me for not mentioning climate change. The point
remains: Peak Oil is bunk.
Climate change is a different topic. No doubt it needs some attention. We need to find a way
to beam more heat into outer space. Where is NASA when you need them? Stop fooling around on Mars,
already!
Food production is yet another matter. Japan better get used to importing rice, because sushi
is going off the menu fast, as you point out. It is unfortunate that some cultures are so short-sighted,
but what are you going to do? Have the US navy sink fishing boats taking more then their quota?
The good news is that nature has a capacity to rebound.
BTW, who needs soil? Ever heard of hydroponics? There are even plants being developed that
can grow using seawater while producing normal food. Hard to keep up with all the science, I know.
And, you're right future generations may eat coal, though I suspect natural gas would be the
first fossil fuel to be converted to food. Basically you'd do a conversion of methane to something
more biodegradable like methanol or one of the volatile fatty acids. Grow some fungus on that
mix (think of it as related to mushrooms) and viola...
Science won't limit the future of mankind. If science was the only concern the future would
be exceedingly bright.
Science is just science, a way to understand nature, and perhaps use it better.
The limitation
is not imposed by science, but by the laws of nature, the limitations of our natural endowment
and the needs of humans. Science can help us live better within the constraints, but cannot lift
the constraints. Science allows us to understand and make use of the laws of thermodynamics, but
it will never allow us to change those laws. It is utterly unscientific to expect that it would.
Science can tell us about the role of phosphorous, it can help us find deposits of phosphorous,
but cannot create those deposits.
I won't go into detail on your points as I do not have the time and don't see the point. Don't
take it personally. I think you are delusional, but I wish you were right.
No. All I dared to suggest was that science can tell us about the laws of nature, but cannot change
the laws of nature. You and Forrest seem to believe otherwise, as suggested by your last comment
(dismissing my argument) and a number of your expectations from science, which are unscientific.
Beaming more heat into space without warming the planet? You don't even need NASA for that: Simply
reducing GHGs in the atmosphere would do that. Too bad that you want to 'beam' so that you can
continue releasing CO2.
Science tells you to to stop digging, and you propose buying a bigger
excavator.
Diaboli, Optimist is right on this one. Your premise is correct, "the earth is finite", but given
the scale, technology, etc. a poor restriction or arbitrary talking point. Just to many unknowns
and the power of the market will make the transition automatically and effortlessly. Your 2rd
premise of eating coal, totally wrong. We're actually upon a great historical revolution that
is yet to be named. Every aspect of societal need is currently being evaluated, improved, reinvented.
Think of the current magnitude of change upon us. All of it is very positive, unless one is a
suffering pessimist. Farming is just entering the beginning stages of empowering the biological
world by design. Agronomics, GMO, global positioning, drone workers, robotic workers, soil engineering,
fungi exploitation, and the rest. Their is no limit in sight for improving production per acre,
quality of food, and fuel feed stock. Most of it directed to negative carbon rating.
Metals and metallurgy continues to accelerate progress. Nuclear physics continue to accelerate,
engineering skills and tools continue to accelerate improvements. Think of the short time span
predicted for autonomous vehicles and resulting light vehicle fleet.
Miles per energy unit will
no doubt be a magnitude improved. Heavy transportation and distribution equally being radically
improved. Same for grid and green power. Fuel cell and bio energy chemistry making strides that
will gradually offset petrol. Hydroponics, aquaponics, fish farming, and the rest already enable
privatization of food production for those so motivated. Even to the extent of power and fuel
supplies for those so motivated even upon small suburban house lots. The biggest threat to humanity
is radicalism of terrorist that attempt to destroy society or destabilize. This will limit invention
and progress and result in suffering. Same with radical ideals of "change" per some perceived
danger. Politics can be very destructive if citizens lose historical understanding and clamor
for quick solutions that require no work.
I agree on the " privatization of food production". You should have added water. As for the rest,
I cannot quite tell whether you are being sarcastic or you really believe all this, but if the
latter: dream on.
Forrest is serious. And right. The main challenge for mankind is the fact that democracy is
giving us the leadership we deserve. Worldwide the results are utterly depressing...
I think a lot of regular readers would like to see you update some of your older articles now
that the costs of renewables have fallen so much in the last few years.
I wonder what (if any) assumption Hubbert made on oil prices. I don't know his writings,
but I do not suppose that he would discount the possibility that higher efforts could shift his
curves. Isn't is so that he assumed (explicitly or implicitly) that prices would remain relatively
stable. That would have been reasonable for his analysis of the US production, as he could assume
that the (presumably much larger) production of other regions could take over (i.e., reduced supply
from the US would not push prices up). In that case the US would essentially be a price taker,
and its production would develop along a depletion curve as he predicted (although not necessarily
at that level).
Such an assumption of relative price stability would be more difficult to assume for the global
supply (with no alternative sources of oil). However, optimists who believe that other energy
sources (renewables or CTL) would fully substitute oil above a certain price level could still
assume a relative oil price stability at the global level.
I believe that the problem comes in when oil is considered critical and not practically substitutable.
Then demand becomes inelastic and prices get volatile, represented by boom-and-bust cycles with
an increasing overall trend, as you describe. I take this volatility as a sign of instability.
Isn't it so that Hubbert was largely correct in predicting what would happen in a world of
stability, but he failed to take into account the economic instability caused by oil depletion
itself? That would be quite understandable, as he was a geophysicist, not a social scientist.
Not as if social scientists could predict what will happen when our oil-based society is deprived
of its fuel....
Some of the commentators, share the idea that the days of no compete high cost of oil products
may be numbered. This is juxtaposed with alternative energy decreasing in cost over time. This
is new phenomena with no historical path to predict new trends. History is full of examples of
supply problems such as war, threat to environment, high cost of capital, etc that impacted price.
The economic ramifications always shot oil prices to extreme as traders worked the pricing to
new highs. This threw the economies of the world into harsh inflation of energy costs that dampened
economic growth.
Oil was the economic life blood and took much military investment to ensure the
supply. Also, because of the crucial need for ample supply, gov't artificially amped up supply
per subsidy such as regulated by tax code. So, are entering into a brave new world without this
holdup reliance of corp oil supply? Appears so, with a positive trend line of diverse and renewable
energy supply. Currently, most consumers do have some choice at the pump.
Limited, but economic
analysis have studied this "competition" and have found a powerful dampening effect of gasoline
per the U.S. ability to produce a million barrels of ethanol a day. It's not limited to FFVs either
as the driving public have learned to utilize higher blends within entire light vehicle fleet.
Also, diesel engine testing with ethanol describe a path way if diesel fuel price zooms up. Adding
a alternative E85 fuel system to offset the diesel fuel consumption per intake air injection.
Apparently, a quicker lower cost alternative as compared to CNG conversion. Ethanol processing
plants have stored feed stock that can come to the rescue for short term increase supply needs.
BEV's play into this alternative choice as consumers are increasing expected to have one of these
vehicles sitting in garage. Same with small ultra efficient cars sitting next to the SUV that
can take over transportation needs upon high price of fuel times.
The global economy can not afford $100/bl oil and producers can not increase production
without it. It is debt that has filled the void and
that too is peaking. Next will be peak population.
Robert , what is your personal opinion on the minimum necessary energy return on energy invested
as a practical matter given the nature of our present day economy?
I have seen figures as low
as four to one and as high as ten to one or even higher.
I agree that the issue with "Peak Oil" isn't that we're going to run out of oil. The issue is
that we are running out of economic benefit that is achievable given the cost to extract the oil.
That is the current drag upon the world economy. And I really think that we will eventually be
able to plot that economic benefit / bbl of oil as a function of time, and it will likely be a
very familiar curve. That economic drag will increase no matter what new extraction technologies
come online.
It won't be the end of the world. It will be a different world that we will have
to make a commitment to adapt to, however.
If peak oil is a function of oil price (a stance which I largely agree with) then the
key question becomes, what is the highest oil price that the world can sustain. In the advanced
economies around $100 seems sufficient to cause stagnation or decline in demand, but in China
or India demand seemed able to grow robustly at these prices. Presumably because filling your
only moped with petrol gets you more utility than filling up your second SUV. So perhaps somewhere
in the $100-150 range represents a ceiling, for the moment.
Then the question becomes, when do we reach this ceiling? Peak $20 oil was perhaps around the
early 2000's, and maybe peak $50 is around now (inflation adjuested). The costs facing the majors
appear to be accelerating quite rapidly, and if that breakeven chart is accurate the price curve
seems to accelerate quite steeply, so perhaps an optimistic estimate might give us a decade or
two.
And what with the more rapid decline rates of newer wells (deepwater and shale decline more
rapidly than onshore conventional) depletion rates will probably accelerate. I think that perhaps
the frequency of booms and busts in the oil price is going to accelerate a bit, as cycles of overinvestment
lead to more gluts, then the price collapses, then underinvestment leads to shortages which manifest
sooner, and so on. Does this sound plausible to you?
"what is the highest oil price that the world can sustain."
I think that's going to be different
for different parts of the world. Ironically, $100 oil caused demand to decrease in the U.S.,
but it kept growing strongly across the developing world.
The reason is: If the retail price of oil is $4/Gal, the daily per capita consumption price in
the USA is about $11.00. In India the daily per capita consumption price is about 61 cents. 2.7
Gallons versus 2.5 cups.
10% increase for one is $1.10 the other is 6 cents per day. A 5% increase in world consumption
will bring back $100 oil. Who do you suspect will cause the increased consumption, developed or
undeveloped nations?
Of course. I have written lots on this. A decade ago I thought poor countries would be priced
out of the market. As prices rose, I saw that it wasn't impacting demand in developing countries.
I also went to India in 2008 and saw 7 people on a motorcycle. And what you wrote above hit me:
It's such a low per capita consumption in developing countries, and just a little more has a big
impact on their lives. So they will drive future consumption.
It was an example of the data
causing a 180 degree shift in my opinion.
A gallon of diesel fuel burnt in a tractor or irrigation pump generates hundreds of times more
economic return than a gallon burnt fetching beer in an oversized pickup truck.
What's the return on Prius owner driving coast to coast to demonstrate against use of oil? Maybe
she or he is smoking pot and wrecks an expensive asset that cost the environment dearly. So, the
multi use pickup driving to neighborhood grocery not so bad after all. The pickup utilized in
providing services and supplemental income. The pickup life cycle extends multiples of the Prius
and powered upon environmentally friendly fuel that per gallon provides more jobs and economic
stimulus. The fuel supply will never diminish per continued use of processing plant and solar
powered feed stock. No need to be on a continuous search and development cycle of diminishing
supplies of raw material.
R Squared: The first time I ran across your name was back in 2005. I was having a disagreement
with some Minnesota renewable fuel agency folks, when suddenly you came into the conversation.
They were trying to say that ethanol was more efficient to produce than Gas; after reading your
comment I decided to let you take over, as you seemed to be someone from the tail end of energy
production and I was on the front end.
Been following your opinions ever since. Seems the internet
is a good way to keep from becoming obsolete since retiring twenty years ago. Thanks for your
years of effort to inform.
I remember that. It was one of those things that inspired me to start writing more. So much misinformation.
I actually got the state of Minnesota to change that claim on their website after having several
exchanges with them.
For a different kind of nuclear technology, one which we developed at Oak Ridge in the 60's, see
Liquid Fluoride Thorium technology. It's top ten attributes and why it will change the world:
I agree that peak oil is a function of price rather than raw supply numbers. However, I think
that drawing conclusions from the price is still a bit naive. Prices spiked in the late 70s, early
2000's, and early 2010's. What do those three time periods have in common? The Middle East was
on fire in all three periods (Arab oil embargo, Iraq war, and the "Arab Spring").
Peak oil isn't just a factor of supply as Hubbard proposed. Nor is it a function of price as
the author proposes. It is a wobbly stool of both these factors couple with the third leg of political
stability.
Like most things in life, reality is much harder to predict than theory would indicate.
Sometimes it helps to examine one narrow slice of the pie as a means to understanding the
entire pie. In the case of the shale oil Ponzi scheme, we can both wrap our minds around the
scale of the predicament and also answer the question of who the losses will be foisted on.
Once we've done that, you should be able to simply apply the same logic and learning to other
sectors of the financial universe. Learn one sub-bubble, learn them all; like a fractal foam of
misadventure.
"... I wish the author had discussed his current estimates of recoverable oil in the $50-70 range
rather than just implying it's there for the taking. A lot of countries have had their own individual
peaks in production (i.e. Egypt, Syria) and only much higher oil prices may reverse that (like
how high prices lead the US to increase energy extraction w/fracking). ..."
"... One question I'd really love to see tackled: if you could calculate the true, total cost of
production and use of a barrel of oil, including all the costs currently externalized (such as
the cost of repairing damage from earthquakes from fracking, or full ecosystem restoration and
financial restitution to affected people from pipeline breaks, etc) and compare that to the market
price, are a greater percentage of costs externalized than in the past? And where does that trend
go in the future? ..."
"... including all the costs currently externalized ..."
"... With all the mountains of BS on the internetz, this fundamental mat'l you will not find.
BTW add the cost of attributable MIC and Failed States to the list. ..."
"... differently ..."
"... responsible ..."
"... responsible ..."
"... Population will plateau at some point during this century. ..."
"... The problem is to get smart non-psychopaths in power, that's the #1 problem we have right now. ..."
"... It flies in the face of capitalist orthodoxy and its requirement of ever-expanding markets ..."
"... First, a big piece of what's going on stems from happy memories among Western policy makers
of how a similar Saudi-initiated oil price war played a big role in breaking the USSR back in
the 1980's. It's true that the price cut attends to some necessary cartel-management housekeeping,
but this is a side benefit – the motives are mainly geopolitical rather than commercial. War by
other means, as somebody said. For Putin, of course, the 1980's memories are not so happy. His
objectives include showing that Russian policy can't be jerked around via the oil price, and ideally
setting up consequences so painful to the Saudis that they'll never want to try this again. So
events won't follow the path you'd expect in a normal OPEC cartel management exercise – either
in time or in plot line. ..."
"... Second, there's a wicked price spike coming. It could be the day after tomorrow, if the Russians
and Iranians engineer something kinetic around the export facilities and trade routes on the western
shore of the Gulf. Or it could be a year or two from now, as the two sides – exhausted and poorer
– settle for some kind of mutually livable compromise. In either case the capex cuts now in train
will flip the oil supply from its present "glut" (very small in percentage terms as compared to
the 1980's experience) to a shortage at least as severe as the one in the middle years of the
last decade.. ..."
"... Oil price feedback will eventually kick in, though this is far in the future.
High oil prices increase the prices of all things dependent on oil for production or
transport. Eventually, the high price of oil starts to affect the price of oil itself. Those
spikes will be numerous and rapid, for a while. ..."
"... My take in Oil Dusk was to leave global warming out of the book and focus on the importance
of oil to the current infrastructure in the developed world and what a disruptive transition might
look like. Also, oil is truly scarce and took many millions of years to produce a quantity that
will mostly be gone within the next hundred years. Oil scarcity concerns me a lot more than climate
change. ..."
"... Within the
next five years, we will almost certainly see oil prices return to at least $90 a barrel – and
perhaps considerably more. ..."
"... The real alternative right now to oil is natural gas and it's likely that we transition from
a oil to a natural gas energy infrastructure before we get to a solar and wind driven world structure.
..."
"... The Saudis have the largest reserves of high quality cheaply extractable oil. They are the
highest rent producer. (There are likely further reserves of such cheap, high quality oil to be
found in a couple of places, Libya and Iraq, but you can see the problem there, and after that
there's nothing left to be found of conventional reserves). But they must also realize that the
age of oil is coming to a close over the next few decades. Hence it is in their interest to make
sure that they sell off their reserves to the last drop, before the end, and thus to squeeze out
higher cost unconventional producers. In the meantime, they also have an interest in keeping the
global economy from recession, since the value of their immense financial reserves depend on the
health of the global economy, which can readily be sent into recession by high oil prices. SO
likely they will try to keep the oil price from rising above , say, $70 for quite some time. so
as to balance out their various objectives. ..."
"... Conversion to renewables is just happytalk. Conversion to anything is just happytalk. A quick
look at physical fundamentals would reveal that there is simply not the means to continue industrial
civilization in anything vaguely like its current configuration. ..."
"... Civilization will be seriously disrupted–more likely, ended. Any technology or process that
would mitigate the resulting suffering would need to be robust against disruption. High technologies
and complex systems will not be robust, and will be of no use. ..."
"... Capitalism has been mentioned. The key point is that return on investment (on loans) is in
fact usury, and fundamentally criminal on a finite planet. The Industrial West "got away with"
usury for five centuries firstly because of imperialism (colonialism–the immiseration of the periphery
to prop up the center) and secondly because of cheap fossil fuels. Now that both of those are
at an end usury just means destroying the economy that already exists in the name of trying to
pay back the unpayable. Usury drove expansion, when expansion was physically possible; now it
accelerates decline. If we eliminated return on investment tomorrow, we would open a window for
addressing our problems. But usury will not be eliminated, and thus the chance of addressing our
problems is nonexistent. Won't happen–end of story. ..."
"... Meanwhile greenscams are everywhere, and will increase. Greenscams -- proposals for endless energy
and stuff (delivered in an environmentally friendly way, of course)–are about to become their
own proper industry. As everyone wants the impossible, greenscammers promise just that -– money up
front (from you, the sucker) for unicorns delivered in the future. After all, who can prove the
unicorns won't appear? This industry will be very profitable until we run out of suckers. I give
it a decade. ..."
I wish the author had discussed his current estimates of recoverable oil in the $50-70 range
rather than just implying it's there for the taking. A lot of countries have had their own individual
peaks in production (i.e. Egypt, Syria) and only much higher oil prices may reverse that (like
how high prices lead the US to increase energy extraction w/fracking).
One question I'd really love to see tackled: if you could calculate the true, total cost of
production and use of a barrel of oil, including all the costs currently externalized (such as
the cost of repairing damage from earthquakes from fracking, or full ecosystem restoration and
financial restitution to affected people from pipeline breaks, etc) and compare that to the market
price, are a greater percentage of costs externalized than in the past? And where does that trend
go in the future?
optimader
including all the costs currently externalized
With all the mountains of BS on the internetz, this fundamental mat'l you will not find.
BTW add the cost of attributable MIC and Failed States to the list.
jgordon
Rather than rehash things I've said before many times, I'll just provide a link to this classic
post from Nicole Foss at the Automatic Earth website. I think it offers context and interpretation
that's quite a contrast from the rosy and perhaps ill informed post above:
I agree with you, but this is a hard sell at this site due to deeply entrenched mythological
beliefs about 1. what money is and can do and 2. about infinite growth on a finite planet (collectively,
we're at the bargaining stage on this latter one as the signs of the end of growth and ecological
overshoot abound but are blocked from recognition by a paradigm that explains them as aberrations
or human failures). I'd add to the Nichole Foss post the book "Green Illusions: The Dirty Secrets
of Clean Energy and the Future of Environmentalism (Our Sustainable Future)," the webiste of Gail
Tveberg, Our Finite World," and the site "Economic Undertow".
jsn
It's not such a hard sell, I read plenty of comments here that understand what is in your references.
The issue is how you get where we need to go from where we are. Calling everyone who disagrees
ignorant doesn't help much: we all know what we know and don't know exponentially more. But it
is very hard to propose actionable ideas beyond "personal virtues" which on their own have no
chance. This is possibly the ultimate coordination problem: agreement on goals is much further
along than agreement on means.
MikeNY
+1
very perceptive comment
DanB
Please note I use "collectively" to refer to our culture, not to NC readers. Perhaps that was
not clear. And i've been reading and commenting here since 2009.
washunate
This is a great exchange. Perhaps what I might add is I'm not so sure we do have agreement
on goals. I think that does a disservice to those voices that quite passionately advocate moar.
They genuinely believe that more work, more output, more deficit spending, more higher education,
more home equity, more development and infrastructure, more aggregate activity, will improve society.
It is a moral calling they see, and it is quite distinct from the perspective that we should live
differently. We can't paper over how deep that chasm is between those that want full
employment and those that want a world where less is more. One irony of the post-Keynesian (and
post-Bretton Woods) MMT world is that Keynes himself thought we'd only need to be working a few
hours a week by now. Capital accumulation was the great liberator of our time, to allow us human
beings to do more important and exciting (and less polluting) things than go to work. But the
secularization of the puritan work ethic – the notion that human life is directionless without
an authoritative (and fatherly) figure to give direction – dies hard.
bdy
And for whatever reason, the less-is-more crowd isn't so much in the habit of proposing actionable
ideas. We might consider that dismissal and scorn are nothing more than rhetorical tools in a
conversation about power. (See Ghandi or Nicholas Klein: "first they ignore you…")
– We can tax excessive consumption at the rate of its externalities, even (and especially)
for necessities like food, water and housing
– We can publicly fund taking people and institutions off of the grid.
– We can publicly fund light industry and massive agricultural infill in our cities.
– We can lift property taxes and subsidize rents for anyone who walks or bicycles to work.
– We can tax energy in direct proportion to the loss rate of whatever grid carries it.
– We can enable the State to enter the Market wherever a discernible demand is not being met,
as consumer or provider (see giving medicine to sick children or eating unadulterated food)
– We can scrunch city streets to the size of cart paths, confiscate any vehicle that exceeds 25
mph, shade everyone's windows, turn off our a/c, criminalize the use of drinking water for anything
but drinking, locally compost all our bio-waste, end the industry of converting sunlight to meat,
criminalize bulk possession of any bio-toxin, enforce a 25 hr / 3 day work week with no overtime,
revoke the commerce clause (or not), buy back guns at triple the sticker price and melt them into
strollers and windmills…
It's simply a matter of keeping the conversation on point (what works within the limits of
our solar income?) and being willing to discuss policies that might or might not reduce our level
of comfort and privilege.
Naomi Klein reads like USA Today, but The Shock Doctrine is right. The inevitability of scarcity
means that crises will escalate. And with each escalating crisis, the most unthinkable ideas will
become potentially acceptable (including comic-book nastiness like a nuclear first strike; ethnic
cleansing in Kansas; a 0% capital gains tax; or declaring global, never-ending war against
non-christians terror).
If enough of us agree that shit is really going South in a bucket, and that the Fiat dollar
allows us to spend relatively freely on things like war in Iraq; QE; or mitigating the disruption
of mass industrial shrinkage, then we should also agree that the "actionable" in actionable ideas
is all encompassing. Because the next time someone flies a false flag or blows up a critical asset
class, the table will be in dire need of transformative food for thought.
washunate
It's simply a matter of keeping the conversation on point (what works within the limits
of our solar income?) and being willing to discuss policies that might or might not reduce
our level of comfort and privilege.
Yep. I think that's one of the characteristics that makes proposals to do less (for example,
tax the rich or end the drug war or scale back IP law) the most realistic in a system as corrupt
intellectually and financially as ours is today.
It's the first rule of holes: stop digging. Almost all of the big ideas to do more require
an infrastructure of good faith management that simply doesn't exist.
Brooklin Bridge
Thanks for the link. That is a very interesting and well written article, worth reading and
re-reading since it gives a good perspective on many issues. But you should also take into account
that it (and all the links inside it) was written in 2012 and the costs of producing renewable
energy are dropping to such an extent (like compound interest) that they are changing the nature
of the issue.
Moreover, the argument the article makes doesn't negate the need to transition to renewables;
rather it acknowledges that need but emphasizes the gains of doing so locally in support of (as
alleviation to) the current centralized power model rather than immediately replacing it. My argument
about corruption below, I think, is one of the reasons that this effort has not gone further.
Example, Hawaii, where electric utilities have had considerable success in halting renewables
at the local level by individuals due to fear of reduction in profits.
Brooklin Bridge
Note, the fear of reduction in profits isn't entirely without merit. But what is without merit
is the capitalist system that makes it possible for the utilities to win a battle for profits
in a war for existence.
jgordon
The article is even more relevant than it was in 2012; the issue is not the cost of a solar
panel, which is perhaps the least important cost in the process. Rather, it's the way our infrastructure
is set up. The centralized utility/grid model is still just as incompatible with renewable energy
today as it was in 2012.
It's possible that we could all have a solar panel array and a windmill directly adjacent to
the demand–but we'll still have to cut our energy consumption by 95%. In that kind of a world,
things like personal passenger vehicles and the internet will not exist. I'm looking forward to
it.
hidflect
The primary issue is one polite society refuses to address: population.
jsn
That is the issue that makes it "possibly the ultimate coordination problem". The moral reality
of billions of lives lie in the balance of the actions one takes or doesn't take. That weight
may be among the biggest barriers to responsible action: those who aspire to be responsibleare
the most unnerved by this issue.
washunate
I'm much more optimistic on that front. Population is not a large coordination problem because
there is no scaling needed to have fewer kids later in life (at least until the authoritarians
perfect their Huxley Bokanovsky groups, I guess). Those are individual choices that can be made
at the ultimate local level.
It's already happening all around the globe, and outside of China, it's mostly happening as
a genuinely free choice made available by the intersection of reproductive healthcare and a basic
standard of living. It's almost like our species subconsciously recognizes the value of reducing
the total population. Even against the stern worrying of the Serious People that declining birth
rates threaten The Economy(TM).
Ignacio
+1, an other perceptive comment.
Also the 'population problem' is a relative problem to consumption, resources and distribution.
Population will plateau at some point during this century.
There is no such thing as 'population problem' with the appropriate policies if the population
does not go beyond 10 bill. (and old people consumes much less, by then humanity will be aging,
damn, it already is in developed nations).
The problem is to get smart non-psychopaths in power, that's the #1 problem we have right now.
jsn
Right now the real resources ratchet is producing civil wars and mass migrations, for instance,
among other problems that are just beginning to blossom.
It isn't population per se that is the coordination problem, it is equitable distribution of
diminishing real resources in real time to support it without mass die offs that is.
So far industrial overshoot is playing out with all the harbingers of collapse which will solve
the distribution problem by natural selection. The coordination problem is to solve the distribution
problem ethically to prevent nature taking its course.
Nature bats last, so the trick is to keep the inning going.
MikeNY
I think this is true, and there are two big reasons for it:
1. It flies in the face of capitalist orthodoxy and its requirement of ever-expanding markets
2. If flies in the face of certain religious teachings on sexuality
Both of these need to be rethought.
Eric Patton
The article does not mention the word "capitalism" even once.
Private enterprise market economies - capitalism - are literally incompatible with reduced
emissions. As long as we have a private enterprise economy with market-based allocation, we will
simply continue to destroy the planet.
Private enterprise centrally planned economies, public enterprise centrally planned economies,
and public enterprise market economies have all existed in real life: Nazi Germany, the former
Soviet Union, and the former Yugoslavia. None of these are viable alternatives to capitalism,
if the goal is reduced carbon emissions.
People are not yet ready to discuss the alternative though. This is not good.
JTMcPhee
…it's not "market based allocation," unless one does a little trick with definitions and categories–
I'd call it "corruption based allocation," with a secondary diagnosis of terminal metastatic idiotic
greed…
Pwelder
This post is OK as far as it goes, but it misses a couple of realities in the current situation
that are relevant to finance and politics when viewed – as Yves does – from 50,000 feet.
First, a big piece of what's going on stems from happy memories among Western policy makers
of how a similar Saudi-initiated oil price war played a big role in breaking the USSR back in
the 1980's. It's true that the price cut attends to some necessary cartel-management housekeeping,
but this is a side benefit – the motives are mainly geopolitical rather than commercial. War by
other means, as somebody said. For Putin, of course, the 1980's memories are not so happy. His
objectives include showing that Russian policy can't be jerked around via the oil price, and ideally
setting up consequences so painful to the Saudis that they'll never want to try this again. So
events won't follow the path you'd expect in a normal OPEC cartel management exercise – either
in time or in plot line.
Second, there's a wicked price spike coming. It could be the day after tomorrow, if the Russians
and Iranians engineer something kinetic around the export facilities and trade routes on the western
shore of the Gulf. Or it could be a year or two from now, as the two sides – exhausted and poorer
– settle for some kind of mutually livable compromise. In either case the capex cuts now in train
will flip the oil supply from its present "glut" (very small in percentage terms as compared to
the 1980's experience) to a shortage at least as severe as the one in the middle years of the
last decade..
Why should progressives care? Many good reasons, but the big one I haven't seen mentioned is
this: There's a good chance the spike lands smack in the middle of the 2016 election. That being
the case, this is probably not a great time to be parading around bragging about successes in
blocking pipelines and keeping the oil on trains.
MrColdWaterOfRealityMan
There are a number of issues not mentioned that factor into any prediction:
1) Oil isn't electricity. It's not used the same way and currently can't be used the
same way. There are no electric airplanes, freight trains or cargo ships. Despite innumerate
claims to the contrary, no current battery technology is capable of replacing hydrocarbon
fuels. The volumetric energy density is not there and won't be for the foreseeable future.
2) Price is a proxy for energy return. Prior to the current overproduction glut (the
equivalent of squeezing a sponge harder for a few seconds), oil became expensive because
acquiring it from fracking or drilling in deep water is more expensive, both energetically and
economically. Despite the current overproduction blip, the upward pricing trend will
inevitably continue.
3) Production breakdown will be nonlinear. The world's current interdependent,
global, just-in-time supply chains depend on *cheap* oil to be economical. When oil prices
jump again, as they inevitably will, these will start breaking down in unpredictable ways as
production and transportation costs increase. This affects everything, including the price of
oil
4) Oil price feedback will eventually kick in, though this is far in the future.
High oil prices increase the prices of all things dependent on oil for production or
transport. Eventually, the high price of oil starts to affect the price of oil itself. Those
spikes will be numerous and rapid, for a while.
Oildusk
I was involved in a book entitled the Carbon Conundrum, by Bob Kelly. Bob has a PDH in economics
from Harvard. He mapped out the anticipated volume of fossil fuels remaining and it's impact on
the world climate. His take was that we'd run out of oil in the not too distant future and that
it would take the world about 500 years to get back to pre-industrial carbon levels.
My take in Oil Dusk was to leave global warming out of the book and focus on the importance
of oil to the current infrastructure in the developed world and what a disruptive transition might
look like. Also, oil is truly scarce and took many millions of years to produce a quantity that
will mostly be gone within the next hundred years. Oil scarcity concerns me a lot more than climate
change.
While a book about oil scarcity might seem unrealistic at this juncture with world prices hovering
in the $45 – $50 range, I remember twelve years ago when I couldn't persuade the bank to provide
me with a price deck above $30 a barrel so that I could make some energy investments. Within the
next five years, we will almost certainly see oil prices return to at least $90 a barrel – and
perhaps considerably more.
The real alternative right now to oil is natural gas and it's likely that we transition from
a oil to a natural gas energy infrastructure before we get to a solar and wind driven world structure.
Energy transitions are difficult and the actual path will make a huge difference in where we
are as a species in the next 100 years.
Ignacio
There are different ways of looking at the energy issue depending on where do you live and
I appreciate very much the insigths from Mumbay, India. I live is Spain and I have a different
view. India is growing briskly while spain is stagnated and will be so for years to come it
seems. Instead of growing fossil fuel consumption we have seen a quite noticeably decline,
particularly for petrol products. Since the beggining of the crisis, petrol products
consumption has declined by 28% (From 75 million tons annually in 2015-2017 to 54 million tons
in 2014). Domestic oil production covers less than 1% of total consumption. We depend almost
totally on oil imports.
The observed decline has been caused of course by the financial crisis and high oil prices.
Nevertheless, I bet that in Spain we have already seen an all-time peak oil consumption. Of
course, lower oil prices are now playing in reverse and 2015 will see a modest rise in petrol
products consumption for the first time since 2007. Nevertheless the observed decline shows
clearly that an economy can function with much lower oil energy input. And there is still a
lot of room to reduce consumption.
A country like Spain, totally dependent on oil imports and crushed by bad debt is very
sensitive to oil price volatility and there are many economic incentives to reduce oil
consumption and replacement with renewables. In a depressed economy like ours, every
euro/dollar saved on imported petrol products has a multiplier effect on growth. Besides,
pressure is mounting from the side of public health (toxic emissions from gasoil, fueloil and
kerosene) and climate protection. Spain has not the size nor the population of India and its
international impact is small. But it migth become an advanced laboratory trial to test the
end of the Oil Age.
DanB
You write, "While a book about oil scarcity might seem unrealistic at this juncture with world
prices hovering in the $45 – $50 range…" Actually, the reason the price is low is due to the scarcity
of cheap light sweet crude oil. We're seeing more and more people unable to afford more and more
of life's necessities while simultaneously the cost of extracting oil is increasing (along with
bankruptcies and mergers among energy companies to fend off the inevitable consequences of peak
oil on debt, finance and the economy.) Low prices do not mean a glut of oil; they signal just
the opposite. And then we have a neoliberal political/economy that worsens the matter.
susan the other
I agree and I'm convinced that every government on Earth agrees. What I see playing out between
the Saudis-Qataris and the Russians is a struggle to control natural gas. The Gulf wants to pipe
gas thru Syria and turkey to the EU. Russia wants to pipe gas from the Caspian to southern Europe.
France wants to gain a share of the gas fields belonging to Egypt and get in on the action. It
looks like Iran intends to supply China with natural gas via a pipeline thru Pakistan. What this
looks like is a pact among the producers to leave oil in the ground after a certain window of
time needed to switch to natural gas and then the reduction of the use of natural gas as it is
replaced by renewables. The Saudis are using their natural advantage to sell as much of their
oil as they can before the window closes. Maybe.
john c. halasz
The Saudis have the largest reserves of high quality cheaply extractable oil. They are the
highest rent producer. (There are likely further reserves of such cheap, high quality oil to be
found in a couple of places, Libya and Iraq, but you can see the problem there, and after that
there's nothing left to be found of conventional reserves). But they must also realize that the
age of oil is coming to a close over the next few decades. Hence it is in their interest to make
sure that they sell off their reserves to the last drop, before the end, and thus to squeeze out
higher cost unconventional producers. In the meantime, they also have an interest in keeping the
global economy from recession, since the value of their immense financial reserves depend on the
health of the global economy, which can readily be sent into recession by high oil prices. SO
likely they will try to keep the oil price from rising above , say, $70 for quite some time. so
as to balance out their various objectives.
Gaianne
One hesitates to add to an overly long thread.
Conversion to renewables is just happytalk. Conversion to anything is just happytalk. A quick
look at physical fundamentals would reveal that there is simply not the means to continue industrial
civilization in anything vaguely like its current configuration.
Civilization will be seriously disrupted–more likely, ended. Any technology or process that
would mitigate the resulting suffering would need to be robust against disruption. High technologies
and complex systems will not be robust, and will be of no use.
Photovoltaic technology is a mid-term, niche, small-scale amelioration. It cannot power the
grid, and it cannot replace the grid. Until panels can be made without rare-earth elements, the
supply is seriously constrained by geology. Even if they are freed from rare-earths, the high
technology and long suppy chains mean they will not go more than a few decades into the future.
The grid itself will go down, region by region, never to return.
Those of us who use photovoltaics know they are wonderful for the small-scale low-power applications
to which we put them. And of no use for the high-energy large-scale schemes we keep hearing about.
Capitalism has been mentioned. The key point is that return on investment (on loans) is in
fact usury, and fundamentally criminal on a finite planet. The Industrial West "got away with"
usury for five centuries firstly because of imperialism (colonialism–the immiseration of the periphery
to prop up the center) and secondly because of cheap fossil fuels. Now that both of those are
at an end usury just means destroying the economy that already exists in the name of trying to
pay back the unpayable. Usury drove expansion, when expansion was physically possible; now it
accelerates decline. If we eliminated return on investment tomorrow, we would open a window for
addressing our problems. But usury will not be eliminated, and thus the chance of addressing our
problems is nonexistent. Won't happen–end of story.
There is much to be done nonetheless. Learning to live will less, and on things which can obtained
locally, is both possible and necessary. Managing local, available sunlight for heating and cooling
was well researched (and ignored) back in the 1970s. Much can be done on a small, local scale.
Meanwhile greenscams are everywhere, and will increase. Greenscams -- proposals for endless energy
and stuff (delivered in an environmentally friendly way, of course)–are about to become their
own proper industry. As everyone wants the impossible, greenscammers promise just that -– money up
front (from you, the sucker) for unicorns delivered in the future. After all, who can prove the
unicorns won't appear? This industry will be very profitable until we run out of suckers. I give
it a decade.
–Gaianne
Steven
Just about the best take I've found on this subject – and on money and economics – is Frederick
Soddy's "Wealth, Virtual Wealth and Debt" (2nd edition). Here are some samples:
…though as yet the applications of the knowledge to the economics of life are not generally realised, life in its physical aspect is fundamentally a struggle for energy,… p. 49
As Ruskin said, a logical definition of wealth is absolutely needed for the basis of economics
if it is to be a science. p. 102
The vast potential productivity of the industrialised world, particularly in the engineering
and chemical industries, must find an outlet. If that outlet is by financial folly denied it in
the building up and reconstruction of the home-life of nations, it remains as a direct and powerful
incentive to the fomenting of war. p. 303
The first bullet obviously goes far beyond mere oil wars. Ecology 101 says we can't turn the earth
into one wriggling mass of humanity, that other forms of life are necessary to sustain our existence.
You've heard variations of the second bullet before, e.g. Oscar Wilde describing the Anglo Saxon
version of economics: "they know the price of everything and the value of nothing."
If the third bullet doesn't ring a bell, you have been listening to too much Fox news. The
military industrial complex gained its death grip on the American economy in the aftermath of
a Great Depression that left America's financial and political leadership with a profound fear
of the return of peace. At stake was not just unparalleled political and military hegemony but
the power to create money ex nihilo and exchange it for the world's wealth.
We have been covering the ongoing collapse in global manufacturing as tracked by Caterpillar
retail sales for so long that there is nothing much to add.
Below we show the latest monthly data from CAT which is once again in negative territory across
the board, but more importantly, the global headline retail drop (down another 11% in August)
has been contracting for 33 consecutive months! This is not a recession; in fact the nearly 3
year constant contraction - the longest negative stretch in company history - is beyond what most
economists would deem a depression.
We got the answer just three days later when the industrial bellwether confirmed the world is
now in an industrial recession, when it not only slashed its earnings outlook, but
announced it would fire a record 10,000.
Moments ago, CAT reported its
latest monthly retail sales and they were even worse than last month: in the month of September
there was not a single region that posted either a increase of an unchanged print. This was the first
month in all of 2015 in which every region posted a drop.
Putting CAT's result in context, the Great Financial Crisis resulted in 19 consecutive months
of sales declines. We are currently at 34 months and showing no signs of any pick up.
As such, based on CAT's ongoing shockingly bad retail sales we wonder if it is no longer merely
a global recession: perhaps that time has come to call it what it really is - a global industrial
(at first) depression, which has so far been hidden from plain view thanks to $13 trillion in central
bank liquidity, whose marginal impact is evaporating by the day and a Chinese credit machine which
recently hit a brick wall.
"... world oil prices were now too low to support U.S. shale oil output, the biggest addition to
world production over the last decade. ..."
"... We are about to see a pretty dramatic decline in U.S. production growth, the former head of
oil firm EOG Resources Mark Papa, told the conference. ..."
"... U.S. oil production
would stall this month and begin to decline from early next year. He said the main reason for the
decline would be a lack of bank financing for new shale developments ..."
"... The chief executive of Royal Dutch Shell Plc agreed, saying U.S. oil producers would struggle
to refinance while prices remained so low, leading to lower output in future. Producers are now looking for new cash to survive and they will probably struggle to get it,
Ben van Beurden said. ..."
"... Longer term, there was a risk that low levels of global production could bring a spike in oil
prices, he said. ..."
"... Adam Sieminski, administrator at the U.S. Energy Information Administration, told reporters on
the sidelines of the conference the U.S. oil industry had reacted to lower prices by improving its
productivity. But this process could not continue forever. ..."
"... The Secretary-General of OPEC, Abdullah al-Badri, said oil supply growth from non-OPEC producers
might be zero or negative in 2016 because of lower upstream investment. ..."
"... But Papa said if U.S. light crude oil prices went back up to $75 a barrel, U.S. oil production
would resume growth at around 500,000 bpd - or around half the record growth rates observed in the
past few years. I see the United States as a long-term growth producer, he said. If low oil prices prevail
- then the correction in oil prices will be much more severe. ..."
World prices seen too low to support U.S. shale oil output
Lack of bank financing seen for new shale developments
Risk low production levels may cause price spike
U.S. oil sector productivity improvements seen near limit (Recasts; adds U.S. production forecasts)
Oil executives warned on Tuesday of a "dramatic" decline in U.S. production
that could pave the way for a future spike in prices if fuel demand increases.
Delegates at the Oil and Money conference in London, an annual gathering of senior industry officials,
said world oil prices were now too low to support U.S. shale oil output, the biggest addition to
world production over the last decade.
"We are about to see a pretty dramatic decline in U.S. production growth," the former head of
oil firm EOG Resources Mark Papa, told the conference.
Papa, now a partner at U.S. energy investment firm Riverstone Holdings LLC, said U.S. oil production
would stall this month and begin to decline from early next year. He said the main reason for the
decline would be a lack of bank financing for new shale developments.
Official data show that nationwide U.S. output has already begun to decline after reaching a peak
of 9.6 million barrels per day (bpd) in April, although production in some big shale patches, including
North Dakota, has held steady thus far. The Energy Information Administration forecast on Tuesday
that output would reach a low of around 8.6 million bpd next year.
Until this year, U.S. oil output was growing at the fastest rate on record, adding around 1 million
bpd of new supply each year thanks to the introduction of new drilling techniques that have released
oil and gas from shale formations. But oil prices have almost halved in the last year on oversupply in a drop that deepened after
the Organization of the Petroleum Exporting Countries in 2014 changed strategy to protect market
share against higher-cost producers, rather than cut output to prop up prices as it had done in the
past.
Benchmark Brent crude was up 5 percent, or $2.50 a barrel, at $51.75 on Tuesday as investors digested
news from the London conference. It peaked in recent years above $115 a barrel in June 2014.
SPIKE
The chief executive of Royal Dutch Shell Plc agreed, saying U.S. oil producers would struggle
to refinance while prices remained so low, leading to lower output in future. "Producers are now looking for new cash to survive and they will probably struggle to get it,"
Ben van Beurden said.
Longer term, there was a risk that low levels of global production could bring a spike in oil
prices, he said.
If prices remained low for a long time and oil production outside OPEC and the United States declined
due to capital expenditure cuts, there was not likely to be any significant spare capacity left in
the system, he said.
"This could cause prices to spike upwards, starting a new cycle of strong production growth in
U.S. shale oil and subsequent volatility," van Beurden said.
Adam Sieminski, administrator at the U.S. Energy Information Administration, told reporters on
the sidelines of the conference the U.S. oil industry had reacted to lower prices by improving its
productivity. But this process could not continue forever.
"Now we are seeing the limits at least in the near term and it is beginning to impact production,"
Sieminski said. "We see (U.S. oil production declines) continuing into next summer."
The Secretary-General of OPEC, Abdullah al-Badri, said oil supply growth from non-OPEC producers
might be zero or negative in 2016 because of lower upstream investment.
But Papa said if U.S. light crude oil prices went back up to $75 a barrel, U.S. oil production
would resume growth at around 500,000 bpd - or around half the record growth rates observed in the
past few years. "I see the United States as a long-term growth producer," he said. "If low oil prices prevail
- then the correction in oil prices will be much more severe."
"... I would suggest that right wing policy shoveling all the income and wealth gains into
the pockets of a few rich plutocrats are incompatible with economic growth. ..."
"... But why is inequality rising in nearly all societies worldwide (including the northern
European societies)? Could it be that sovereign governments are trapped in a race for
current-account surpluses and improve their current-account balances by transferring income
from consumer households to saver/investor households (and in some cases, such as Saudi Arabia
or China, governments)? See Michael Pettis, The Great Rebalancing ..."
I listened for quite a while hoping for something that sounded like an actual insight but
never got past why Hansen became Keynesian. Capitalists do not need to be euthanized.
Capitalists are suicidal. They would rather bet their money in a Wall Street casino than pay
wages high enough for their customers to buy their goods because they keep forgetting that
their workers ARE their customers. Trade deficits driven by offshoring are one of the most
effective ways of making capital more efficient while simultaneously lowering wages and
aggregate demand including even for those goods our corporations produce offshore.
If per capita income/demand falls, prices are stable, and profit margins increase then volume
is bound to fall.
Jan said...
Great lecture! O'Rourke's close attention to both the history of economic thought and
economic history sets him apart (above) most of the debate on secular stagnation.
According to Martin Wolf, world interest rates were unusually low from about 1895 until WWI
and lower still during the 1920s. This suggests that secular stagnation might be a chronic
problem. Perhaps Hansen is right that humans normally save too much. Or perhaps the
interaction among sovereign states in a global economy causes a secular trend of rising world
savings. Or perhaps something else. What do you think?
DeDude said in reply to Jan...
I would suggest that right wing policy shoveling all the income and wealth gains into
the pockets of a few rich plutocrats are incompatible with economic growth. There is a
reason that the Scandinavian countries are so wealthy (in spite of 5-6 week annual vacation
etc.).
DeDude said...
The economy IS consumption. Even the 30% of GDP that is not direct consumption is not going
to grow unless consumption is growing. So to grow the economy you either increase private
sector consumption or you increase public sector consumption. The only way to obtain a
sustainable increase in private sector consumption is to get a better income and wealth
distribution away from investor class and into consumer class pockets. Alternatively, when the
private sector resist increased consumption you have to increase public sector consumption
(financed either by debt or by taxing the investor class). GDP is not rocket science, it is
5th grade math.
Jan said...
I totally agree (and so does Summers) that growing income inequality is a proximate cause
of excess saving and, hence, secular stagnation.
(By the way, although the USA is commonly perception as a profligate spender, the USA private
sector's ratio of wealth (accumulated saving) to consumption has risen by about 5% since 1980.
So contrary to the common perception, the USA's private sector has been contributing to the
growth of the world saving glut.)
But why is inequality rising in nearly all societies worldwide (including the northern
European societies)? Could it be that sovereign governments are trapped in a race for
current-account surpluses and improve their current-account balances by transferring income
from consumer households to saver/investor households (and in some cases, such as Saudi Arabia
or China, governments)? See Michael Pettis, The Great Rebalancing, on how sovereigns
improve their current account balances. (Warning: you won't find Pettis's brilliant exposition
in an International Economics textbook, which is stuck in the neoclassical obsession with
allocative efficiency and, hence, "free trade.")
"... What this implies is that limitations on future supplies may result from the price of oil being
too low. Contrary to the public perception that such limits would be accompanied by high prices, it
is precisely high prices that make it possible to exploit the marginal deposits that are unprofitable
today. ..."
"... Writer Gail Tverberg has developed this thesis in detail on her blog Our Finite World, a thesis
first advanced by energy analyst and consultant Steven Kopits. ..."
What this implies is that limitations on future supplies may result from the price
of oil being too low. Contrary to the public perception that such limits would be accompanied
by high prices, it is precisely high prices that make it possible to exploit the marginal
deposits that are unprofitable today.
Writer Gail Tverberg has developed this thesis in detail on her blog Our Finite World,
a thesis first advanced by energy analyst and consultant Steven Kopits.
"... Of course, the Cato Institute, Heritage, and Team Republican economists are proud that their
opinions are bought and paid for. ..."
"... Most (all?) academic types are keenly aware of the importance of grantsmanship as a basic
skill. Knowing the appropriate funding sources and, in some cases, the interests and biases of
funding sources, is stock in trade. Scientific research has become so capital intensive that large
grants from government and large foundations are necessary to carry it out. For the most part,
the biases of the granting institutions are known and discounted. ..."
Is Money Corrupting Research?: The integrity of research and expert opinions in Washington
came into question last week, prompting the resignation of Robert Litan ... from his position
as a nonresident fellow at the Brookings Institution.
Senator Elizabeth Warren raised the issue
of a conflict of interest in Mr. Litan's testimony before a Senate committee... Senator Warren
was herself criticized by
economists and
pundits, on the left and right. ... But at stake is the integrity of the research process
and the trust the nation puts in experts, who advise governments and testify in Congress. Our
opinions shape government policy and judicial decisions. Even when we are paid to testify...,
integrity is expected from us. ...
Yet it is disingenuous for anybody (especially an economist) to believe that reputational incentives
do not matter. Had the conclusions not pleased the Capital Group, it would probably have found
a more compliant expert. And the reputation of not being "cooperative" would have haunted Mr.
Litan's career as a consultant. ...
Reputational ... concerns do not work as well with sealed expert-witness testimony or paid-for
policy papers that circulate only in small policy groups. ... A scarier possibility is that reputational
incentives do not work because the practice of bending an opinion for money is so widespread as
to be the norm. ...
He goes on to suggest some steps to strengthen the reputational incentive.
pgl said in reply to Larry...
"Businesses sometimes finance policy research much as advocacy groups or other interests
do," the economists wrote. "A reader can question the source of the financing on all sides,
but ultimately the quality of the work and the integrity of the author are paramount." They
praised Litan's quality and integrity as having been "impeccable over a career of four decades."
The fact of the matter is that funding comes from all sorts of places. One should always disclose
the sourcing of funding and then let one's writings stand scrutiny.
Of course, the Cato Institute, Heritage, and Team Republican economists are proud that their
"opinions" are bought and paid for.
Brookings fellow resigns after Senator Warren accuses him of conflicts
By SARAH N. LYNCH - Reuters
WASHINGTON
A prominent Brookings Institution fellow resigned on Tuesday, after Massachusetts Senator Elizabeth
Warren accused him of failing to fully disclose industry funding tied to a study that criticized
the U.S. Labor Department's plan to regulate brokerages.
The resignation of Robert Litan came just one day after Warren, a Democrat, sent Brookings'
president a letter demanding to know more about the think tank's policies on financial conflicts
and details about the communications between Litan and Capital Group, an investment firm that
funded his research paper.
"He has acknowledged that he made a mistake in not following Brookings regulations designed
to uphold the independence of the institution," Brookings President Strobe Talbott said in a statement
provided to Reuters.
Warren's concerns center a study that Litan and researcher Hal Singer jointly conducted which
examined a controversial plan by the Labor Department to try and rein in conflicts posed by brokers
who offer retirement advice.
The proposal has garnered fierce opposition from Wall Street, and Litan's study concluded that
the plan could harm consumers.
Litan testified about the study's findings in a July hearing before a U.S. Senate panel, in
which he represented himself as a fellow at Brookings.
The study was conducted by Litan and Singer in their capacity as staffers for Economists, Inc.,
a consulting firm.
Although his testimony and his study did disclose that Capital Group provided funding, Warren
said that she later learned this was not the full story.
In a series of follow-up questions Warren sent to Litan after the hearing, she said he disclosed
that Capital Group also provided feedback and editorial comments on a draft.
This, she said, ran counter to his claim at the hearing that he and Singer were "solely responsible"
for the study's conclusions.
In addition, he disclosed that Capital Group had paid Economists Inc $85,000 for the study,
and his share was $38,800.
In her letter to Brookings, Warren said the lack of disclosure raises "significant questions
about the impartiality of the study and its conclusions."
Litan, a former top official in the Clinton administration, did not respond to an email seeking
comment.
He is a well-known economics expert in Washington who has authored or co-authored over 25 books.
"We greatly appreciate all the good work Bob has done for Brookings over the 40-plus years
he has been connected to this institution," Talbott said.
According to Reuters, he failed to disclose his relationships
when presenting his report and when testifying, and seems to have lied:
"Although his testimony and his study did disclose that Capital Group provided funding, Warren
said that she later learned this was not the full story.
"In a series of follow-up questions Warren sent to Litan after the hearing, she said he disclosed
that Capital Group also provided feedback and editorial comments on a draft.
"This, she said, ran counter to his claim at the hearing that he and Singer were "solely responsible"
for the study's conclusions."
Can I edit anything you write and claim as solely your own work? I want to have my point of
view endorsed by a much larger group of writers, and the best way is for me to fix their writings.
It was not Litan being paid that was the problem, but the fact he claimed the words written
for him were his own as an "independent" authority.
Second Best said...
Money corrupts research as sure as the Pope is Catholic...
This is the actual paper of the model, but do not be afraid. Here are the highlights:
" HANDY is a 4-variable thought-experiment model for interaction of humans and nature.
The focus is on predicting long-term behavior rather than short-term forecasting.
Carrying Capacity is developed as a practical measure for forecasting collapses.
A sustainable steady state is shown to be possible in different types of societies.
But over-exploitation of either Labor or Nature results in a societal collapse."
There are equations. And graphs. The concluding paragraph of the abstract:
"The measure "Carrying Capacity" is developed and its estimation is shown to be a practical
means for early detection of a collapse. Mechanisms leading to two types of collapses are discussed.
The new dynamics of this model can also reproduce the irreversible collapses found in history.
Collapse can be avoided, and population can reach a steady state at maximum carrying capacity
if the rate of depletion of nature is reduced to a sustainable level and if resources are distributed
equitably."
This made the press about a year and a half ago, was commented on, but has since been ignored.
Google "Handy Model" for popular presentations and critiques.
You decide whether it should continue to be ignored, given the remarkable progress the world
has made towards remedying inequality, conserving resources, and controlling population growth.
(That's sarcasm.)
reason said...
There is another solution to this issue. Financing should never be direct to the researcher.
That way there is a funding body (say a university) that decides who researches what, and the
funding is channeled through them (through a public application process). If a firm is really
interested in disinterested research, no problem.
If it wants to control the research, they have a problem. Of course the whole funding body
could be corrupted but if there is a public review process that can be minimised.
cm said in reply to reason...
It is more subtle than asking for or implying a preference for specific results. Regardless
how the funding is distributed, except perhaps by lottery, there is the issue of "repeat business"
or expert shopping (cherry-picking research organizations that are known to fall in a particular
camp).
Then there is the issue of fads - even in relatively apolitical tech science, funding and research
flocks to certain hot topics, as people hunt for funding by trying to tie their proposal to the
current hot topics. But then this is perhaps more a consequence of an already corrupted funding
process that only supports R&D that conforms to current preconceived notions and business interests.
bakho said...
Money supports bias.
RC AKA Darryl, Ron said...
Money is power. Power corrupts.
mrrunangun said...
Most (all?) academic types are keenly aware of the importance of grantsmanship as a basic
skill. Knowing the appropriate funding sources and, in some cases, the interests and biases of
funding sources, is stock in trade. Scientific research has become so capital intensive that large
grants from government and large foundations are necessary to carry it out. For the most part,
the biases of the granting institutions are known and discounted.
Even in science, when research into a controversial area has been ambiguous enough for sustained
disagreement, it is common to find that a given research shop's work consistently comes down on
one side of the controversy and another shop's work consistently on the opposing side of the controversy.
In such cases, only people who follow the research in the area closely are likely to be aware
of this. Usually time and technical improvements in measuring equipment puts controversies to
rest, but the time is often measured in years. In these cases, the biases come from the leaders
of the research shops rather than the grantors.
There are politics among granting institutions as well. These are less often political biases
and more often they are of a personal nature, and since the people on a granting committee are
necessarily expert in the field that the grantee will be working in, they will often be personally
acquainted with the grant applicants. Not uncommonly, former students of the members of the committee.
Economics and long range climate science are necessarily model-based. Their short-term predictions
are often proven wrong which casts doubt on the reliability of their long-term predictions. As
a result, there may be legitimate differences of opinion as to the applicability of a particular
model to a particular situation.
In the case of Mr Litan, the fact that he acknowledged that his study was funded by Capital
and that he was testifying on behalf of the industry announce his bias.
GeorgeK said...
Tainted research is the norm in most industries, research dollar come from corporations that
expect their interest to be served. Currently Monsanto emails show how heavy handed this pay for
research problem has become. ...""Professors/researchers/scientists have a big white hat in this
debate and support in their states, from politicians to producers," Bill Mashek, a vice president
at Ketchum, a public relations firm hired by the biotechnology industry, said in an email to a
University of Florida professor. "Keep it up!"...
The antidote to this kind of crap is the public funded University with tenured professors and
sufficient resources (endowed Chairs) to conduct research without need to go out and get external
funding for a study. As the public funding is reduced in order to give tax cuts to the rich plutocrats
such truly independent research become more rare -and the plutocrats increasingly manage to own
the facts.
"... The pumping business in North American is clearly the most stressed segment of the market
today, but it's also the market we know the best, President Jeff Miller told analysts and
investors Monday on a conference call. This is the segment that we expect to rebound the most
sharply. ..."
Halliburton Co. cut another 2,000 jobs in the past month as the worst oil market slump in
decades saps demand for work at the world's largest provider of fracking services.
The Houston-based company said the first quarter of next year may represent the lowest point for
its North American profit margin as customers start fresh with new spending budgets for 2016 and
tap Halliburton's pressure-pumping expertise to start new wells. The comments came after the
company reported a third-quarter loss of $54 million.
"The pumping business in North American is clearly the most stressed segment of the market
today, but it's also the market we know the best," President Jeff Miller told analysts and
investors Monday on a conference call. "This is the segment that we expect to rebound the most
sharply."
Oil has swung between a bear and a bull market in North America this year as the drilling rig
count slid. Explorers have cut more than $100 billion from global spending plans for the year
after crude prices fell by more than half since June 2014.
Quarterly Loss
Halliburton had a loss of 6 cents a share in the third quarter compared with net income of
$1.2 billion, or $1.41, a year earlier, according to a statement Monday. Excluding certain items,
the per-share result was 4 cents more than the 27-cent average of 34 analysts' estimates compiled
by Bloomberg. Sales dropped 36 percent to $5.6 billion.
The company has now cut its workforce by 18,000, or about 21 percent, since its peak last year,
Emily Mir, a spokeswoman, said Monday in an e-mail.
Prices that service companies charge for hydraulic fracturing, which blasts water, sand and
chemicals underground to release trapped hydrocarbons, are projected to fall as much as 37
percent in North America this year, according to IHS Inc. Fracking represents about 70 percent of
the cost for an average U.S. well, Chief Executive Officer Dave Lesar said on the call.
Alan Kirman is a great economist. Amazingly clear exposition of complex subjects.
Notable quotes:
"... I think what happened was on the one hand people became obsessed with proving
there was some sort of socially satisfactory situation that corresponded to markets in equilibrium,
and on the other hand, there was a lot of effort made, right up to the 1950s, to try to show
that a market or an economy would converge on that. But we gave up on that in the 70s when there
were results that showed that essentially we couldnt prove it. So the theoreticians gave up but
the underlying economic content and all of the ideology behind it has just kept going. We are
in a strange situation where on the one hand we say we should leave markets to themselves because
if they operate correctly and we get to an equilibrium this will be a socially satisfactory state.
..."
"... Nowadays, you hear all the
time about how neoliberal ideology and thought is invading European countries and is undoing forms
of governance that are actually working quite well. I work a lot in Norway and Scandinavia and
there you hear all the time that Nordic model works and at the same time it is being corrupted
by the neoliberal ideology, which is being spread in some sort of cancerous fashion. Please comment
on that-Current neoliberalism. What justifies it? Is it spreading? Is that a good thing or a bad
thing? Anything you would like to say on that topic. ..."
"... The idea that anything even close to laissez faire ever exisited is silly ..."
"... Laissez faire has never existed; it is code for when the govt allows the rich to trample
the poor, and the govt actively sides with the rich ..."
"... Too often, efficiency is modeled too simply, failing to capture important benefits. You
may make widgets with fewer workers and more unemployed but at the loss of workforce training,
most of which is on the job. ..."
"... You can reduce unit labor costs, which usually means reducing wages. But that has all sorts
of consequences, which are not perceived. ..."
"... If industry is freed by reducing their investment in human capital, replacement investment
in human capital must come from elsewhere in higher taxes on business to pay for training that
may be less effective. Else workforce quality declines and becomes a drag on overall economic
efficiency. ..."
AK: I think the basic story that really interests us is
that with the Enlightenment and with people like Adam Smith and David Hume, people had this idea
that somehow intrinsically people should be left to their own devices and this would lead society
to a state that was satisfactory in some sense for everybody, with some limits of course–law and
order and so on. That's the idea that is underlying our whole social and philosophical position
ever since. ... I think what happened was on the one hand people became obsessed with proving
there was some sort of socially satisfactory situation that corresponded to markets in equilibrium,
and on the other hand, there was a lot of effort made, right up to the 1950's, to try to show
that a market or an economy would converge on that. But we gave up on that in the 70's when there
were results that showed that essentially we couldn't prove it. So the theoreticians gave up but
the underlying economic content and all of the ideology behind it has just kept going. We are
in a strange situation where on the one hand we say we should leave markets to themselves because
if they operate correctly and we get to an equilibrium this will be a socially satisfactory state.
On the other hand, since we can't show that it gets there, we talk about economies that are
in equilibrium but that's a contradiction because the invisible hand suggests that there is a
mechanism that gets us there. And that's what we're lacking–a mechanism. ...
DSW: ...This has been a wonderful conversation, by the way. Nowadays, you hear all the
time about how neoliberal ideology and thought is invading European countries and is undoing forms
of governance that are actually working quite well. I work a lot in Norway and Scandinavia and
there you hear all the time that Nordic model works and at the same time it is being corrupted
by the neoliberal ideology, which is being spread in some sort of cancerous fashion. Please comment
on that-Current neoliberalism. What justifies it? Is it spreading? Is that a good thing or a bad
thing? Anything you would like to say on that topic.
AK: I think that one obsession that economists have is with efficiency. We're always, always,
worrying about efficiency. People like to say that this is efficient or not efficient. The argument
is, we know that if you free up markets you get a more efficient allocation of resources. That
obsession with efficiency has led us to say that we must remove some of these restraints and restrictions
and this sort of social aid that is built into the Scandinavian model. I think that's without
thinking carefully about the consequences. ...
I think what has happened is, because of this mythology about totally free markets being efficient,
we push for that all the time and in so doing, we started to do things like-for example, we hear
all the time that we have to reform labor markets in Europe. Why do we want to reform them? Because
then they'll be more competitive. You can reduce unit labor costs, which usually means reducing
wages. But that has all sorts of consequences, which are not perceived. In model that is more
complex, that sort of arrangement wouldn't necessarily be one that in your terms would be selected
for. When you do that, you make many people temporary workers. You have complete ease in hiring
and firing so that people are shifting jobs all the time. When they do that, we know that employers
then invest nothing in their human capital. ... We're reducing the overall human capital in society
by having an arrangement like that. ... Again, the idea that people who are out of work have chosen
to be out of work and by giving them a social cushion you induce them to be out of work-that simply
doesn't fit with the facts. I think that all the ramification of these measures-the side effects
and external effects-all of that gets left out and we have this very simple framework that says
"to be competitive, you just have to free everything up." That's what undermining the European
system. European and Scandinavian systems work pretty well. ... The last remark I would make is
that to say "you've got to get rid of all those rules and regulations you have"-in general, those
rules and regulations are there for a reason. Again, to use an evolutionary argument, they didn't
just appear, they got selected for. We put them in place because there was some problem, so just
to remove them without thinking about why they are there doesn't make a lot of sense. ...
DSW: There's no invisible hand to save the day.
AK: (laughs). Joe Stiglitz used to say that we also need a visible hand. The visible hand is
sometimes pretty useful. For example in the financial sector I think you really need a visible
hand and not an invisible hand. ...
e abrams said...
The idea that anything even close to laissez faire ever exisited is silly
at all stages, the gov't actively intervened in the economy; eg, look at the rules for labor
unions....
Laissez faire has never existed; it is code for when the gov't allows the rich to trample
the poor, and the gov't actively sides with the rich
bakho said...
I enjoyed the interview with Kirman. Thanks for posting.
Too often, efficiency is modeled too simply, failing to capture important benefits. You
may make widgets with fewer workers and more unemployed but at the loss of workforce training,
most of which is on the job. This is important:
You can reduce unit labor costs, which usually means reducing wages. But that has all sorts
of consequences, which are not perceived. In model that is more complex, that sort of arrangement
wouldn't necessarily be one that in your terms would be selected for. When ... you make many people
temporary workers.... so that people are shifting jobs all the time. ..employers then invest nothing
in their human capital. ... We're reducing the overall human capital in society .. If you're working
for ... all your lifetime, they probably invest quite a lot in you. ... it is a much more stable
arrangement. .. the ramification of these measures-the side effects and external effects... gets
left out and we have this very simple framework that says "to be competitive, you just have to
free everything up."
If industry is freed by reducing their investment in human capital, replacement investment
in human capital must come from elsewhere in higher taxes on business to pay for training that
may be less effective. Else workforce quality declines and becomes a drag on overall economic
efficiency.
"... That's the idea that is underlying our whole social and philosophical position ever since.
Economics is trying to run along side that. Initially the idea was to let everybody do what they want
and this would somehow self-organize. But nobody said what the mechanism was that would do the self-organization.
John Stewart Mill advanced the same position. He had the idea that people had to be given, as far as
their role would permit, the possibility of doing their own thing, and this would be in the interests
of everybody. And gradually we came up against this difficulty that we couldn't show economically, in
a market for example, how we would ever get to such a position. I think what happened was on the one
hand people became obsessed with proving there was some sort of socially satisfactory situation that
corresponded to markets in equilibrium, and on the other hand, there was a lot of effort made, right
up to the 1950's, to try to show that a market or an economy would converge on that. But we gave up
on that in the 70's when there were results that showed that essentially we couldn't prove it. So the
theoreticians gave up but the underlying economic content and all of the ideology behind it has just
kept going. We are in a strange situation where on the one hand we say we should leave markets to themselves
because if they operate correctly and we get to an equilibrium this will be a socially satisfactory
state. On the other hand, since we can't show that it gets there, we talk about economies that are in
equilibrium but that's a contradiction because the invisible hand suggests that there is a mechanism
that gets us there. And that's what we're lacking–a mechanism. Is that clear more or less? ..."
"... Theory of Moral Sentiments ..."
"... Nowadays, if you take a very primitive version of the invisible hand, people say something
like "greed is good". Somehow, if everyone is greedy and tries to serve their own interest, it will
get to a good position socially. Adam Smith didn't have that view at all. He had the view that people
have other things in mind. For example he said that one of the strongest motivations men have is to
be seen to be a good citizen and therefore would do things that would appear to other people to be good.
If you have motivations like that then you can be altruistic and you're not behaving like the strict
Homo economicus ..."
"... Walras wasn't someone who pushed hard for laissez faire, but he started to build the weapons
for trying to understand whether all markets could get into equilibrium. He wasn't so interested, himself,
on whether the equilibrium was good for society; in other words, Adam Smith's original position. I would
say that Walras was more a person who was worried about the very existence of equilibrium and he tried
desperately at various points to show how we might get there. I don't think he was arguing in favor
of laissez faire. I wouldn't regard Walras as being strictly in that tradition. ..."
"... Pareto was concerned about the idea of the invisible hand himself. He said: "Look, what I want
to show you is that the competitive equilibrium is a social optimum. He was the person to define what
we now call a Pareto optimum, a situation in which you cannot make one person better off without making
somebody else worse off-which is a pretty weak criterion, but still is a criterion for some sort of
social efficiency. He was interested in the relationship between the two, so he brought us back on track
to what I interpret as the invisible hand. Then, we can make a huge jump it you want to the first theorem
of welfare of economics. That, mistakenly, is often referred to as the invisible hand theorem. But it
is nothing about the invisible hand. It just says that if you are in a competitive equilibrium, then
that will be a Pareto optimum, in the sense that I have just mentioned. You couldn't make someone better
off without making someone else worse off. That's all it says. It does not say that if you leave a society
alone it will get there, but thousands of people have interpreted it in that way. ..."
"... He had a different position from Walras company and he wasn't very consistent in his views.
According to Hayek, Walras said that nobody influences prices but take prices as given, and then somebody,
not specified, adjusts them until they get to equilibrium. There is some mechanism out there. ..."
"... The Road to Serfdom ..."
"... He believed that people with little information of their own, like ants, would somehow collectively
get it right. It was a very different view of the world than Walras. ..."
"... he was a pioneer in two respects. First of all, he grasped the idea of self-organizing and
decentralized processes-that the intelligence is in the system, not in any individual, and secondly
cultural group selection, that the reason economic systems were like this is because of some past history
of better systems replacing worse systems. The wisdom of the system was the product of cultural group
selection, as we would put it today, and that we shouldn't question its wisdom by tampering with it.
Is that a fair thing to say? ..."
"... Yes, that's a fair thing to say and I think it is what Hayek believed. He didn't actually show
how it would happen but you're absolutely right-I think that's what he believed and he thought tampering
with this system would make it less perfect and work less well, so just leave it alone. I don't think
he had in mind, strictly speaking, group-level selection, but that's clearly his idea. A system that
works well will eventually come to outstrip other systems. That's why he was advising Thatcher. ..."
"... He was much less naďve than Friedman. Friedman has a primitive natural selection argument that
if firms aren't doing better than other firms they'll go bust and just die. That's a summary of Friedman's
evolutionary argument! But Hayek is much more sophisticated-you're absolutely right. ..."
"... Friedman and Hayek didn't see eye to eye at all, as I understand it. Hayek was actually very
concerned that Friedman and other mathematical economists took over the Mont Pelerin Society, if I understand
it correctly, but now let's put Friedman on center stage, and also the society as a whole and the creation
of all the think tanks, which caused the society to become politically influential. ..."
"... "Greed is Good" sounds so simplistic, but what all of this seems to do is to provide some moral
justification for individuals or corporations to pursue their own interests with a clear conscience.
It's a moral justification for "Greed is Good", despite all of the complexities and all of the mathematics-that's
what it seems to come down to. Am I wrong about that? ..."
"... Macroeconomic models are still all about equilibria, don't worry about how we got them, and
their nice efficient properties, and so forth. They are nothing to do with distribution and nothing
to do with disequilibrium. Two big strands of thought-Keynes and all the people who work on disequilibrium-they're
just out of it. We're still working as if underlying all of this, greed-we don't want to call it greed,
but something like greed-is good. ..."
"... Nowadays, you hear all the time about how neoliberal ideology and thought is invading European
countries and is undoing forms of governance that are actually working quite well. I work a lot in Norway
and Scandinavia and there you hear all the time that Nordic model works and at the same time it is being
corrupted by the neoliberal ideology, which is being spread in some sort of cancerous fashion. Please
comment on that-Current neoliberalism. ..."
"... We're always, always, worrying about efficiency. People like to say that this is efficient
or not efficient. The argument is, we know that if you free up markets you get a more efficient allocation
of resources. That obsession with efficiency has led us to say that we must remove some of these restraints
and restrictions and this sort of social aid that is built into the Scandinavian model. I think that's
without thinking carefully about the consequences. ..."
"... just to make my position clear, the idea of no regulations is absurd. For a system that is
basically well adapted to its environment, then most of its regulations are there for a reason, as you
say, but one of the things that everyone needs to know about evolution is that a lot of junk accumulates.
There is junk DNA and there is junk regulations. Not every regulation has a purpose just because it's
there, and when it comes to adapting to the future, that's a matter of new regulations and picking the
right one out of many that are wrong. The question would be, how do you create smart regulations? Knowing
that you need regulations, how do you create smart ones? That's our challenge and the challenge of someone
who appreciates complexity, as you do. How would you respond to that? ..."
What you always wanted to know about the "let it be" philosophy
I'll bet money that Alan Kirman
is the only economist with animated ants running around his email signature. Highly regarded by mainstream
economists, he is also a critic of equilibrium theory and proponent of new economic thinking that
takes complex systems theory into account. It was my privilege to work with Alan and Germany's Ernst
Strungmann Forum to organize a conference titled "Complexity
and Evolution: A New Synthesis for Economics" that was held in February 2015 and will result
in a volume published by the MIT press in 2016.
After the conference was over, I sought Alan out
to help me understand the complex history of laissez faire, the "let it be" philosophy that underlies
mainstream economic theory and public policy.
DSW: I'm so happy to talk with you about the concept of laissez faire, all the way back
to its origin, which as I understand it is during the Enlightenment. Then we can bring it up to date
with some of its formalized versions in economic theory. Tell me what you know about the early history
of laissez faire.
AK: I think the basic story that really interests us is that with the Enlightenment and
with people like Adam Smith and David Hume, people had this idea that somehow intrinsically people
should be left to their own devices and this would lead society to a state that was satisfactory
in some sense for everybody, with some limits of course–law and order and so on. That's the idea
that is underlying our whole social and philosophical position ever since. Economics is trying to
run along side that. Initially the idea was to let everybody do what they want and this would somehow
self-organize. But nobody said what the mechanism was that would do the self-organization. John Stewart
Mill advanced the same position. He had the idea that people had to be given, as far as their role
would permit, the possibility of doing their own thing, and this would be in the interests of everybody.
And gradually we came up against this difficulty that we couldn't show economically, in a market
for example, how we would ever get to such a position. I think what happened was on the one hand
people became obsessed with proving there was some sort of socially satisfactory situation that corresponded
to markets in equilibrium, and on the other hand, there was a lot of effort made, right up to the
1950's, to try to show that a market or an economy would converge on that. But we gave up on that
in the 70's when there were results that showed that essentially we couldn't prove it. So the theoreticians
gave up but the underlying economic content and all of the ideology behind it has just kept going.
We are in a strange situation where on the one hand we say we should leave markets to themselves
because if they operate correctly and we get to an equilibrium this will be a socially satisfactory
state. On the other hand, since we can't show that it gets there, we talk about economies that are
in equilibrium but that's a contradiction because the invisible hand suggests that there is a mechanism
that gets us there. And that's what we're lacking–a mechanism. Is that clear more or less?
DSW: Yes, but it was very fast! I want to pull us back to the early times and make a couple
of observations. First of all, that the first thinking about laissez faire came at a time when government
was monarchy and absolutist rule. The whole struggle of the Enlightenment, to have a more egalitarian
and inclusive society, was part of this. Am I right about that?
AK: Absolutely right. There was a social and philosophical revolution, precisely because
of that. Men were trying to liberate themselves from a very hierarchical and monarchical organization.
And economics tried to go along with that. There were good reasons and I think that even now there
is no reason to say that there is anything wrong with the liberal position. On the other hand, what
we can't show is that there is anything that would enable a liberal approach like that to get things
under control. So you're right. It was a reaction to very autocratic systems that led the whole of
the laissez faire and liberal position to develop.
DSW: Right. So laissez faire made a lot of sense against the background of monarchy and
controlling church and so on. Now I know that Adam Smith invoked the invisible hand metaphor only
three times in the entire corpus of his work and it is said that his first book on moral sentiments
is much more nuanced than the popular notion of the invisible hand. Could you speak a little more
on Adam Smith? On the one hand he's an advocate of laissez faire but on the other hand he is very
nuanced in both of his books but especially in his Theory of Moral Sentiments. What do you
have to say about that?
AK: Right. Adam Smith was fully cognizant of the fact that man is motivated by many things.
Nowadays, if you take a very primitive version of the invisible hand, people say something like
"greed is good". Somehow, if everyone is greedy and tries to serve their own interest, it will get
to a good position socially. Adam Smith didn't have that view at all. He had the view that people
have other things in mind. For example he said that one of the strongest motivations men have is
to be seen to be a good citizen and therefore would do things that would appear to other people to
be good. If you have motivations like that then you can be altruistic and you're not behaving like
the strict Homo economicus. Adam Smith didn't take the strong position that people left
entirely to their own selfish devices will make things OK. He had the view that man is much more
complicated and governed by his emotions. He talks a lot about sympathy, which we would now call
empathy.
DSW: That's great! Now let's talk about Walras and what his ambitions were to come up with
the first mathematical justification for laissez faire, as I understand it.
AK: Actually, Walras himself didn't talk so much about laissez faire. He at that time had
a very simple idea, that the amount of goods that people wanted to supply at a given price would
be the amount that people would want to buy; i.e, demand at that price, so if those two were equal
then that was the equilibrium price. Then he said that if we have many markets, how can we be sure
that they will simultaneously be cleared, because after all if you raise the price in one market
then that will effect the price in other markets. If you raise the price of bananas then the price
of oranges will be effected, and so forth. He said "my problem is to solve the market clearing for
all goods", but he was not so interested in the underlying philosophical context. Walras wasn't
someone who pushed hard for laissez faire, but he started to build the weapons for trying to understand
whether all markets could get into equilibrium. He wasn't so interested, himself, on whether the
equilibrium was good for society; in other words, Adam Smith's original position. I would say that
Walras was more a person who was worried about the very existence of equilibrium and he tried desperately
at various points to show how we might get there. I don't think he was arguing in favor of laissez
faire. I wouldn't regard Walras as being strictly in that tradition.
DSW: OK, that's new for me. So what about the rise of so-called neoclassical economics.
At what point did it become toward demonstrating what I understand is the first fundamental theorem
of economics-laissez faire leads to the common good and that being justified by some mathematical
apparatus. Where does that come from, if not from Walras?
AK: We missed a very important step, which is [Vilfredo] Pareto. Pareto was concerned
about the idea of the invisible hand himself. He said: "Look, what I want to show you is that the
competitive equilibrium is a social optimum. He was the person to define what we now call a Pareto
optimum, a situation in which you cannot make one person better off without making somebody else
worse off-which is a pretty weak criterion, but still is a criterion for some sort of social efficiency.
He was interested in the relationship between the two, so he brought us back on track to what I interpret
as the invisible hand. Then, we can make a huge jump it you want to the first theorem of welfare
of economics. That, mistakenly, is often referred to as the invisible hand theorem. But it is nothing
about the invisible hand. It just says that if you are in a competitive equilibrium, then that will
be a Pareto optimum, in the sense that I have just mentioned. You couldn't make someone better off
without making someone else worse off. That's all it says. It does not say that if you leave a society
alone it will get there, but thousands of people have interpreted it in that way.
DSW: OK. So where do we go from here? Tell me a little about agency theory, which is also
something that seems to imply, if I understand it, that the only responsibility of corporations is
to maximize their profits. The economy will work well if that's their only obligation.
AK: That's not exactly a sideline but a development where people are worrying about firms
in addition to individuals. When you are just dealing with individuals in a simple economy, when
they are exchanging goods there is no problem. When you get firms in there you need to ask "What's
the objectives of these firms?" The objective, the argument is, is if they maximize profit then they
are maximizing their shareholders' benefits and so therefore we get to the idea of increasing the
welfare of society as a whole. But there is a huge leap there, because we haven't specified closely
in our models who owns these firms and how ownership is transferred between these people. So I think
there is a fuzzy area there, which is not completely included in the theory.
DSW: Please give me a thumbnail history of the Mont Pelerin Society and the role it played
in advancing economic theory and policy. So this would be Hayek, Friedman and all that.
AK: The great hero of that society was Hayek. He had a different position from Walras
& company and he wasn't very consistent in his views. According to Hayek, Walras said that nobody
influences prices but take prices as given, and then somebody, not specified, adjusts them until
they get to equilibrium. There is some mechanism out there. That was Walras. Hayek said "Not
at all!" He said - actually he was a horrid man.
DSW: Wait a minute! Why was he a horrid man? You can't just glide over that!
AK: The reason I say that is-he had very clever ideas-but he was extremely bigoted, he
was racist. There is a wonderful interview with him that you can find on You Tube, where he says
(imitating Hayek's accent) "I am not a racist! People accuse me of being a racist. Now it's true
that some of the Indian students at the London School of Economics behave in a very nasty way, typical
of Indian people…" and he carries on like this. So that's one reason he is horrid. A second thing
is that if you don't believe he is horrid, David, I will send you his book The Road to Serfdom,
which said that if there is any planning going on in the economy, it will inevitably lead you to
a fascist situation. When he produced that book it had a big success, particularly in the United
States, and what is more, he authorized a comic book version of it, which is absolutely dreadful.
One Nobel Prize winner, [Ronald] Coase, said "you are carrying on so much against central planning,
you forget that a large part of our economy is actually governed by centrally planned institutions,
i.e., big firms, and these big firms are doing exactly what you say they can't do. Hayek shrugged
that off, but what he did in his book was say that if any planning goes on then eventually you are
all going to wind up in a fascist state where you'll be shot if you don't do what you're told to
do. At the end of the book there is some poor guy who's being shot because he wants to be a carpenter
or a plumber, or something like that. It's terrible! And the irony of the whole situation is that
comic book was issued and financed by General Motors, and GM of course is one of those corporations
that Hayek didn't see were centrally planned institutions. That's way I say that Hayek was a dreadful
person.
Hayek's idea was, there is no way that people could know what was going on and could know what
the prices of goods are. Everyone has a little piece of information of their own, and in acting upon
it, this news gets out into the market. So, for example I buy something such as a share, and you
say "Oh, Kirman bought a share, so something must be going on there, based on information that he
had that I didn't have", and so forth. Hayek's idea was that this mechanism-people watching each
other and getting information from their acts, would lead you to the equilibrium that would be a
socially optimal state. But again, he never specified closely what the mechanism was. He has little
examples, such as one about shortage of tin and how people would adjust, but never really specified
the mechanism. He believed that people with little information of their own, like ants, would
somehow collectively get it right. It was a very different view of the world than Walras.
DSW: So he was a pioneer in two respects. First of all, he grasped the idea of self-organizing
and decentralized processes-that the intelligence is in the system, not in any individual, and secondly
cultural group selection, that the reason economic systems were like this is because of some past
history of better systems replacing worse systems. The wisdom of the system was the product of cultural
group selection, as we would put it today, and that we shouldn't question its wisdom by tampering
with it. Is that a fair thing to say?
AK: Yes, that's a fair thing to say and I think it is what Hayek believed. He didn't
actually show how it would happen but you're absolutely right-I think that's what he believed and
he thought tampering with this system would make it less perfect and work less well, so just leave
it alone. I don't think he had in mind, strictly speaking, group-level selection, but that's clearly
his idea. A system that works well will eventually come to outstrip other systems. That's why he
was advising Thatcher. Just trust the markets and let things go. Get rid of the unions, and
so forth. So it's clearly he had in mind that interfering with that system would just lead you to
a worse social situation. He was much less naďve than Friedman. Friedman has a primitive natural
selection argument that if firms aren't doing better than other firms they'll go bust and just die.
That's a summary of Friedman's evolutionary argument! But Hayek is much more sophisticated-you're
absolutely right.
DSW: I think Hayek was explicit about cultural group selection, and Friedman-I've paid
quite a bit of attention to his 1953 article on positive economics, in which he makes a very naďve
evolutionary argument. Friedman and Hayek didn't see eye to eye at all, as I understand it. Hayek
was actually very concerned that Friedman and other mathematical economists took over the Mont Pelerin
Society, if I understand it correctly, but now let's put Friedman on center stage, and also the society
as a whole and the creation of all the think tanks, which caused the society to become politically
influential.
AK: Yes, I think that it coincided very nicely with conservative ideology and people who
had really strongly liberal-not in the Mills sense (you have to make this distinction particularly
in the United States where these words have different meanings), but really completely free market
leave-everybody-to-their own-thing libertarian point of view. Those people found it a wonderful place
to gather and reinforce themselves. And Hayek was a strong member of that. Another was Gary Becker,
but I don't know how directly. Becker had the economics of everything-divorce, whatever. You'd have
these simple arguments, but not necessarily selection arguments, often some sort of justification
in terms of a superior arrangement. The marginal utility of the woman getting divorced just has to
equal the marginal utility of not getting divorced and that would be the price of getting divorced,
and that sort of stuff. Adam Smith would have rolled over in this grave because he believed emotions
played a strong role in all of this and the emotions that you have during divorce don't tie into
these strict calculations.
DSW: This is a tailor-made ideology for powerful interests, powerful people and corporations
who simply do want to have their way. Is that a false statement to make?
AK: No, I think that's absolutely right. They can benefit from using that argument to advance
their own ends. As someone once said, if you think of saying to firms, we're going to diminish their
taxes, no firm in its right mind would argue with that. Even though they might think deep down that
there are other things that could be done for society. There are some things which are part of this
philosophy which is perfect for firms and powerful interest groups. You're absolutely right. And
so they lobby for this all the time, pushing for these positions that are in fact in their own interest.
DSW: So, at the end of the day, "Greed is Good" sounds so simplistic, but what all
of this seems to do is to provide some moral justification for individuals or corporations to pursue
their own interests with a clear conscience. It's a moral justification for "Greed is Good", despite
all of the complexities and all of the mathematics-that's what it seems to come down to. Am I wrong
about that?
AK: I think you're absolutely right. What's interesting is that if you look at various
economic situations, like today the first thing that people tell you about the Greeks is that they
are horrid ideological people. But the people on the other side have an equally strong ideology,
which is being justified by the sort of economic models that we are building. Remember that even
though we had this discussion about how this became a real difficulty in theoretical economics, in
macroeconomics they simply carried on as if these theoretical difficulties hadn't happened. Macroeconomic
models are still all about equilibria, don't worry about how we got them, and their nice efficient
properties, and so forth. They are nothing to do with distribution and nothing to do with disequilibrium.
Two big strands of thought-Keynes and all the people who work on disequilibrium-they're just out
of it. We're still working as if underlying all of this, greed-we don't want to call it greed, but
something like greed-is good.
DSW: Could I ask about Ayn Rand and what role she played, if any? On the one hand she was
not an economist, she was just a philosopher and novelist. On the other hand, she is right up there
in the pantheon of free market deities alone with Smith, Hayek and Friedman. Do you ever think about
Ayn Rand. Does any economist think about Ayn Rand?
AK: That's an example of my narrowness that I never read Ayn Rand, I just read about her.
I think it would be unfair now to make any comments about that because I'd be as uninformed as some
people who talk about Adam Smith. What I should do at some point is read some of her work, because
she is constantly being cited on both sides as a dark bad figure or as a heroine in the pantheon
as you said, with Hayek and everybody else. I just admit my ignorance and I don't know if Rand had
a serious position on her own or whether she is being cited as a more popular and easily accessible
figure.
DSW: Fine! I'd like to wrap this up with two questions. This has been a wonderful conversation,
by the way. Nowadays, you hear all the time about how neoliberal ideology and thought is invading
European countries and is undoing forms of governance that are actually working quite well. I work
a lot in Norway and Scandinavia and there you hear all the time that Nordic model works and at the
same time it is being corrupted by the neoliberal ideology, which is being spread in some sort of
cancerous fashion. Please comment on that-Current neoliberalism. What justifies it? Is it spreading?
Is that a good thing or a bad thing? Anything you would like to say on that topic.
AK: I think that one obsession that economists have is with efficiency. We're always,
always, worrying about efficiency. People like to say that this is efficient or not efficient. The
argument is, we know that if you free up markets you get a more efficient allocation of resources.
That obsession with efficiency has led us to say that we must remove some of these restraints and
restrictions and this sort of social aid that is built into the Scandinavian model. I think that's
without thinking carefully about the consequences. Let me tell you my favorite and probably
not very funny story about how economists are obsessed with efficiency. There were three people playing
golf; a priest, a psychoanalyst, and an economist. The got very upset because the guy in front was
playing extremely slowly and he had a caddy to help him. So these guys get very upset and they start
to shout and say "Come on, can we play through please! You can't waste all of our afternoon!" They
sent the priest up to find out what was going on and he came back absolutely crestfallen and said
"You know why that poor guy is laying so slowly? It's because he's blind. I'm so upset because every
Sunday I'm preaching to people to be nice to others." He turns to his psychoanalyst friend and say's
"Joe, what do you think?" Joe says "I have these guys on my coach every week. I'm trying to help
them live with this problem and here I am screaming at this guy. It's horrible!" Then they turn to
the economist and say "Fred, what do you think?" Fred says "I think that this situation is totally
inefficient. This guy should play at night!" As you can see, this is a very different attitude to
how the world works.
I think what has happened is, because of this mythology about totally free markets being efficient,
we push for that all the time and in so doing, we started to do things like-for example, we hear
all the time that we have to reform labor markets in Europe. Why do we want to reform them? Because
then they'll be more competitive. You can reduce unit labor costs, which usually means reducing wages.
But that has all sorts of consequences, which are not perceived. In model that is more complex, that
sort of arrangement wouldn't necessarily be one that in your terms would be selected for. When you
do that, you make many people temporary workers. You have complete ease in hiring and firing so that
people are shifting jobs all the time. When they do that, we know that employers then invest nothing
in their human capital. When you have a guy who may disappear tomorrow-and we have a lot of these
temporary agencies now in Europe–which send you people when you need them and take away people when
you don't. Employers don't spend anything on human capital. We're reducing the overall human capital
in society by having an arrangement like that. If you're working for Toyota, Toyota knows pretty
much that you'll be working all your lifetime, so they probably invest quite a lot in you. They make
you work hard for that, but nevertheless it is a much more stable arrangement. Again, the idea that
people who are out of work have chosen to be out of work and by giving them a social cushion you
induce them to be out of work-that simply doesn't fit with the facts. I think that all the ramification
of these measures-the side effects and external effects-all of that gets left out and we have this
very simple framework that says "to be competitive, you just have to free everything up." That's
what undermining the European system. European and Scandinavian systems work pretty well. Unemployment
is not that high in the Scandinavian system. It may be a little bit less efficient but it may also
be a society where people are a little bit more at ease with themselves, than they are in a society
where they are constantly worrying about what will happen to them next. The last remark I would make
is that to say "you've got to get rid of all those rules and regulations you have"-in general, those
rules and regulations are there for a reason. Again, to use an evolutionary argument, they didn't
just appear, they got selected for. We put them in place because there was some problem, so just
to remove them without thinking about why they are there doesn't make a lot of sense.
DSW: Right, but at the same time, a regulation is a like a mutation: for every one that's
beneficial there are a hundred that are deleterious. So…
AK: You are an American, deep at heart! You believe that all these regulations are dreadful.
Think of regulations about not allowing people to work too near a chain saw that's going full blast,
or not being allowed to work with asbestos and so forth. Those rules, I think, have a reason to be
there.
DSW: Well of course, but just to make my position clear, the idea of no regulations
is absurd. For a system that is basically well adapted to its environment, then most of its regulations
are there for a reason, as you say, but one of the things that everyone needs to know about evolution
is that a lot of junk accumulates. There is junk DNA and there is junk regulations. Not every regulation
has a purpose just because it's there, and when it comes to adapting to the future, that's a matter
of new regulations and picking the right one out of many that are wrong. The question would be, how
do you create smart regulations? Knowing that you need regulations, how do you create smart ones?
That's our challenge and the challenge of someone who appreciates complexity, as you do. How would
you respond to that?
AK: I think you're absolutely right. It's absolutely clear that as these regulations accumulate,
they weren't developed in harmony with each other, so you often get even contradictory regulations.
Every now and then, simplifying them is hugely beneficial. But that doesn't mean getting rid of regulations
in general. It means somehow managing to choose between them, and that's not necessarily a natural
process. For example, in France when I arrived here it used to take about a day and a half to make
my tax return. Now it takes around about 20 minutes, because some sensible guy realized that you
could simplify this whole thing and you could put a lot of stuff already into the form which they
have received. They have a lot of information from your employer and so forth. They've simplified
it to a point where it takes me about 20 minutes a year to do my tax return. It used to take a huge
amount of time.
DSW: Nice!
AK: What's interesting is that you have some intelligent person saying "let's look at this
and see if we can't make these rules much simpler, and they did. I have conflicting views, like you.
These things are usually there for a reason, so you shouldn't just throw them away, but how do you
select between them. I don't think that they necessarily select themselves out.
DSW: I would amend what you said. You said that some intelligent person figured out how
to make the tax system work better in France. Probably not just a single intelligent person. Probably
it was an intelligent process, which included intelligent people, but I think that gets us back to
the idea that we need systemic processes to evaluate and select so that we become adaptable systems.
But that will be systemic thing, not a smart individual.
AK: You're absolutely right. I shouldn't have said smart individual because what surely
happened was that there was a lot of pressure on the people who handle all of these things, and gradually
together they realized that this situation was becoming one where their work was becoming almost
impossible to achieve in the time available. So there was some collective pressure that led them
to form committees and things that thought about this and got it together. So it was a natural process
of a system, but it wasn't the rules themselves that selected themselves out, as it were. It was
the collectivity that evolved in that way to make it simpler.
DSW: There's no invisible hand to save the day.
AK: (laughs). Joe Stiglitz used to say that we also need a visible hand. The visible hand
is sometimes pretty useful. For example in the financial sector I think you really need a visible
hand and not an invisible hand.
DSW. That's great and a perfect way to end. I'm so happy to have had this conversation,
Alan, and to be working with you at the conference we just staged and into the future.
AK: A pleasure. Always good to talk with you.
Alan Kirman is professor emeritus of Economics at the University of Aix-Marseille III
and at the Ecole des Hautes Etudes en Sciences Sociales and is a member of the Institut Universitaire
de France. His Ph.D. is from Princeton and he has been professor of economics at Johns Hopkins University,
the Universite Libre de Bruxelles, Warwick University, and the European University Institute in Florence,
Italy. He was elected a fellow of the Econometric Society and of the European Economic Association
and was awarded the Humboldt Prize in Germany. He is member of the Institute for Advanced Study in
Princeton. He has published 150 articles in international scientific journals. He also is the author
and editor of twelve books, most recently
Complex Economics: Individual and Collective Rationality, which was published by Routledge in
July 2010.
"... In 1959, noted American
economist Moses Abramovitz cautioned that "we must be highly skeptical of the view that long-term
changes in the rate of growth of welfare can be gauged even roughly from changes in the rate of growth
of output." ..."
"... In 2009, a commission of leading economists convened by President Nicolas Sarkozy of France and
chaired by Nobel laureate Joseph Stiglitz reported on the inadequacies of GDP. They noted well-known
issues such as the fact that GDP does not capture changes in the quality of the products (think of
mobile phones over the past 20 years) or the value of unpaid labor (caring for an elderly parent
in the home). The commission also cited evidence that GDP growth does not always correlate with increases
in measures of well-being such as health or self-reported happiness, and concluded that growing GDP
can have deleterious effects on the environment. ..."
"... Our issue isn't with GDP per se. As the English say, "It does what it says on the tin"-it measures
economic activity or output. Rather, our issue is with the nature of that activity itself. Our question
is whether the activities of our economy that are counted in GDP are truly enhancing the prosperity
of our society. ..."
"... Robert Shiller
of Yale University, who ironically shared this year's Nobel with Fama, showed in the early 1980s
that stock market prices did not always reflect fundamental value, and sometimes big gaps could open
up between the two. ..."
"... And therein lies the difference between a poor society and a prosperous one. It isn't the amount
of money that a society has in circulation, whether dollars, euros, beads, or wampum. Rather, it
is the availability of the things that create well-being-like antibiotics, air conditioning, safe
food, the ability to travel, and even frivolous things like video games. It is the availability of
these "solutions" to human problems-things that make life better on a relative basis-that makes us
prosperous. ..."
"... This is why prosperity in human societies can't be properly understood by just looking at monetary
measures of income or wealth. Prosperity in a society is the accumulation of solutions to human problems. ..."
The most basic measure we have of economic growth is gross domestic product. GDP was developed from
the work in the 1930s of the American economist Simon Kuznets and it became the standard way to measure
economic output following the 1944 Bretton Woods conference. But from the beginning, Kuznets and
other economists highlighted that GDP was not a measure of prosperity. In 1959, noted American
economist Moses Abramovitz cautioned that "we must be highly skeptical of the view that long-term
changes in the rate of growth of welfare can be gauged even roughly from changes in the rate of growth
of output."
In 2009, a commission of leading economists convened by President Nicolas Sarkozy of France and
chaired by Nobel laureate Joseph Stiglitz reported on the inadequacies of GDP. They noted well-known
issues such as the fact that GDP does not capture changes in the quality of the products (think of
mobile phones over the past 20 years) or the value of unpaid labor (caring for an elderly parent
in the home). The commission also cited evidence that GDP growth does not always correlate with increases
in measures of well-being such as health or self-reported happiness, and concluded that growing GDP
can have deleterious effects on the environment. Some countries have experimented with other
metrics to augment GDP, such as Bhutan's "gross national happiness index."
Our issue isn't with GDP per se. As the English say, "It does what it says on the tin"-it measures
economic activity or output. Rather, our issue is with the nature of that activity itself. Our question
is whether the activities of our economy that are counted in GDP are truly enhancing the prosperity
of our society.
Since the field's beginnings, economists have been concerned with why one thing has more value than
another, and what conditions lead to greater prosperity-or social welfare, as economists call it.
Adam Smith's famous diamond-water paradox showed that quite often the market price of a thing does
not always reflect intuitive notions of its intrinsic value-diamonds, with little intrinsic value,
are typically far more expensive than water, which is essential for life. This is of course where
markets come into play-in most places, water is more abundant than diamonds, and so the law of supply
and demand determines that water is cheaper.
After lots of debate about the nature of economic value in the nineteenth and early twentieth
centuries, economists considered the issue largely settled by the mid-twentieth century. The great
French economist Gerard Debreu argued in his 1959 Theory of Value that if markets are competitive
and people are rational and have good information, then markets will automatically sort everything
out, ensuring that prices reflect supply and demand and allocate everything in such a way that everyone's
welfare is maximized, and that no one can be made better off without making someone else worse off.
In essence, the market price of something reflects a collective judgment of the value of that thing.
The idea of intrinsic value was always problematic because it was inherently relative and hard to
observe or measure. But market prices are cold hard facts. If market prices provide a collective
societal judgment of value and allocate goods to their most efficient and welfare-maximizing uses,
then we no longer have to worry about squishy ideas like intrinsic value; we just need to look at
the price of something to know its value.
Debreu was apolitical about his theory-in fact, he saw it as an exercise in abstract mathematics
and repeatedly warned about over-interpreting its applicability to real-world economies. However,
his work, as well as related work in that era by figures such as Kenneth Arrow and Paul Samuelson,
laid the foundations for economists such as Milton Friedman and Robert Lucas, who provided a devastating
critique of Keynesianism in the 1960s and '70s, and recent Nobel laureate Eugene Fama, who pioneered
the theory of efficient markets in finance in the 1970s and '80s. According to the neoclassical theory
that emerged from this era, if markets are efficient and thus "welfare-maximizing," then it follows
that we should minimize any distortions that move society away from this optimal state, whether it
is companies engaging in monopolistic behavior, unions interfering with labor markets, or governments
creating distortions through taxes and regulation.
These ideas became the intellectual touchstone of a resurgent conservative movement in the 1980s
and led to a wave of financial market deregulation that continued through the 1990s up until the
crash of 2008. Under this logic, if financial markets are the most competitive and efficient markets
in the world, then they should be minimally regulated. And innovations like complex derivatives must
be valuable, not just to the bankers earning big fees from creating them, but to those buying them
and to society as a whole. Any interference will reduce the efficiency of the market and reduce the
welfare of society. Likewise the enormous pay packets of the hedge-fund managers trading those derivatives
must reflect the value they are adding to society - they are making the market more efficient. In
efficient markets, if someone is willing to pay for something, it must be valuable. Price and value
are effectively the same thing.
Even before the crash, some economists were beginning to question these ideas. Robert Shiller
of Yale University, who ironically shared this year's Nobel with Fama, showed in the early 1980s
that stock market prices did not always reflect fundamental value, and sometimes big gaps could open
up between the two. Likewise, behavioral economists like Daniel Kahneman began showing that
real people didn't behave in the hyper-rational way that Debreu's theory assumed. Other researchers
in the 1980s and '90s, even Debreu's famous co-author Arrow, began to question the whole notion of
the economy naturally moving to a resting point or "equilibrium" where everyone's welfare is optimized.
An emerging twenty-first century view of the economy is that it is a dynamic, constantly evolving,
highly complex system-more like an ecosystem than a machine. In such a system, markets may be highly
innovative and effective, but they can sometimes be far from efficient. And likewise, people may
be clever, but they can sometimes be far from rational. So if markets are not always efficient and
people are not always rational, then the twentieth century mantra that price equals value may not
be right either. If this is the case, then what do terms like value, wealth, growth, and prosperity
mean?
Prosperity Isn't Money, It's Solutions
In every society, some people are better off than others. Discerning the differences is simple. When
someone has more money than most other people, we call him wealthy. But an important distinction
must be drawn between this kind of relative wealth and the societal wealth that we term "prosperity."
What it takes to make a society prosperous is far more complex than what it takes to make one individual
better off than another.
Most of us intuitively believe that the more money people have in a society, the more prosperous
that society must be. America's average household disposable income in 2010 was $38,001 versus $28,194
for Canada; therefore America is more prosperous than Canada.
But the idea that prosperity is simply "having money" can be easily disproved with a simple thought
experiment. (This thought experiment and other elements of this section are adapted from Eric Beinhocker's
The Origin of Wealth, Harvard Business School Press, 2006.) Imagine you had the $38,001 income of
a typical American but lived in a village among the Yanomami people, an isolated hunter-gatherer
tribe deep in the Brazilian rainforest. You'd easily be the richest Yanomamian (they don't use money
but anthropologists estimate their standard of living at the equivalent of about $90 per year). But
you'd still feel a lot poorer than the average American. Even after you'd fixed up your mud hut,
bought the best clay pots in the village, and eaten the finest Yanomami cuisine, all of your riches
still wouldn't get you antibiotics, air conditioning, or a comfy bed. And yet, even the poorest American
typically has access to these crucial elements of well-being.
And therein lies the difference between a poor society and a prosperous one. It isn't the amount
of money that a society has in circulation, whether dollars, euros, beads, or wampum. Rather, it
is the availability of the things that create well-being-like antibiotics, air conditioning, safe
food, the ability to travel, and even frivolous things like video games. It is the availability of
these "solutions" to human problems-things that make life better on a relative basis-that makes us
prosperous.
This is why prosperity in human societies can't be properly understood by just looking at monetary
measures of income or wealth. Prosperity in a society is the accumulation of solutions to human problems.
These solutions run from the prosaic, like a crunchier potato chip, to the profound, like cures for
deadly diseases. Ultimately, the measure of a society's wealth is the range of human problems that
it has found a way to solve and how available it has made those solutions to its citizens. Every
item in the huge retail stores that Americans shop in can be thought of as a solution to a different
kind of problem-how to eat, clothe ourselves, make our homes more comfortable, get around, entertain
ourselves, and so on. The more and better solutions available to us, the more prosperity we have.
The long arc of human progress can be thought of as an accumulation of such solutions, embodied in
the products and services of the economy. The Yanomami economy, typical of our hunter-gatherer ancestors
15,000 years ago, has a variety of products and services measured in the hundreds or thousands at
most. The variety of modern America's economy can be measured in the tens or even hundreds of billions.
Measured in dollars, Americans are more than 500 times richer than the Yanomami. Measured in access
to products and services that provide solutions to human problems, we are hundreds of millions of
times more prosperous.
The author is pretty naive assuming the KAS can decide to move oil prices without the USA
blessing and the US controlled financial market support of such a move. In a sense it's no longer
KAS that determine the oil price, it's Wall street as volume of "paper oil" exceeds "real oil" by
several times now. Making oil more like a play in another currency. Also probably some
tangible or intangible compensation was promized for KAS for putting pressure on Russia.
The Saudi government is also scrambling. After an eight year hiatus from issuing sovereign
debt, the Saudi government announced a plan during the summer to borrow $28 billion in 2015 and
launched the borrowing with a $5 billion offering in August. The Ministry of Finance has banned
contracts for new projects, hiring and promotions, and purchase of vehicles or furniture in the
fourth quarter, while the newly created Council for Economic and Development Affairs must now
approve all government projects worth more than $27 million. The Saudi government also is
preparing to privatize airports and contemplating seeking private financing for infrastructure
projects.
Related: Airstrikes Have Yet To Stop ISIS Oil Industry
The budget situation puts the Saudi government in a difficult situation. On the one hand, the
size of the deficits requires drastic cuts in spending, but such drastic cuts would impact
politically sensitive areas such as energy subsidies, government employment opportunities for
Saudi citizens, education, and economic development projects. On the other hand, depleting Saudi
government reserves to finance the deficits will put the Saudi sovereign credit rating at risk,
which would raise the cost of borrowing as well as pressure the Saudi currency (the consequences
of which are discussed below).
One of the last things I did in law school was write a paper about the concept of "cultural capture,"
which Simon and I discussed briefly in 13 Bankersas one of the elements of the "Wall Street takeover." The basic idea was that you can
observe the same outcomes that you get with traditional regulatory capture without there being any
actual corruption. The hard part in writing the paper was distinguishing cultural capture
from plain old ideology-regulators making decisions because of their views about the world.
Anyway, the result is being included in a collection of papers on regulatory capture organized
by the Tobin Project. It will be published
by Cambridge sometime this year, but for now you can
download the various
chapters here. It features a lineup including many authors far more distinguished than I, including
Richard Posner, Luigi Zingales, Tino Cuéllar, Richard Revesz, David Moss, Dan Carpenter, Nolan McCarty,
and others. Enjoy.
"... This is Naked Capitalism fundraising week. 329 donors have already invested in our efforts to
combat corruption and predatory conduct, particularly in financial realm. Please join us and participate
via our Tip Jar , which shows how to give via
check, credit card, debit card, or PayPal. Read about
why
we're doing this fundraiser ,
what
we've accomplished in the last year , and
our second target , funding for travel to conferences and in connection with original reporting. ..."
"... These companies – according to JPMorgan analysts cited by
Bloomberg – have incurred $119 billion in interest expense over the 12 months through
the second quarter. The most ever. ..."
"... last thing ..."
"... As recently as 2012, companies were refinancing at interest rates that were 0.83 percentage
point cheaper than the rates on the debt they were replacing, JPMorgan analysts said. That gap
narrowed to 0.26 percentage point last year, even without a rise in interest rates, because the
average coupon on newly issued debt increased. ..."
"... "Increasingly alarming" is what Goldman's credit strategists led by Lotfi Karoui called this deterioration
of corporate balance sheets. And it will get worse as yields edge up and as corporate revenues and
earnings sink deeper into the mire of the slowing global economy. ..."
"... But it isn't working anymore. Bloomberg found that since May, shares of companies that have
plowed the most into share buybacks have fallen even further than the S P 500. Wal-Mart is a prime
example. Turns out, once financial engineering fails, all bets are off. Read…
The Chilling Thing Wal-Mart Said about Financial Engineering ..."
"... It spelled out in Micheal Hudson's – Killing the Host. Economics and investment banking
wraps itself in the persona as the engine of growth when, in fact, it is the engine of dis-employment,
stagnate wages, declining manufacturing, inflated property prices which raise the cost of food
production and everything else including forcing a majority to spend more of their income on
debt service leaving less for anything beyond subsistence living. ..."
"... "trillions are wasted and misdirected into useless financial "engineering" as
opposed to real world engineering" ..."
"... I read yesterday that less than 6% of Bank financing is now going to real tangible
assets – the balance goes in various forms to intangible goodwill ..."
"... Tony Soprano called it a "bust up" – take over a business and use the brand to skim the
profits, buy goods and services and roll them out the backdoor and declare BK and then buy it
back for pennies on the dollar. ..."
"... 35 years ago, I spent a day at Ngorongoro Crater in Tanzania with a driver in a rover by
myself watching the Hyenas take down a sick Buffalo culling him out in a gang, working the
animal for hours, as he shuffled along until he fell and ten….. finally ate him in a ferocious
climax. The most fascinating part of the entire trip. ..."
"... Now there is a big fat tax deductible expense, and down the road, "value" is created
when companies are bought for the tax carry forward losses. Win, win win. ..."
"... Is a company that eliminates thousands of jobs via automation or outsourcing worthy of the
public's credit? ..."
This is Naked Capitalism fundraising week. 329 donors have already invested in our efforts to
combat corruption and predatory conduct, particularly in financial realm. Please join us and participate
via our Tip Jar, which shows how to give via
check, credit card, debit card, or PayPal. Read about
why
we're doing this fundraiser,
what
we've accomplished in the last year, and
our second target, funding for travel to conferences and in connection with original reporting.
Yves here. As anyone who has been in finance know, leverage amplifies gains and losses. Big company
execs, apparently embracing the "IBG/YBG" ("I'll Be Gone, You'll Be Gone") school of management,
apparently believed they could beat the day of reckoning that would come of relying on stock buybacks
to keep EPS rising, regardless of the underlying health of the enterprise. But even in an era of
super-cheap credit, investors expect higher interest rates for more levered businesses, which is
what you get when you keep borrowing to prop up per-share earnings. As Richter explains, the chickens
are starting to come home to roost.
Companies with investment-grade credit ratings – the cream-of-the-crop "high-grade" corporate
borrowers – have gorged on borrowed money at super-low interest rates over the past few years, as
monetary policies put investors into trance. And interest on that mountain of debt, which grew another
4% in the second quarter, is now eating their earnings like never before.
These companies – according to JPMorgan analysts cited by
Bloomberg – have incurred $119 billion in interest expense over the 12 months through
the second quarter. The most ever. With impeccable timing: for S&P 500 companies,
revenues have been in a recession all year, and the last thing companies need
now is higher expenses.
Risks are piling up too: according to Bloomberg, companies' ability pay these interest expenses,
as measured by the interest coverage ratio, dropped to the lowest level since 2009.
Companies also have to refinance that debt when it comes due. If they can't, they'll end up going
through what their beaten-down brethren in the energy and mining sectors are undergoing right now:
reshuffling assets and debts, some of it in bankruptcy court.
But high-grade borrowers can always borrow – as long as they remain "high-grade." And for years,
they were on the gravy train riding toward ever lower interest rates: they could replace old higher-interest
debt with new lower-interest debt. But now the bonanza is ending. Bloomberg:
As recently as 2012, companies were refinancing at interest rates that were 0.83 percentage
point cheaper than the rates on the debt they were replacing, JPMorgan analysts said. That gap
narrowed to 0.26 percentage point last year, even without a rise in interest rates, because the
average coupon on newly issued debt increased.
And the benefits of refinancing at lower rates are dwindling further:
Companies saved a mere 0.21 percentage point in the second quarter on refinancings as investors
demanded average yields of 3.12 percent to own high-grade corporate debt – about half a percentage
point more than the post-crisis low in May 2013.
That was in the second quarter. Since then, conditions have worsened. Moody's Aaa Corporate Bond
Yield index, which tracks the highest-rated borrowers, was at 3.29% in early February. In July last
year, it was even lower for a few moments. So refinancing old debt at these super-low interest rates
was a deal. But last week, the index was over 4%. It currently sits at 3.93%. And the benefits of
refinancing at ever lower yields are disappearing fast.
What's left is a record amount of debt, generating a record amount of interest expense, even at
these still very low yields.
"Increasingly alarming" is what Goldman's credit strategists led by Lotfi Karoui called this deterioration
of corporate balance sheets. And it will get worse as yields edge up and as corporate revenues and
earnings sink deeper into the mire of the slowing global economy.
But these are the cream of the credit crop. At the other end of the spectrum – which the JPMorgan
analysts (probably holding their nose) did not address – are the junk-rated masses of over-indebted
corporate America. For deep-junk CCC-rated borrowers, replacing old debt with new debt has suddenly
gotten to be much more expensive or even impossible, as yields have shot up from the low last June
of around 8% to around 14% these days:
Yields have risen not because of the Fed's policies – ZIRP is still in place – but because investors
are coming out of their trance and are opening their eyes and are finally demanding higher returns
to take on these risks. Even high-grade borrowers are feeling the long-dormant urge by investors
to be once again compensated for risk, at least a tiny bit.
If the global economy slows down further and if revenues and earnings get dragged down with it,
all of which are now part of the scenario, these highly leveraged balance sheets will further pressure
already iffy earnings, and investors will get even colder feet, in a hail of credit down-grades,
and demand even more compensation for taking on these risks. It starts a vicious circle, even
in high-grade debt.
Alas, much of the debt wasn't invested in productive assets that would generate income and make
it easier to service the debt. Instead, companies plowed this money into dizzying amounts of share
repurchases designed to prop up the company's stock and nothing else, and they plowed it into grandiose
mergers and acquisitions, and into other worthy financial engineering projects.
Now the money is gone. The debt remains. And the interest has to be paid. It's the hangover after
a long party. And even Wall Street is starting to fret, according to Bloomberg:
The borrowing has gotten so aggressive that for the first time in about five years, equity
fund managers who said they'd prefer companies use cash flow to improve their balance sheets outnumbered
those who said they'd rather have it returned to shareholders, according to a survey by Bank of
America Merrill Lynch.
But it's still not sinking in. Companies are still announcing share buybacks
with breath-taking amounts, even as revenues and earnings are stuck in a quagmire. They want to prop
up their shares in one last desperate effort. In the past, this sort of financial engineering worked.
Every year since 2007, companies that bought back their own shares aggressively saw their shares
outperform the S&P 500 index.
But it isn't working anymore. Bloomberg found that since May, shares of companies that have
plowed the most into share buybacks have fallen even further than the S&P 500. Wal-Mart is a prime
example. Turns out, once financial engineering fails, all bets are off. Read…
The Chilling Thing Wal-Mart Said about Financial Engineering
Wolf Richter is a San Francisco based executive, entrepreneur, start up specialist,
and author, with extensive international work experience. Originally published at
Wolf Street.
TomDority, October 16, 2015 at 8:01 am
One wonders where all that "investment" goes…pretty much into the CEO's pockets and
investors pockets because banks do not create money by investing in real legitimate capital
formation or producing anything tangible…..i
It spelled out in Micheal Hudson's – Killing the Host. Economics and investment banking
wraps itself in the persona as the engine of growth when, in fact, it is the engine of dis-employment,
stagnate wages, declining manufacturing, inflated property prices which raise the cost of food
production and everything else including forcing a majority to spend more of their income on
debt service leaving less for anything beyond subsistence living.
These trillions are wasted and misdirected into useless financial "engineering" as opposed
to real world engineering….at the expense of a habitable peaceful planet. Soon, I hope, this
dislocation will be corrected. As I have said before, a good start would be to tax that which
is harmful (unearned income and rent seeking) and de-tax that which is helpful – real capital
formation, infrastructure and maintenance of a habitable planet and the absolutely necessary
biodiversity that sustains us.
david, October 16, 2015 at 8:57 am
"trillions are wasted and misdirected into useless financial "engineering" as
opposed to real world engineering"
I read yesterday that less than 6% of Bank financing is now going to real tangible
assets – the balance goes in various forms to intangible goodwill
this is not "useless" from the standpoint of those who direct this game.
Tony Soprano called it a "bust up" – take over a business and use the brand to skim the
profits, buy goods and services and roll them out the backdoor and declare BK and then buy it
back for pennies on the dollar.
the money is used for dividends and buybacks all that money is accumulated by the LBO firms
and management to maneuver the situation / process to the point of the bust up – this time
they are all going simultaneously for the exit even the most high end S&P firm – the HY prices
are deteriorating quickly beyond energy related as % LTV goes higher – before 82′ the LTV of
Fortune Cos. was way below 20% – 35% was considered max –
the same characters / groups will be formed to get to 51% to buy and control the bonds at
20-30% on the dollar in BK and take the assets.
35 years ago, I spent a day at Ngorongoro Crater in Tanzania with a driver in a rover by
myself watching the Hyenas take down a sick Buffalo culling him out in a gang, working the
animal for hours, as he shuffled along until he fell and ten….. finally ate him in a ferocious
climax. The most fascinating part of the entire trip.
USA, USA, USA !
cnchal, October 16, 2015 at 9:38 am
. . .Now the money is gone. The debt remains. And the interest has to be paid,. . .
Now there is a big fat tax deductible expense, and down the road, "value" is created
when companies are bought for the tax carry forward losses. Win, win win.
Just Ice, October 16, 2015 at 10:53 am
"Companies with investment-grade credit ratings …"
With government-subsidized private credit creation, the whole concept of "creditworthiness"
is suspect. Example, is Smith-Wesson "credit-worthy" to many Progressives? Yet, it's their
credit, as part of the public, that would be extended should S&W take out a bank loan.
Is a company that eliminates thousands of jobs via automation or outsourcing worthy of the
public's credit?
By Philip Arestis Professor and Director of Research at the Cambridge Centre for Economic &
Public Policy and Senior Fellow in the Department of Land Economy at the University of Cambridge,
UK, and Professor of Economics at the University of the Basque Country and Malcolm Sawyer, Professor
of Economics, University of Leeds. Originally published at
Triple Crisis
Has the financial sector become too large, absorbing too many resources, and enhancing instabilities?
A look at the recent evidence on the relationship between the size of the financial sector and growth.
There has been a long history of the idea that a developing financial sector (emphasis on banks
and stock markets) fosters economic growth. Going back to the work of authors such as Schumpeter,
Robinson, and more recently, McKinnon, etc., there have been debates on financial liberalisation
and the related issue of whether what was relevant to financial liberalisation, namely financial
development, "caused" economic development, or whether economic development led to a greater demand
for financial services and thereby financial development.
The general thrust of the empirical evidence collected over a number of decades suggested that
there was indeed a positive relationship between the size and scale of the financial sector (often
measured by the size of the banking system as reflected in ratio of bank deposits to GDP, and the
size of the stock market capitalisation) and the pace of economic growth. Indeed, there have
been discussion on whether the banking sector or the stock market capitalisation is a more influential
factor on economic growth. The empirical evidence drew on time series, cross section, and panel
econometric investigations. To even briefly summarise the empirical evidence on all these aspects
is not possible here. In addition, the question of the direction of causation still remains an unresolved
issue.
The processes of financialisation over the past few decades have involved the growing economic,
political and social importance of the financial sector. In size terms, the financial sector has
generally grown rapidly in most countries, whether viewed in terms of the size of bank deposits,
stock market valuations, or more significantly in the growth of financial products, securitisation,
and derivatives as well as trading volume in them. This growth of the financial sector uses resources,
often of highly trained personnel, and inevitably raises the question of whether those resources
are being put to good use. This is well summarised by Vanguard Group founder John Bogle, who suggests,
"The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year
in IPOs and secondary offerings. What else do we do? We encourage investors to trade about $32 trillion
a year. So the way I calculate it, 99% of what we do in this industry is people trading with one
another, with a gain only to the middleman. It's a waste of resources" (MarketWatch, Aug. 1
2015).
Financial liberalisation and de-regulation were promoted as ways of releasing the power of the
financial sector, promoting development of financial markets and financial deepening. The claims
were often made by the mainstream that financial liberalisation had removed "financial repression"
and stimulated growth. Yet, financial liberalisation in a country often led to banking and financial
crises, many times with devastating effects on employment and living standards. Financial crises
have become much more frequent since the 1970s in comparison with the "golden age" of the 1950s and
1960s. The international financial crisis of 2007/2008 and the subsequent Great Recession were the
recent and spectacular crises (though the scale of previous crises such as the East Asian ones of
1997 should not be overlooked). The larger scale of the financial sector in the industrialised countries
has been accompanied (even before 2007) with somewhat lower growth than hitherto. As the quote above
suggests there has not been an upsurge of savings and investment, and indeed many would suggest that
the processes of financialisation dampen the pressures to invest, particularly in research and development.
Has the financial sector become too large, absorbing too many resources, and enhancing instabilities?
An interesting recent development has been a spate of research papers coming from international
organisations and many others, which have pointed in the direction that indeed the financial sector
in industrialised countries have become too big-at least when viewed in terms of its impact on economic
growth. (See Sawyer, "Financialisation, financial structures, economic performance and employment,"
FESSUD Working Paper Series No. 93, for a broad survey on finance and economic performance.) These
studies rely on econometric (time series) estimation and hence cover the past few decades-which suggests
that their findings are not in any way generated by the financial crisis of 2007/2008 and the Great
Recession that followed.
A Bank of International Settlements study concluded that "the complex real effects of financial
development and come to two important conclusions. First, financial sector size has an inverted U-shaped
effect on productivity growth. That is, there comes a point where further enlargement of the financial
system can reduce real growth. Second, financial sector growth is found to be a drag on productivity
growth." Cournčde, Denk,and Hoeller (2015) state that "finance is a vital ingredient for economic
growth, but there can also be too much of it." Sahay, et al. (2015) find a positive relationship
between financial development (as measured by their "comprehensive index") and growth, but "the marginal
returns to growth from further financial development diminish at high levels of financial development―that
is, there is a significant, bell-shaped, relationship between financial development and growth. A
similar non-linear relationship arises for economic stability. The effects of financial development
on growth and stability show that there are tradeoffs, since at some point the costs outweigh the
benefits."
There are many reasons for thinking that the financial sector has become too large. Its growth
in recent decades has not been associated with facilitating savings and encouraging investment. It
has absorbed valuable resources which are largely engaged in the trading in casino-like activities.
The lax systems of regulation have made financial crises more likely. Indeed, and following the international
financial crisis of 2007/2008 and the great recession a number of proposals have been put forward
to avoid similar crises. To this day, nonetheless, the implementation of these proposals is very
slow indeed (see, also, Arestis, "Main and Contributory Causes of the Recent Financial Crisis and
Economic Policy Implications," for more details).
Now that Michael Hudson's Killing the Host has been available for a while, one suspects
a Picketty-like effect with folks "discovering" that Taibbi's Giant Vampire Squid characterization
of Goldman-Sachs (one of many) wasn't funny.
blert, October 9, 2015 at 5:24 pm
It's a squid that squirts RED INK - onto everyone else.
susan the other, October 9, 2015 at 11:03 am
This is a great and readable essay. Sure sounds like Minsky. And even Larry Summers when he
advocates for more bubbles. And Wolfgang Schaeuble said repeatedly that "we are overbanked." We
just don't know how to do it any other way. When everything crashes it's too late to regulate.
Unless Larry knows a clever way to regulate bubbles.
JTMcPhee, October 10, 2015 at 8:40 am
The Banksters' refrain:
"Don't regulate you,
Don't regulate me!
Regulate that guy over behind that tree…"
MY scam is systemically important!
Just Ice, October 10, 2015 at 3:34 pm
"We just don't know how to do it any other way. " STO
Yet there is another way, an equitable way :) Dr. Michael Hudson himself says that industry
should be financed with equity, not debt.
Leonard, October 10, 2015 at 3:53 pm
Susan
There is way to manage bubbles before they get out of control. This article explains how. Go to
wp.me/WQA-1E
ben, October 9, 2015 at 11:17 am
Wasted resources are way higher than the Vanguard example. They misdirect resources especially
into land and issue new money as debt.
RepubAnon, October 10, 2015 at 11:29 pm
They think that they make their living by "ripping the eyes out of the muppets" – so they're
opposed to regulations which would protect the muppets' eyes.
I look at the financial industry as sort of like sugar for the economy – the right amount is
good for you, but too much will kill you.
Just Ice, October 9, 2015 at 12:35 pm
"The lax systems of regulation have made financial crises more likely."
Actually, it's the near unlimited ability of the banks to create deposits ("loans create deposits"
but also debts) that causes large scale financial crises. And what is the source of this absurd
ability of the banks? ans: government privileges including deposit insurance instead of a Postal
Savings Service or equivalent and a fiat (the publics' money) lender of last resort.
Besides, regulations typically do not address the fundamental injustice of government subsidized
banks – extending the publics' credit to private interests.
There is something very wrong about money creation from loans. I'm not arguing that
this is incorrect, I'm looking at money creation being a burden on the citizenry. I cannot see
how this will end well, because of the asymmetric nature, money creation only benefits the banks,
of the burden of money creation.
"There is something very wrong about money creation from loans."
More precisely, there is something very wrong about being driven into debt by government-subsidized
private credit creation. Source of the rat race? Look no further.
It's the bank-money vs. government money situation. The hysteria over "The Deficit (gasp)"
insures that none of us have cash and must borrow to live. The bankers won.
"It's the bank-money vs. government money situation." zapster
More precisely, who gets to create the government's money since it is taxation* that drives
the value of fiat. But it's an absurd situation since obviously the government ALONE should create
fiat, not a central bank for the benefit of banks and other private interests, especially the
wealthy.
As for the private sector, let it create its own money solutions and my bet is that we'll have
a much more equitable (pun intended) society as a result.
The problem then is taxation. How does one tax someone's income in Bitcoins, for example? How
does one preclude tax evasion? Unavoidable taxes such as land taxes (except for a homestead exemption)
are one possibility.
*As well as the need to pay the interest on the debt the government subsidized banking cartel
drives us into.
*Sigh*. The government alone does control the money supply in a fiat currency issuer. The government
hasn't bothered to do so actively because the only time it DID try doing that (under Reagan and
Thatcher) they found out, contra Friedman, that money supply growth bore no relationship to any
macroeconomic variable. Monetarism was a failed experiment.
Scroll down to "The Idea of Interest". This author posits that back in the (ancient, herding)
day, people lent cattle. I lend you my cow, your bull impregnates her, and I get a part of the
calf.
What the author probably didn't understand, but is known to those of us interested in the history
of metallurgy, is that there was a belief that metals 'grew' - after all, plants grew from the
ground, vines grew from the ground, trees and bushes also grew from the ground. It was not a great
stretch to suppose that metals also grew within the ground, and back in those ancient days they
expected the same kind of 'growth' from metals that happened with agricultural products.
Perhaps if I ever get to retire, I can read Hudson's entire work, and possibly he covers this
topic. But I do think that it is time for the rest of us to rethink the nature of money - particularly
in an emerging digital era.
Thanks for that link. Here is a little nugget that relates to today.
The legal limit on interest rates for loans of silver was 20% over much of Dumuzi-gamil's
life, but Marc Van De Mieroop demonstrates how Dumuzi-gamil and other lenders got around such
strictures - they simply charged the legal limit for shorter and shorter term loans!
Curiously, while mathematics during this era was extraordinarily advanced, the government
failed to understand, or at least effectively regulate the close link between time
and money.
Sound familiar. It's more like the banksters regulate government.
As for compound interest, it seems to be the most diabolical human invention yet, as it infers
exponential growth without limits.
Here is Keynes
discussing compound interest in his speech "Economic Possibilities for our Grandchildren" (1930)
From the earliest times of which we have record – back say to two thousand years before
Christ – down to the beginning of the eighteenth century, there was no very great change in
the standard of life of the average man living in the civilized centres of the earth. Ups and
downs certainly. Visitations of plague, famine, and war. Golden intervals. But no progressive,
violent change. Some periods perhaps 50 per cent better than others – at the utmost 100 per
cent better – in the four thousand years which ended (say) in A.D. 1700.
This slow rate of progress, or lack of progress, was due to two reasons – to the remarkable
absence of important technical improvements and to the failure of capital to accumulate.
The absence of important technical inventions between the prehistoric age and comparatively
modern times is truly remarkable. Almost everything which really matters and which the world
possessed at the commencement of the modern age was already known to man at the dawn of history.
Language, fire, the same domestic animals which we have today, wheat, barley, the vine and
the olive, the plough, the wheel, the oar, the sail, leather, linen and cloth, bricks and pots,
gold and silver, copper, tin, and lead – and iron was added to the list before 1000 B.C. –
banking, statecraft, mathematics, astronomy, and religion. There is no record
of when we first possessed these things.
At some epoch before the dawn of history – perhaps even in one of the comfortable intervals
before the last ice age – there must have been an era of progress and invention comparable
to that in which we live today. But through the greater part of recorded history there was
nothing of the kind.
The modern age opened, I think, with the accumulation of capital which began in the
sixteenth century. I believe – for reasons with which I must not encumber the present
argument – that this was initially due to the rise of prices, and the profits to which that
led, which resulted from the treasure of gold and silver which Spain brought from the New World
into the Old. From that time until today the power of accumulation by compound interest,
which seems to have been sleeping for many generations, was reborn and renewed its strength.
And the power of compound interest over two hundred years is such as to stagger the imagination.
Let me give in illustration of this a sum which I have worked out. The value of Great Britain's
foreign investments today is estimated at about Ł4,000 million. This yields us an income at
the rate of about 6 1/2 per cent. Half of this we bring home and enjoy; the other half, namely,
3 1/2 per cent, we leave to accumulate abroad at compound interest. Something of this sort
has now been going on for about 250 years.
For I trace the beginnings of British foreign investment to the treasure which Drake
stole from Spain in 1580. In that year he returned to England bringing with him the
prodigious spoils of the Golden Hind. Queen Elizabeth was a considerable shareholder in the
syndicate which had financed the expedition. Out of her share she paid off the whole of England's
foreign debt, balanced her budget, and found herself with about Ł40,000 in hand. This she invested
in the Levant Company – which prospered. Out of the profits of the Levant Company, the East
India Company was founded; and the profits of this great enterprise were the foundation of
England's subsequent foreign investment. Now it happens that Ł40,000 accumulating at
3 1/2 per cent compound interest approximately corresponds to the actual volume of England's
foreign investments at various dates, and would actually amount today to the total of Ł4,000
million which I have already quoted as being what our foreign investments now are.
Thus, every Ł1 which Drake brought home in 1580 has now become Ł100,000. Such
is the power of compound interest !
From the sixteenth century, with a cumulative crescendo after the eighteenth, the great
age of science and technical inventions began, which since the beginning of the nineteenth
century has been in full flood – coal, steam, electricity, petrol, steel, rubber, cotton, the
chemical industries, automatic machinery and the methods of mass production, wireless, printing,
Newton, Darwin, and Einstein, and thousands of other things and men too famous and familiar
to catalogue.
What is the result? In spite of an enormous growth in the population of the world, which
it has been necessary to equip with houses and machines, the average standard of life in Europe
and the United States has been raised, I think, about fourfold. The growth
of capital has been on a scale which is far beyond a hundred-fold of what
any previous age had known. And from now on we need not expect so great an increase of population.
This reminds me of the huge fortunes growing at compound interest today.
From Wikipedia: It had an endowment of US$42.3 billion as of 24 November 2014.
If this were to grow at a compound interest rate of 7.2% annually, it would double every ten
years, and in one hundred years would be $43 trillion dollars and in two hundred years $44,354
trillion or $44.354 quadrillion. It's as if Bill and Warren are playing a practical joke on the
world, as their compound interest monster swallows every available dollar.
I wonder what a loaf of bread will cost in two hundred years?
Top heavy might be the marginally better angle to take here. Although I recently left the state
(N Texas, Dallas), Texas banks are being merged or acquired left and right. On some occasions
it is necessary if very small institutions are unable to compete, unable to meet a decent ROE
bogey (6.0% ROE is sorta low), or just unable to fend off progress.
Other occasions the larger regional and national banks can just win on scale.
I have long thought about the banking system as a beating heart. Of course it needs fuel, like
the rest of the body, but when a heart gets larger and larger, and contains more and more blood,
and uses more and more fuel, the rest of the body never fares well.
"Surging bank profits" is never a headline that makes me happy.
The real question is: why was it that the "creation of wealth" had to turn
to the financial sector. IMHO it's because the productive sector is lesser and lesser able
to produce surplus value. So that free capital istn't attracted to it. Of course in the financial
sector there isn't any value created at all.
" IMHO it's because the productive sector is lesser and lesser able to produce surplus
value. "
Yes, because of unjust wealth distribution; the host has finally been exhausted. With meta-materials,
nano-technology, genetic engineering, better catalysts, etc. and with practical nuclear fusion
on the horizon (because of new superconducting materials) mankind has probably never been on the
verge of creating so much value as now but can't because of lack of effective demand, not for
junk but for such things as proper medical and dental care while the wealthy have more than they
know what to do with.
Decades of 'political – solvency' insurance has permitted 'the blob' to overwhelm all.
&&&
If all of society played Poker … would anything be produced ? THAT'S the aspect that has
metastasized. It's not proper to term it the 'financial sector' - gambling// speculation emporium…
now you're talking. When the government chronically intervenes to bail out highly sophisticated
fools…. Jon Corzine is the result. - And he's not even the target of law enforcement !!!!
Financial liberalisation and de-regulation were promoted as ways of releasing the power
of the financial sector, promoting development of financial markets and financial deepening.
"... a prolonged period of low oil prices is now baked into analysts' earnings expectations,
although some Canadian analysts will probably have to ratchet down their estimates even farther.
..."
"... In December, he noted that his clients were consumed with in energy, and he cautioned against
holding on to the previous cycle's winners. Two months later, he quipped that the short period of
crumbling crude prices would not "cure a decade-long notion of oil and energy being the place to
be." ..."
"... In December, he noted that his clients were consumed with in energy, and he cautioned against
holding on to the previous cycle's winners. Two months later, he quipped that the short period of
crumbling crude prices would not "cure a decade-long notion of oil and energy being the place to
be." ..."
"... Earnings per share revisions are one of our most trusted contrarian indicators and the fact
that they have hit extreme negative levels is encouraging to us for sector performance
prospects ..."
Earlier this year, Bank of Montreal Chief Investment Strategist Brian Belski called energy
stocks a value trap.
He has become more constructive, upgrading the sector to market weight, from underweight.
A confluence of factors influenced the strategist's decision to "neutralize" his portfolio
position for both U.S. and Canadian energy stocks. The first is that the sector has reached what
he called "peak negativity," underperforming the Standard & Poor's 500-stock index by the most
since 1986, when the last supply side-driven crash in oil prices occurred.
Second, a prolonged period of low oil prices is now baked into analysts' earnings expectations,
although some Canadian analysts will probably have to ratchet down their estimates even farther.
"Earnings per share revisions are one of our most trusted contrarian indicators and the fact
that they have hit extreme negative levels is encouraging to us for sector performance
prospects,"he wrote.
"Energy sector growth expectations in Canada have come down significantly, but still remain too
optimistic given the oil price outlook and especially when compared to estimates for the U.S.,"
he added.
... ... ...
In December, he noted that his clients were consumed with in energy, and he cautioned against
holding on to the previous cycle's winners. Two months later, he quipped that the short period of
crumbling crude prices would not "cure a decade-long notion of oil and energy being the place to
be."
But the "pain trade," Belski now says, is for energy stocks to move higher.
"... The biggest lie is money and the notion that issuers of fiat currencies, sovereign
governments, are like households and need to balance deficit spending by borrowing the
shortfall in tax revenues. ..."
As an economist who was taught at the Australian National University in the 1980s, I know,
now, that the profession has more in common with PolSci than it has to do with math. Yet, we
had all those demand and supply graphs, ISLM, Phillips curves and so on. Very mathy, we even
did Economic Stats, Accounting and Comp Sci just to round off the notion that Economic
theories were like, say Physics, full of 'laws' that were immutable.
Non economists, most of the rest of you, I hope, can only imagine what it feels like to
know that much of what you read and thought about during those years of study was complete
crap as the syllabus failed to account for fraud, corruption, how money and debt works in
reality etc….
The biggest lie is money and the notion that issuers of fiat currencies, sovereign
governments, are like households and need to balance deficit spending by borrowing the
shortfall in tax revenues.
Hopefully, the new thinkers in the profession like Steve, can continue to spread their
message
Knute Rife, October 13, 2015 at 12:05 am
When I was an undergrad, I took macro and micro in very classical courses. It didn't take
long to see the "math" on the board was more conjuring than calculating. In law school I took
Law and Economics from an econ prof. There were about three of us in the class who had any
decent math. The prof's "calculations" had us constantly looking at one another. One day she
finally hit the limit. We pointed out to her that she had the central fraction reversed. She
stood back and said (I kid you not), "Oh well, it doesn't matter." I turned down the sound on
economic "calculations" in general after that.
Furzy Mouse, October 12, 2015 at 12:42 pm
Keen's talk….cannot read the subtitles….the screen is too small, even when I go to YouTube…
Have you tried your browser's zoom function? This is often CTRL-Plus. CTRL-Minus reduces
the size, and CTRL-Zero restores the default size.
low_integer, October 12, 2015 at 2:00 pm
If you put your cursor on the bottom right corner of the video and click, the video will
expand into full screen. It is one of the options in the bar that is only visible when your
cursor is at the bottom of the video area, from which you can also turn the subtitles on and
off. Also, press escape to exit full screen mode. Hope that makes sense
"... US policy is often clueless, often based on some Beltway fantasy, but there are very real
people at stake here, not just tiresome geopolitics. Most US policy derives from stupid
game-playing, but some part derives from genuine, well-founded fear of the consequences of
inaction. ..."
"Documents recently obtained from Cheney's Energy Task Force as the result of a Freedom of
Information Act lawsuit filed by the public-interest group Judicial Watch indicate that Cheney
and his colleagues had their sites on the black gold under the Iraqi desert well before Sept.
11.
"Last July, the Commerce Department finally turned over records that included "a map of Iraqi
oilfields, pipelines, refineries and terminals, as well as two charts detailing Iraqi oil and
gas projects and 'Foreign Suitors for Iraqi Oilfield Contracts'," according to Judicial Watch's
subsequent press release. There were also similar maps and charts for Saudi Arabia and the United
Arab Emirates. The documents were dated March 2001."
If only Bush and Cheney had listened to people who knew something about the oil industry and
believed in the free market …
Layman 10.04.15 at 8:38 pm
"To cite just one example, cutting off aid to Saudi Arabia, Egypt, and Israel would
cause a huge international crisis."
I'm afraid it's not at all clear that the resulting crisis would be 'huger' than the ones we
get for the aid. U.S. aid to Israel (for example) is almost entirely military aid. We're
sponsoring Israel's efforts to colonize the West Bank and to periodically destabilize Lebanon.
These are international crises, and we're funding them.
@16 "the overwhelming majority of civilian deaths are down to the regime."
That is not what I get from The Angry Arab News Service, and no offense but I trust that As'ad
AbuKhalil knows what he's talking about.
Peter T 10.04.15 at 9:17 am
Okay. So we airlift Allawis, Druze, Syrian Shia, Christians (30 per cent or so of the
Syrian population) out, re-settle them in Arizona and leave the Islamists to fight it out. Oh,
wait, we need to airlift out the Assyrians and Yezidi too. Then the Iraqi Shia and ISIS can
fight it out. Iran will certainly intervene in force, but not our worry. Oh, and we'd better
get most Jordanians out of the way too.
US policy is often clueless, often based on some Beltway fantasy, but there are very real
people at stake here, not just tiresome geopolitics. Most US policy derives from stupid
game-playing, but some part derives from genuine, well-founded fear of the consequences of
inaction.
Donald Johnson 10.04.15 at 5:46 pm
And here is a link to a Physicians for Social Responsibility paper which discusses the
various studies and estimates of the death toll in Iraq, Afghanistan, and Pakistan. Their
numbers are on the higher side–
"... When we look at the next few quarters, we expect U.S. oil production to decline because
of low oil prices and in Iraq, production growth will be much slower than in the past. And the
demand is creeping up, ..."
"... So therefore, to think that [low] oil prices will be with us forever may not be the right
way of thinking ..."
"... Despite its warning, Goldman Sachs said there was a less than 50 percent chance of oil
falling to $20 per barrel. Instead, its base case scenario for 2016 was $45 per barrel -a level
that Birol said was still too low for U.S. shale producers to maintain current production.
..."
... Fatih Birol, the executive director of the International Energy Agency (IEA),
told CNBC on Tuesday that low prices would prompt U.S. producers to cut output, creating upward
price pressure.
"When we look at the next few quarters, we expect U.S. oil production to decline because
of low oil prices and in Iraq, production growth will be much slower than in the past. And the
demand is creeping up," Birol told CNBC on Tuesday from the Oil & Money conference.
"So therefore, to think that [low] oil prices will be with us forever may not be the right
way of thinking."
... ... ....
Whether or not U.S. shale players will cut production in response to ongoing low prices is a
moot point however. They could instead respond by increasing production in order to satisfy
creditors eager for results. Plus, against some odds, shale producers have managed to lower
productions costs, although these remain high in comparison to conventional oil production.
Despite its warning, Goldman Sachs said there was a less than 50 percent chance of oil
falling to $20 per barrel. Instead, its base case scenario for 2016 was $45 per barrel -a level
that Birol said was still too low for U.S. shale producers to maintain current production.
"It is proven it is a very resilient type of production, but this level of prices, $45, $50 is
not good enough to induce reinvestments and for production to continue to grow. Therefore, we
expect as of next year, production growth will decline in the United States," Birol told CNBC.
The secretary general of OPEC, Abadall El-Badri, also forecast that oil production from
countries outside his group would fall next year.
... ... ...
"We see that non-OPEC supply is declining and in 2016, we see there is an increase in demand …
so in a nutshell, there is a balance in the market in 2016. How much this will reflect on the
price I really cannot tell," he later added.
... ... ...
Standard & Poor's (S&P) appeared more bullish on oil prices than Goldman, forecasting on
Tuesday that Brent oil would average $55 per barrel in 2016, up from an average of $50 for the
remainder of this year.
According to driller Baker Hughes, the number of active oil rigs fell by 9 to 605, putting the
count at the lowest level since the week ending July 30, 2010. The combined tally of oil and gas
rigs fell 14 from last week to 795, the lowest since May 2002. We saw a renewed drop in the oil
rig count last week, which fell by 26, the biggest decline since the rig count topped out a year
ago.
Earlier this week, Baker Hughes reported that the average US rig count for September was 848,
down 35 from the prior month.
"... Ron's excellent charts are telling me that Opec is not going to be producing as much or
MORE oil on a daily basis, if any, very much longer. With only three countries carrying the
load, and all the others combined just holding steady over the last few years, DEPLETION is
sure to take a bite out of those other smaller countries production pretty soon. ..."
"... It looks as if the only countries with any REAL hope of increasing production enough to
really matter on the world stage, near term, are Iran and Iraq and the USA. The USA is out of
the running until prices go up and then, according to what I read here, it will take a year or
maybe two to ramp up again. ..."
"... Nobody can predict when oil prices will rise with any accuracy. I will suggest it will be
in the future, maybe late 2016, maybe not. ..."
OPEC says world upstream spending will be down only 20% in 2015
but North American upstream spending will drop by 35%. I guess that is because of the big drop in
shale spending.
Above is the OPEC projection for US production out to Q4-16.
Looks optimistic to me. For the above to be true, there must be some underlining assumption
regarding increasing oil prices to restart drilling.
Ron Patterson, 10/12/2015 at 1:01 pm
Yes those numbers are totally unrealistic, just as unrealistic as the US Short Term Energy
Outlook numbers. In the chart below US Total Liquids are the left axis while C+C numbers are
the right axis.
Total liquids for the US STEO includes refinery process gain. And they even count refinery
process gain on imported oil. So it looks like the OPEC MOMR numbers do not include refinery
process gain.
AlexS, 10/12/2015 at 2:53 pm
The EIA expects U.S. non-C+C liquids supply to increase by 1.17mb/d between January 2014
and December 2016, of which 1.03 mb/d – NGPLs.
Was he trading based on IEA, EIA or OPEC forecast numbers? :)
Old Farmer Mac, 10/12/2015 at 2:31 pm
Ron's excellent charts are telling me that Opec is not going to be producing as much or
MORE oil on a daily basis, if any, very much longer. With only three countries carrying the
load, and all the others combined just holding steady over the last few years, DEPLETION is
sure to take a bite out of those other smaller countries production pretty soon.
It looks as if the only countries with any REAL hope of increasing production enough to
really matter on the world stage, near term, are Iran and Iraq and the USA. The USA is out of
the running until prices go up and then, according to what I read here, it will take a year or
maybe two to ramp up again.
Am I right about this? Are there any other countries that have any real hope of
substantially increasing production near term?
I am thinking about buying a LOT (for an individual) of diesel fuel as soon as I think the
price is starting up again. I know, predicting IS HARD , but a bigger stash of diesel is as
good as silver and gold in a jar buried in the back yard. Will probably stock up on lime and
fertilizer as well, these inputs are extremely sensitive to and correlate with oil and gas
prices.
Dennis Coyne, 10/12/2015 at 2:53 pm
Hi Old Farmer Mac,
Just take my price predictions and assume the opposite will be true, or flip a coin :)
Nobody can predict when oil prices will rise with any accuracy. I will suggest it will be
in the future, maybe late 2016, maybe not.
Petro, 10/12/2015 at 10:26 pm
…there will be no price rise, just the volatility of: "…a bomb went off here…", "…a war
started there…" and "…a russian jet was shot down over there…somewhere…".
be well,
P.S: the "hoard" of diesel is not a bad idea, OFM
Old Farmer Mac, 10/12/2015 at 2:52 pm
This new SEC regulation might help people interested in peak oil and oil prices come by
more and better data.
It will probably go into force second half next year from the looks of things.
OPEC has reached a plateau, oscillating between 28 mbpd to 31.6 mbpd since 10 years now.
World production peaked so far in June. Saudi Arabia production in decline since June, US
production in decline since several months. Peak oil in 2015? I am curious to see the December
production…
Dennis Coyne, 10/12/2015 at 6:23 pm
It looks like the latest OPEC Monthly Oil Market Report predicts that World Oil Supply and
Demand will be in balance by 3Q16, if OPEC output remains at 3Q15 levels. There will still be
a supply overhang which may require another quarter or two of either decreased supply or
increased demand (or both) to bring oil stocks back to normal levels.
As always, these forecasts are notoriously inaccurate so oil prices could remain low until
2018 if demand is lower or supply is higher than OPEC forecasts, or they might rise in early
2016 if the opposite is true. It's a coin flip.
Greenbub, 10/12/2015 at 7:43 pm
Wouldn't most oil producers go out of business if prices stayed low until 2018?
Saudi Arabia has reportedly resorted to spending cuts to cope with a budget deficit caused by
the steep decline of oil prices over the past year.
Bloomberg reported Oct. 8 that the Saudi Finance Ministry has directed government agencies not to
embark on any new spending initiatives for the rest of the year. It also froze government hiring
and promotions, suspended the purchase of furniture and vehicles and urged revenue collectors to
accelerate their operations.
...oil accounts for around 90 percent of Saudi revenue. But the kingdom's finances also have
been strained by its involvement in wars in Syria and Yemen.
As a result, Saudi Arabia's ratio of debt to GDP is in danger of rising to 33 percent in five
years, according to a new report by the International Monetary Fund (IMF). The report says the
Saudi budget has gone from a surplus to a deficit of more than 20 percent of GDP, more than twice
as deep as those that beset the United States and Britain in 2008 and 2009, the darkest period of
the recent recession
... ... ...
The spending cuts aren't Saudi Arabia's first effort to manage its deficit. Bloomberg quoted
other anonymous sources as saying Riyadh had planned to raise at least $24 billion from bond
sales by the end of 2015. This was in response to a drop in the kingdom's foreign assets, which
at that time had fallen for the seventh consecutive month to $654.5 billion, its lowest in more
than two years.
The US Geological Survey (USGS) reported that nine quakes ranging in magnitude from 2.5 to 3.7
were recorded between 5.07pm on Saturday and 5.27am on Sunday. No injuries or damage were
reported. Geologists say damage is not likely in quakes below magnitude 4.0.
The latest seismic activity came after a 4.5 magnitude temblor on Saturday afternoon near Cushing
and a 4.4 magnitude quake on Saturday morning south-west of Medford.
The Oklahoma Geological Survey has said it is likely that many recent earthquakes in the
state have been triggered by the injection of wastewater from oil and natural gas drilling
operations.
Cushing is home to the world's most important crude oil storage hub, which is used to settle
futures contracts traded on the New York Mercantile Exchange.
Cushing emergency management director Bob Noltensmeyer said on Sunday that no significant damage
was found at the oil facility, only "shattered nerves".
Orwell2015 11 Oct 2015 19:50
Oh the irony of it all, which sadly will be lost on most.
That quote is a key theme in
Phishing for Phools: The Economics of Manipulation & Deceptionby George Akerlof and
Robert Shiller. The authors, two of America's leading economists, note that free markets are capable
of generating unimaginable wealth and innovation. And yet, this system also "tends to spawn manipulation
and deception." Because the goal of every business person is to get you to spend your money, they
will often come up with ingenious ways of tricking you. This frequently results in consumers choosing
things that aren't very good for them.
Akerlof and Shiller point to the Cinnabon breakfast treat
as an amusing example of how the free market system exploits our weaknesses automatically. Humans
are naturally attracted to the scent of cinnamon, so it was almost inevitable that an entire business
would emerge to exploit that vulnerability. Life may indeed "need frosting" - as Cinnabon's motto
declares - but most of us probably shouldn't start our day with a pastry containing 880 calories.
Understanding the two peculiar terms from the book's title is essential for grasping its central
argument. The authors define the word "phish" as "getting people to do things that are in the interest
of the phisherman, but not in the interest of the target." In other words, "phisherman" are those
businesses that are trying to get you to buy something that may not be in your best interest.
A "phool," according to the authors, is "someone who for whatever reason is successfully phished."
Each of us might get phished because our cognitive biases might lead us to misinterpret reality or
we might just lack adequate information.
After defining these terms, the authors show us how the notion of "phishing for phools" works
across various industries. For example, Big Pharma appears to be especially rife with manipulation.
The authors describe how the pharmaceutical companies orchestrate the rollout of a new drug. There
are journal articles and sales rep visits and ads on TV -- all designed to "create a story of the
new wonder drug."
Vioxx was one such wonder drug, of course. Akerlof and Shiller tell us in considerable detail how
the system broke down in that specific case.
The investing industry is another ideal "phishing" hole where financial professionals drop their
lines in order to take advantage of phools. One big takeaway from their research just might help
ordinary investors. After analyzing numerous industries and countless case studies, the authors conclude,
In every one of the phishes, it occurred because the phisherman took advantage of the phool's
wrong focus. In some cases the phisherman, like the magician and the pickpocket, himself generated
that wrong focus. We also checked Cialdini's [Ed. note: Robert Cialdini, author of
The Psychology of Persuasion] list of psychological biases; each one of them could be considered
to be the result of an errant focus by the phool.
This insight is extremely valuable when applied to the investing world. Financial professionals
very frequently exploit the tendency of ordinary investors to focus on the wrong thing. That "wrong
focus" can be extraordinarily costly in fees and poor investing performance.
Just consider how much "focus" the financial media places on the inscrutable actions of the Fed
or the volatile movements of commodity prices or whether or not a recession is right around the corner.
And think about how much emphasis some financial professionals place on their ability to generate
"alpha" by pursuing some incomprehensible strategy that requires you to pay them hefty fees, even
if they're not successful.
Phishing is everywhere in the financial industry and it's designed to make you lose your
focus on the right things, while you fork over your hard-earned money to the phishermen. None of
us can predict where markets are going in the short term, so worrying about what the Fed will do
or about how much alpha-generating ability your advisor possesses (he'll tell you it's a lot) will
only distract you from your long-term investing plan. If your financial advisor is calling you with
a hot tip on a can't-miss fund based on the latest investing fad, then you might be in danger
of focusing on the wrong thing. In other words, you're most likely a phool.
This fine book yields another crucial insight for investors. The authors argue that phishing is
one of the prime reasons behind the volatility of asset prices. Misleading accounting, media hype,
investor sales pitches -- these are just some of the ways that asset prices become inflated. When
the inflated assets have been purchased with borrowed money, huge losses will eventually snowball
and "then credit dries up; and the economy tanks." We experienced that back in 2008 and 2009, of
course. Phishing hurts investors in a variety of ways.
So, what must be done? First, remember that the authors believe strongly in the power of free
markets. They're not advocating for a "people's paradise" with centrally planned outcomes.
Instead, they just want us to recognize that people don't always do what is good for them. That's
why we need sensible securities regulation in our public markets. We also need more prudent and smart
oversight in both the economic and political realms. Leaving everything to free markets
alone, the authors argue, will result in bad outcomes. There was a time in American history when
that opinion wasn't terribly controversial.
I highly recommend this
book,
even for those who might disagree with the authors' outlook. Their case studies are illuminating,
and their insights on the way markets work are fascinating. When you consider the sorry state of
the personal finances of the median working age family in the United States today, it's hard to disagree
with their central thesis that our current system isn't working properly.
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"... That could mean that only one branch of this family of some seven thousand princes will
have power, a prescription for potential conflict as thirty-four of the thirty-five surviving
lines of the founders family could find themselves disenfranchised. ..."
"... Todays Saudi Arabia is reminiscent of the dying decade of the Soviet Union, when one
aged and infirm Politburo chief briefly succeeded another-from Brezhnev to Andropov to Chernenko ..."
"... In moves announced on Saudi state television, Salman replaced Crown Prince Muqrin bin
Abdulaziz and named the powerful interior minister, Prince Mohammed bin Nayef, as next in line.
He also named his son, Prince Mohammed bin Salman, as deputy crown prince and relieved the
long-serving foreign minister, Prince Saud al-Faisal, who has shaped the kingdoms foreign
policy for nearly four decades. ..."
"... But that was before their father, King Salman bin Abdulaziz, 79, ascended to the throne.
Now Prince Mohammed, the eldest son of the kings third and most recent wife, is the rising
star. He has swiftly accumulated more power than any prince has ever held, upending a longstanding
system of distributing positions around the royal family to help preserve its unity, and he
has used his growing influence to take a leading role in Saudi Arabias newly assertive stance
in the region, including its military intervention in Yemen. . . . ..."
"... some
Western diplomats, speaking on the condition of anonymity for fear of alienating the prince
and the king, say they are worried about the growing influence of the prince, with one even
calling him rash and impulsive. And in interviews, at least two other princes in the main
line of the royal family made it clear that some older members of the clan have doubts as well.
Both questioned the costs and benefits of the Yemen campaign that Prince Mohammed has spearheaded.
. . . ..."
"... The prince, one of the grandsons of the states founder, Abdulaziz Ibn Saud, has told
the Guardian that there is disquiet among the royal family – and among the wider public – at
the leadership of King Salman, who acceded the throne in January. ..."
What scares many royals and most ordinary Saudis is that the succession, which historically
has passed from brother to brother, soon will have to jump to a new generation of princes.
That could mean that only one branch of this family of some seven thousand princes will
have power, a prescription for potential conflict as thirty-four of the thirty-five surviving
lines of the founder's family could find themselves disenfranchised. Saudis know from
history that the second Saudi state was destroyed by fighting among princes. Older Saudis vividly
recall how this third and latest Saudi state was shaken by a prolonged power struggle between
the founder's two eldest sons after his death in 1953.
Today's Saudi Arabia is reminiscent of the dying decade of the Soviet Union, when one
aged and infirm Politburo chief briefly succeeded another-from Brezhnev to Andropov to Chernenko-before
Gorbachev took power with reform policies that proved too little too late. "They keep dying
on me," Ronald Reagan famously said of the four Soviet leaders he dealt with in less than three
years. The next U.S. president almost surely will have the same experience with ailing Saudi
rulers.
BEIRUT - King Salman of Saudi Arabia issued a series of surprise royal decrees early
Wednesday, shaking up the line of princes slated to succeed him to the throne, replacing a
number of ministers and further enhancing the power of his own line.
In moves announced on Saudi state television, Salman replaced Crown Prince Muqrin bin
Abdulaziz and named the powerful interior minister, Prince Mohammed bin Nayef, as next in line.
He also named his son, Prince Mohammed bin Salman, as deputy crown prince and relieved the
long-serving foreign minister, Prince Saud al-Faisal, who has shaped the kingdom's foreign
policy for nearly four decades.
The moves show Salman is shifting further away from the legacy of his predecessor, King
Abdullah, who died in January.
Saudi Arabia has joined a United States-led coalition that is bombing the militants of the
Islamic State in Syria and Iraq. It is also leading a bombing campaign against Houthi rebels
who have seized a large portion of territory in neighboring Yemen. The new appointments are
unlikely to lead to big changes in these policies.
Of all the changes, the reordering of the line to the throne is likely to draw the most
scrutiny inside the kingdom because of competition between branches of the sprawling royal
family for positions leading to the throne.
RIYADH, Saudi Arabia - Until about four months ago, Prince Mohammed bin Salman, 29, was
just another Saudi royal who dabbled in stocks and real estate. He grew up overshadowed by
three older half brothers who were among the most accomplished princes in the kingdom - the
first Arab astronaut; an Oxford-educated political scientist who was once a research fellow
at Georgetown and also founded a major investment company; and a highly regarded deputy oil
minister.
But that was before their father, King Salman bin Abdulaziz, 79, ascended to the throne.
Now Prince Mohammed, the eldest son of the king's third and most recent wife, is the rising
star. He has swiftly accumulated more power than any prince has ever held, upending a longstanding
system of distributing positions around the royal family to help preserve its unity, and he
has used his growing influence to take a leading role in Saudi Arabia's newly assertive stance
in the region, including its military intervention in Yemen. . . .
The sweeping changes have thrust the young prince into power at a time when Saudi Arabia
is locked in a series of escalating conflicts aimed at defending its vision of the regional
order and holding back its chief rival, Iran. The kingdom is financially sustaining the rulers
of Egypt and Jordan and propping up the Sunni monarchy in neighboring Bahrain against a revolt
by its Shiite majority. It is also arming rebels in Syria against the Iranian-backed president,
fighting in the United States-led air campaign over Iraq and leading its own air assault on
an Iranian-backed faction in Yemen. And it is ramping up its military spending even as plunging
oil prices and growing domestic expenditures have reduced its financial reserves by $50 billion
over the last six months, to less than $700 billion.
"The king has put his son on an incredibly steep learning curve, clearly," said Ford M.
Fraker, the president of the Middle East Policy Council and a former United States ambassador
to Saudi Arabia. "The king is obviously convinced he is up to the challenge." But some
Western diplomats, speaking on the condition of anonymity for fear of alienating the prince
and the king, say they are worried about the growing influence of the prince, with one even
calling him "rash" and "impulsive." And in interviews, at least two other princes in the main
line of the royal family made it clear that some older members of the clan have doubts as well.
Both questioned the costs and benefits of the Yemen campaign that Prince Mohammed has spearheaded.
. . .
Prince Mohammed's three older half brothers - sons of their father's first wife, Sultana
Bint Turki Al Sudairi, who died in 2011 - all have distinguished résumés and were once considered
contenders for top government roles. . . .
Prince Mohammed, however, is the firstborn son of the King Salman's third and most recent
wife, Fahda bint Falah bin Sultan, who worked hard to promote him as his father's successor,
according to Western diplomats who know the family, several family members and associates who
have worked for the family.
"He is her eldest," said one longtime associate who works closely with the clan. "For her,
he is her glory at the end of the day."
Someone recently posted a story about a memo circulating among the Saudi Royal family that
was highly critical of King Salman and his designated successors.
A senior Saudi prince has launched an unprecedented call for change in the country's leadership,
as it faces its biggest challenge in years in the form of war, plummeting oil prices and criticism
of its management of Mecca, scene of last week's hajj tragedy.
The prince, one of the grandsons of the state's founder, Abdulaziz Ibn Saud, has told
the Guardian that there is disquiet among the royal family – and among the wider public – at
the leadership of King Salman, who acceded the throne in January.
The prince, who is not named for security reasons, wrote two letters earlier this month
calling for the king to be removed.
"The king is not in a stable condition and in reality the son of the king [Mohammed bin
Salman] is ruling the kingdom," the prince said. "So four or possibly five of my uncles will
meet soon to discuss the letters. They are making a plan with a lot of nephews and that will
open the door. A lot of the second generation is very anxious."
"The public are also pushing this very hard, all kinds of people, tribal leaders," the prince
added. "They say you have to do this or the country will go to disaster."
Saudi King Hospitalized for Dementia (October 6, 2015)
Informed sources told Arabic-language al-Ahd news agency that King Salman is now in the
Intensive Care Unit (ICU) section of King Faisal Specialist Hospital in the Saudi capital.
The sources also said that given the Saudi king's unstable and aggravating health conditions,
officials have ceased plans to transfer him to US hospitals.
I agree with this guy, the chances imo of the Russians and the Saudis getting together to cut
back on oil production are exceedingly slim to approaching zero.
My opinion is based not on their finances but on their rivalry. The Saudis have a LOT of reasons
to fear and hate the Russians and to try to bankrupt them.
"... 2016 will be another
year of record mainland deficit which need to be covered by the offshore sector and its 6,900 bn
NOK sovereign wealth fund (SWF). ..."
"... As Eurodollar liquidity dries up and consequently pushes up the price of actual dollar (note,
Eurodollars are international claims to domestic US dollars but for which no such dollars actual
exists) the problem for petro-states compounds. One way this manifest itself is through international
purchasing power of prior savings. ..."
"... Assuming oil prices remain low, mainland tax revenue will plummet as they are very much a function
of what goes on offshore, while expenditure will rise as they do in all welfare states during a down
cycle. ..."
"... In other words, the drawdown of the SWF will exceed its inflow even after adding financial
income flows. The last remnant of the petro-dollar will thus die in 2016 ..."
"... For a country 100 per cent dependent on continued leverage in the Eurodollar system the absolutely
best case scenario is for the US economy to grow just slowly enough for international monetary policy
to again realign; reducing the value of the USD through continued ZIRP in the US. ..."
"... To be blunt, the prospect
in Washington DC of the loss of dollar world wide hegemony is creeping closer and closer. What
does this mean to the worlds only super power and vast global empire? Well, it puts in threat
the ability of Washington to print green paper and have all the rest of the earth to supply in
return manufactured goods, energy, commodities and services. All in return for green paper. Washington
spends twice what its taxes return each year. That leaves 1/2 of the entire federal spending
to come from printed green paper. ..."
According to the proposed budget submitted by the current 'blue-blue' government the Norwegian deficit
will reach another record high in 2016. Mainland taxes are expected to bring in 1,008 billion NOKs,
while expenditures are estimated at 1,215 billion NOKs. In other words, 2016 will be another
year of record mainland deficit which need to be covered by the offshore sector and its 6,900 bn
NOK sovereign wealth fund (SWF).
While record mainland deficits covered by the petroleum sector
is nothing new in Norwegian budget history, on the contrary it is closer to the norm, the 2016 budget
did raise some eyebrows. The other side of the ledger, the net inflow to the SWF from activities
in the North Sea will, again according to budget, be lower than the required amount to cover the
deficit. This has never happened before and is testimony of the sea change occurring in the world
of petrodollar recycling. Interestingly enough, the need to liquidate SWF holdings is helping to
create further deflation in the Eurodollar system in a self-reinforcing loop.
As Eurodollar liquidity dries up and consequently pushes up the price of actual dollar (note,
Eurodollars are international claims to domestic US dollars but for which no such dollars actual
exists) the problem for petro-states compounds. One way this manifest itself is through international
purchasing power of prior savings. A SWF as the Norwegian was created through a surplus of exports
over imports meaning it can only be utilized through future imports over exports. When the Norwegians
look at their wealth expressed in Norwegian kroner it all looks fine, but expressed in dollars the
SWF has shrunk considerably in size. Thus, the surfeit imports expected by the Norwegian populace
cannot be met. Norway rode high on a wave of liquidity which pushed up commodity currencies, leading
Norwegians to consume more imported goods today, without realizing they were tapping into the principal
of their future. When the tide turns the gross misconception is revealed.
The Government claims it is all fine though. The current down-cycle will, according to them, end
early 2016 so despite a 2 percentage point reduction in corporate- and personal income tax, mainland
tax revenues are expected to increase 1.9 per cent. That is obviously a pipedream, just as the expected
17.9 per cent increase in interest and dividend income which will make sure the SWF continue to grow
at a healthy pace despite the massive mainland deficit.
Assuming oil prices remain low, mainland tax revenue will plummet as they are very much a function
of what goes on offshore, while expenditure will rise as they do in all welfare states during a down
cycle.
If we are right, a global recession is imminent, meaning the expected increase in dividend income
will never materialize.
In other words, the drawdown of the SWF will exceed its inflow even after adding financial
income flows. The last remnant of the petro-dollar will thus die in 2016.
For a country 100 per cent dependent on continued leverage in the Eurodollar system the absolutely
best case scenario is for the US economy to grow just slowly enough for international monetary policy
to again realign; reducing the value of the USD through continued ZIRP in the US.
Robust growth in the US will prompt Yellen to hike, spiking the dollar (as Eurodollar claims scramble
for actual dollars) while paradoxically a recession in the US will lead to the exact same outcome.
The goldilocks scenario of 1-2 per cent growth is the best that the Norwegian government can hope
for. It will minimize the gap between the lies and propaganda spewed out by the Ministry of Finance
and reality.
Latina Lover
Death to the Fed Reserve! Time for a currency reset. Down with the Banksters, or rather, hang
them high!
Muslim Press Claims Saudi King Salman bin Abdulaziz Hospitalized for Dementia
Informed sources told Arabic-language al-Ahd news agency that King Salman is now in the
Intensive Care Unit (ICU) section of King Faisal Specialist Hospital in the Saudi capital.
The sources also said that given the Saudi king's unstable and aggravating health conditions,
officials have ceased plans to transfer him to US hospitals.
According to witnesses, his exact state of dementia is a source of speculation but he
is known to have held cogent conversations as recently as last October. !!!!!!!
He can also forget what he said minutes ago, or faces he has known all his life.
This is typical of the disease.
The USA Dollar hegemony system was partly built upon Petro Dollar recycling. And of course
Chinese trade surplus recycling. We have already seen the Chinese Treasury selling. That is a
nail in the world reserve currency. Falling oil revenues dry up another major dollar recycling
system.
Many on ZH have noted the not so gradual approach of World War. To be blunt, the prospect
in Washington DC of the loss of dollar world wide hegemony is creeping closer and closer. What
does this mean to the world's only super power and vast global empire? Well, it puts in threat
the ability of Washington to print green paper and have all the rest of the earth to supply in
return manufactured goods, energy, commodities and services. All in return for green paper. Washington
spends twice what it's taxes return each year. That leaves 1/2 of the entire federal spending
to come from printed green paper.
To be clear. When Washington loses the power to print, it has lost over half of it's global
power in one stroke. The prospect of that can only lead to global war. The US Neoconservatives
are laying the foundations for global war, World War Three. It is either go to war, or lose the
global super power status built on Money Printing.
Unless you think America remains the global super power based on it's vibrant productive economy?
Oil prices have risen 12 percent in October to a two-month high. Rising crude coincides with
Russia's airstrikes against Islamic State targets in Syria which began on September 30.
The price of Brent in London increased over one percent to $53 per barrel on Friday. US
benchmark WTI is trading higher than $50 per barrel for the first time in three months after
hitting six-year lows in late August. Other factors contributing to rising oil prices include a
weakened dollar and shrinking US production.
Crude prices can be particularly responsive to unrest or violence in the Middle East, one of
world's biggest oil-producing regions. While Syria does not have significant oil reserves, crude
prices rise over fears the conflict could spread to the broader region.
"Syria is not a crude oil producer-its real significance to the energy markets is not a
heightening of its ongoing internal conflict but rather the risk of contagion within the region
at large," the Wall Street Journal quotes NUS Consulting Group as saying.
norbert kimar 4 hours ago
"Syria is not a crude oil producer.." the Wall Street Journal.." I thought ISIS etc made
$1-2million/day from smuggling Syrian oil.
Nana Akosua -> Baakan Agyiriwah 6 hours ago
LOL, it's all about the war, the fighting, the blood and the gore that makes the stocks
rise and the blood boil in delirium. Funny how war makes the cash registers ring and the
banksters happy, they don't care who does it, just do it!! what a mad, mad, mad world we live
in.
Illya Kuryakin 7 hours ago
So Russia's CIA-Saudi Extermination Policy is paying for itself. Nice!
PeterNZL 11 hours ago
grzeghh
Putin's the man. He scored 7 goals in the ice hockey match in Sochi and that was just
more...
Obama, too, was a skilled athlete. He scored 2000 civilians before winning his Nobel Peace
Prize. Remarkable!
Eagle Ford production peaked in March at 1.7 million daily barrels, but then slid six straight
months, the U.S. Energy Information Administration reports. The agency expects the field to pump
1.48 million barrels daily in September, still enough to fill 94 Olympic-sized swimming pools every
day.
Allen Gilmer, CEO of Austin-based Drillinginfo, said dropping prices chip away at the Eagle Ford.
At $100 oil, most operators can make money.
Because costs for everything from drilling to fracking have come down 30 percent this year, vast
swaths of the field still are profitable at $60 per barrel, the oil price for much of the spring.
"The Eagle Ford at $60 a barrel is not a whole lot different than the Eagle Ford at $100 a barrel,"
Gilmer said.
But crude oil prices around $40 turn the economics of the field upside down, and only 15 percent
of the whole field makes money, Gilmer said.
... ... ...
The numbers show an industry fallen on hard times.
The number of drilling rigs working in the Eagle Ford dropped by half in the past year, from 203
to 93. Across the country, more than 1,000 drilling rigs have been stacked.
McMullen County pumped 2.7 million barrels of oil in June, down from 3.6 million barrels the same
month last year.
DeWitt County's total property value, much of it based on oil and gas wealth, fell by $1.15 billion
this year, down 16 percent.
The Eagle Ford's biggest oil producers have issued a series of gloomy announcements. Houston-based
EOG Resources made just $5.3 million in the second quarter, down 99 percent from the same period
last year. ConocoPhillips last week said it would lay off 10 percent of its workforce. Marathon Oil
Corp. posted a $386 million net income loss for the second quarter.
Dennis Elam, associate professor of accounting at Texas A&M University-San Antonio, said the smaller,
more overleveraged shale companies are drilling wells just to pay debt. "They're chasing the water
right down the drain," he said.
Now, Zavesky has hired some of his old deputies back and said the police academy has seen a bump
in enrollment.
He's also seen an uptick in oil field crime - the theft of tools from work sites and people stripping
copper from the drilling rigs parked along the side of the road.
Joy Tipton, who owns the Little White House Country Store in Fowlerton, judges the oil market
by what time she starts to hear traffic rumbling down Texas 97. The noise used to start around 5
a.m., with trucks hauling sand, water and oil flowing past her place like a mechanical river. In
August, it stayed quiet until around 9 a.m.
Blink-and-miss-it Fowlerton, with 62 residents the last time the Census Bureau bothered to count
in 2000, hugs the La Salle-McMullen county lines. In recent months, a small restaurant and oil field
supply company closed their doors.
... ... ...
Boom-bust cycle
In some ways, Texas still hasn't outrun the long shadow of the 1980s oil bust, an implosion that
took down the state economy. So many people left the industry then, never to return, that there's
a gap in the workforce. Nearly everyone is old or young. The industry calls it the "great crew change,"
and it means that a large part of the workforce never has seen a downturn.
,,, ,,, ,,,
Eric Bell of San Antonio energy services umbrella company Group 42, said the U.S. oil business
has gone through the stages of grieving this year. "The first quarter was a complete sense of denial,"
Bell said.
Then came anger and a "bargaining and sad mopey phase" when everyone talked about how oil would
pop to $70 or $80 by summer. It didn't. "Now finally it kind of seems like there's a sense of resignation
or acceptance," Bell said. "Some companies are just in trouble."
And yet, the familiar grind of the oil patch continued in so many ways. The Eagle Ford this year
still is expected to draw $20 billion in industry investment, far more than any other field, says
research firm Wood Mackenzie.
Kim Triolo Feil
if only these guys had the foresight to do BTEX blood/urine baseline testing before a workday
and then after a workday...nah these companies come and go so even if they had evidence of being
exposed...who they gonna sue to pay their cancer bills if that happens down the road?
The number of drilling rigs working in the Eagle Ford dropped by half in the past year, from 203
to 93. Across the country, more than 1,000 drilling rigs have been stacked.
McMullen County pumped 2.7 million barrels of oil in June, down from 3.6 million barrels the same
month last year.
DeWitt County's total property value, much of it based on oil and gas wealth, fell by $1.15 billion
this year, down 16 percent.
The Eagle Ford's biggest oil producers have issued a series of gloomy announcements. Houston-based
EOG Resources made just $5.3 million in the second quarter, down 99 percent from the same period
last year. ConocoPhillips last week said it would lay off 10 percent of its workforce. Marathon Oil
Corp. posted a $386 million net income loss for the second quarter.
Dennis Elam, associate professor of accounting at Texas A&M University-San Antonio, said the smaller,
more overleveraged shale companies are drilling wells just to pay debt. "They're chasing the water
right down the drain," he said.
South Texans track other economic measures - traffic jams on rural roads or the advertised prices
for hotel rooms in the region, now as low as $40.
A few years ago, DeWitt County Sheriff Jode Zavesky lost seven employees in three weeks to the
oil field. The police academy in Victoria had to cancel classes because everyone was going to work
in the oil field instead. "We've got great benefits," Zavesky said. "But a young guy can't buy diapers
on great health insurance."
Now, Zavesky has hired some of his old deputies back and said the police academy has seen a bump
in enrollment.
He's also seen an uptick in oil field crime - the theft of tools from work sites and people stripping
copper from the drilling rigs parked along the side of the road.
Joy Tipton, who owns the Little White House Country Store in Fowlerton, judges the oil market
by what time she starts to hear traffic rumbling down Texas 97. The noise used to start around 5
a.m., with trucks hauling sand, water and oil flowing past her place like a mechanical river. In
August, it stayed quiet until around 9 a.m.
Blink-and-miss-it Fowlerton, with 62 residents the last time the Census Bureau bothered to count
in 2000, hugs the La Salle-McMullen county lines. In recent months, a small restaurant and oil field
supply company closed their doors.
That left Tipton as the only one to give unsolicited advice to oil field workers who stop to buy
a soft drink or after-work beer: "Don't speed. Don't eat your dessert before you eat that sandwich.
There's a police officer down there."
The evidence thus is that consumers were indeed responding to the most recent price declines the
same way they usually did, namely, by spending most of the windfall. The fact that we
don't see this
as clearly in the aggregate data suggests that the economy has been facing other headwinds that
partly offset the stimulus from lower gasoline prices.
Another consumer response to lower gasoline
prices is increased consumption of gasoline itself, though these adjustments take more time to develop.
U.S. vehicle miles traveled, which had been stagnant while gas prices were high, have since resumed
their historical growth.
... ... ...
And the average fuel efficiency of new vehicles sold in the United States, which had been
improving steadily through most of 2014, has fallen with oil prices.
How the Financial Elite Con Us into Wanting the Wrong Thing
Competitive or self-regulating
market economies promote dynamic creative destruction and rebirth-led by people's needs, wants and
desires, thus properly directing economic progress. Historically, competitive market economies are
a relatively new economic system, and while very productive, they are not self-sustaining, are unstable
and require significant state support and regulation to function properly.
Nevertheless, self-regulating market economies are superior to other political-economic systems-such
as dictatorial fascism or autocratic communism-however, the state can mismanage them.
History of Market Economies
Market economies are nonexistent during primitive times, and even during feudal times, markets
trade local goods and remain small, with no tendency to grow. External foreign markets carry only
specialty items-such as spices, salted fish and wine. Foreign trade does not begin in feudal societies,
between individuals, but is only sanctioned by civic leaders-between whole communities.
During feudal times, markets for local community goods do not mix with markets for goods that
come from afar. Local and external foreign markets differ in size, origin and function-are strictly
segregated, and neither market is permitted to enter the countryside.
Feudal society transitions into the mercantile society of the 16th to late 18th
centuries, where the state monopolizes the economic system, for the state's benefit. Colonies are
forbidden to trade with other countries, and workers' wages are restricted. However, mercantilism
proves divisive; fostering imperialism, colonialism and many wars between the Great Powers. Market
economies have yet to arrive, and would not do so until after 1790.
During the Industrial Revolution, production processes transition from hand crafting methods that
supply only the local community, into mechanized manufacturing; thereby vastly increasing production,
driving down costs and increasing wealth. The source of a person's income is now the result of product
sales to far-off, unknown customers. Private business entrepreneurs are the driving force pushing
the state to institute the market economy, thereby protecting the sale of their goods in far-off
lands.
Unfortunately, in practice, market economies result in corporate monopolies. Corporations may
use a product dumping predatory pricing strategy, by charging less than their cost to produce, in
a specific market, in order to drive weaker, smaller competitors out of business, and then significantly
raise prices at a later date, in order to gouge the consumer. If the monopoly is in a vital economic
area and the company institutes monopoly pricing to overcharge the consumer, only the state has the
power to protect the market economy from monopolistic inefficiencies and break up the offending company;
thus reinstituting competitive pricing. As a result, government regulations and market economies
develop simultaneously.
Laws & Regulations Are Necessary
Leaving business a free hand, especially when dealing with far off customers, leads to misrepresentations,
shoddy practices and fraud. The food industry is an example.
Upton Sinclair writes The Jungle (1906), exposing the disgusting unsanitary conditions
in the Chicago meatpacking industry, during the early 20th century. Public uproar prompts
President Theodore Roosevelt to pass the Pure Food and Drug Act of 1906 and the Meat Inspection Act.
Roosevelt says that government laws and regulations are the only way to restrain the arrogant and
selfish greed of the capitalist system.
Shocking examples of food fraud in 2013 highlight the need for enforcing government regulations.
Inspectors uncover corporations selling horse meat as beef, and routinely mislabeling about 40% of
the fish served in U.S. restaurants. Cheap rockfish and tilapia are substituted and sold as
expensive snapper, and restaurateurs frequently switch escolar for white tuna, causing diners to
suffer indigestion.
Over 70% of the tilapia sold in the U.S. is imported from Asia, and only 2% is inspected by the
Food and Drug Administration. Much of this Asian farm raised tilapia is "filthy fish," where pesticides
and manure run off into the tilapia raising ponds, causing infections. Or the tilapia is raised in
polluted Asian rivers. Americans are impairing their health by unknowingly eating filthy Asian tilapia,
fraudulently substituted in U.S. restaurants for the healthy fish ordered.
Other fraudulently mislabeled foods include sausage, organic foods, energy drinks, milk and eggs.
Without sanitary food preparation standards, set and fairly enforced by the government-Americans
will soon return to naively eating rat droppings-so, unknown to them, CEOs can meet Wall Street earnings
expectations.
Departments of Weights and Measures (DWMs) at the state and federal level develop "uniform laws,
regulations and methods of practice" that impact about 50% of U.S. GDP-to ensure there is equity
between buyers and sellers in commercial transactions.
Because gasoline stations routinely pumped less gas then charged for, DWMs now ensure the accuracy
of gasoline pumps, octane levels, labeling and restricting water in gasoline. Butchers used to add
lead weights to the chest cavity of the poultry sold, prior to weighing, then noiselessly dumped
the weights out into an unseen padded draw before the bird was held up for the customer's inspection,
thereby swindling their trusting patrons.
Without the state to step in to punish fraudulent wrongdoers, dishonest business practices would
be widespread. Consumer trust, in everyday market transactions, is paramount for market economies
to function effectively and efficiently-making government regulations vitally important.
Without regulation and transparency, bad businesses drive out good businesses, following Gresham's
Law. The economic system then atrophies, with a loss of trust in the marketplace.
What is lost is not just the money on an inferior product or service, in the short run, but more
importantly, the bad businesses may use their outsized profits to buy political protection and start
changing laws, to make new laws favorable only for them-thereby damaging the market economy and reducing
the state's economic growth and welfare.
Competitive Market Economies
An economic market system capable of directing the whole of economic life, without out-side help
or interference, is called self-regulating. Once the self-regulating or competitive market economy
is designed and implemented by the state, to give all participants an equal opportunity for success,
the self-regulating market is to be let alone by the state and allowed to function according to laws
and regulations, without after-the-fact government intrusions-regardless of the expected consequences.
Those in Western societies are told that competitive market economies, which have self-regulated
prices for land, labor and money, set solely by the market, are normal, and that human beings develop
market economies on their own, without help from the state, which is the proof of human progress.
Also, that market institutions will arise naturally and spontaneously, if only persons are left alone
to pursue their economic interests, free from government control. This is incorrect.
Throughout most of human history, self-regulating markets are unnatural and exceptional. Human
beings are forced into the self-regulating market economy, by the state. Look at the following false
competitive market economy assumptions.
We are told people naturally bartered goods. Actually, human beings, down through history, have
no predilection to barter. Social anthropology says that assuming tribal and feudal men and women
bartered are rationalist constructs, with no basis in fact. Market economies are the result of often
violent government directives, implemented for society's eventual improvement.
The assumption is man is a trader by nature, and that any different human behavior is an artificial
economic construct. By not interfering in human behavior, markets will spring up spontaneously. Social
anthropology disproves this.
Neoliberal Economic Theory
Originally, neoliberal economic theory means, "free enterprise, competitive markets, the priority
of the market price setting mechanism, and a strong and impartial state-to ensure it all functions
properly."
The Mont Pelerin Society, led by Dr. Milton Friedman, supports Hayek's economic theories, based
on "free market" ideology and help change neoliberal economic theory by rejecting government regulation-calling
it inefficient. In addition, financial economists at the University of Chicago School of Business
promote the efficient market hypothesis or theory (EMT), supporting the Mont Pelerin Society's conjecture.
Thus, the primacy of deregulated or "free markets" becomes mainstream within academe in the 1970s.
Large corporations then use "free market fundamentalism" to their advantage, by lobbying the U.S.
Congress to pass legislation beneficial to them.
Some think that "free markets" are a matter of degree, and the practical issues of implementation
are paramount. This is incorrect, and will not resolve the current "free market fundamentalism" debate.
Instead, the real issue is semantics. Notice how quickly those with a political
agenda change the debate from "competitive markets," which require state regulations and are highly
productive-to "free markets," which result in fraudulent marketplace behavior, crony capitalism and
weak economic growth.
Using the term "free markets" is an Orwellian ruse, designed to change the focus in the public's
mind from, "those in authority have to do better" to "those in authority know best, therefore, let
them have their way."
Today, neoliberal economic dogma promotes "free market fundamentalism" of reducing the size of
government through the privatization of government services, deregulation and globalization. Privatization
professes to reduce the state's authority over the economy, but state money is used by private companies
to lobby legislators, to change laws, which will increase the government's demand for these same
private corporation services. Privatization of government services by corporations does not promote
the common good, only corporations' private profits.
Neoliberal "free market" economists have doubled down on the failed liberal economic theory, with
the ongoing 2008 credit crisis as the result.
Free Markets Are Impractical
"Free markets" are free from state intervention, i.e., unfettered capitalism. Those who understand
how markets function realize this is an impractical view-simply a rhetorical device-using the popular
word "freedom" to mask its real purpose.
"Free markets" are a fantasy, far outside the realm of practicality, used by wealthy international
corporations to bully governments and labor, to get their way. The reality is a competitive market
economy requires powerful complex opposing interests, mediated by government, to produce an efficient
and effective economy that supplies the most to the many, which includes the common good.
Free Market Fundamentalism Leads To Economic Disaster
Nowhere is "free market fundamentalism" more highly trumpeted by neoliberal economists than in
the financial markets. The foundation of neoliberalism is, "a deregulated financial sector will regulate
itself efficiently, making better use of capital, thus ushering in a new age of prosperity."
Tragically, the massive deregulation of the financial markets during the Clinton and Bush presidencies,
results in the ongoing 2008 credit crisis-which the U.S. Government Accountability Office reports
has cost the U.S. economy about $13 trillion dollars in lost GDP output.
"Free market" apologists ingenuously explain the 2008 credit crisis is not caused by "free markets,"
but because government regulations are not loose enough. All "free market" failures are dismissed
by the financial elite, because of cognitive dissonance. Bankers and neoliberal economists want to
believe in what is making them richer and more important. This is the same logic used by those in
charge in the USSR, when communism failed, "it wasn't being applied purely enough."
Free Market Ideology in Practice
"Free market," ideology, as practiced today, is the opposite of what is stated.
Instead, governments step in to save insolvent banks and large international corporations, when they
make bankrupting mistakes, and give the bill to the taxpayer. This transforms the difficult but manageable
ongoing 2008 credit crisis, into a much larger and dangerous sovereign bankruptcy crisis, with potentially
calamitous political consequences.
"Free markets" usher in unfettered capitalism, unleashing the "law of the jungle" and a "dog-eat-dog
world" that fosters fraud and corruption. Human beings, no matter their station in life, cannot be
trusted to always do the right thing, especially in a competitive situation. Doing away with laws
or regulations so those in power know it is impossible to be caught or penalized does not stop them
from acting improperly. Only criminal punishment and public disgrace accomplish that.
The resulting "free market" business jungle includes monopolies, coercion, fraud, theft, parasitism,
crony cabals and racketeering. Ironically, unfettered "free markets" are not free, but increase injustice,
making the economic system inefficient. Only government laws and regulations can keep markets competitive.
The EMT Supporting Free Markets Is Wrong
New scientific evidence on the efficient market hypothesis or theory (EMT), shows University of
Chicago School of Business researchers ask the wrong questions, use erroneous data and an incorrect
research method to analyze the data, and then jump to false conclusions, based on half-truths-please
read further in my journal articles:
link,link and
link.
The EMT and "free market fundamentalism" are false gods.
Conclusion
Markets are not efficient, based on the data. Consequently, "free markets" have no theoretical
foundation. Therefore, reject the incorrect theory of "free market fundamentalism" It is impractical
and dangerous, leading us into the ongoing 2008 credit crisis.
Competitive market economies only function properly by having fair laws and regulations, set up
and impartially enforced, by a strong state. Dr. Robert M. Solow, 1987 Nobel Prize Winner in Economics
and MIT Institute Professor Emeritus says, "The switch to talk about "free" markets diverts attention
from these deficiencies and suggests that any attempts at corrective regulation are instead limitations
on freedom."
Neoliberal" free market fundamentalists" in business use "free market" ideology as a negotiation
ploy. Do not succumb to this ruse. The U.S. requires "competitive markets for economic growth," not
"free markets for fraud."
See Glencore -
Wikipedia: "According to an Australian Public Radio report, "Glencore's
history reads like a
spy novel".[14]
The company was founded as Marc Rich & Co. AG in 1974 by
billionaire commodity trader
Marc Rich, who was charged with tax evasion and illegal
business dealings with Iran in the US, but pardoned by President
Bill Clinton in 2001.[15]
He was never brought before US courts before his pardoning,
therefore there was never a verdict on these charges."... "In 2005,
proceeds from an oil sale to Glencore were seized as fraudulent, in
an investigation into corruption in the
Democratic Republic of Congo (Allen-Mills 17 June 2008)" ...
"In May 2011 the company launched an IPO valuing the business at
US$61 billion[26]
and creating five new billionaires.[27]
Trading was limited to institutional investors for the first week
and private investors were only allowed to buy the shares from 24
May 2011." ... "A
BBC
investigation in 2012 uncovered sale documents showing the company
had paid the associates of paramilitary killers in Colombia. In
2011, a Colombian court had been told by former paramilitaries that
they had stolen the land so they could sell it on to Glencore
subsidiary Prodeco, to start an open-cast coal mine; the court
accepted their evidence and concluded that coal was the motive for
the massacre. Glencore refuted the allegations" ... ""In
Ecuador, the
current government has tried to reduce the role played by
middle men such as Glencore with state oil company Petroecuador"
due to questions about transparency and follow-through, according
to Fernando Villavicencio, a Quito-based oil sector analyst." ...
A visual Relationship Map of Glencore executive board and
stakeholders with their connections.
Overnight we got confirmation that Glencore has indeed become a
systemic risk from a regulatory standpoint after the FT reported
that the Bank of England has asked British financial
institutions to reveal their full exposure to commodity traders and
falling prices of raw materials amid concerns over the impact of
the oil and metals slump. Or, in other words,
their exposure to Glencore, Trafigura, Vitol, Gunvor and Mecuria.
Dr. Engali
The BOE is trying to figure out who is going to need a bail
out before shit hit the fan.
Edit: Oh by the way, that 11%
move to the upside is short covering not a sign that Glencore is
okay you dumb fucks.
"The shares jumped as much as 11 percent
in London". "Analysts promptly cheered the move"...., Idiots.
Why is the Bank of England
protecting Stemcor, the mining
giant owned by the Oppenheimer
family? Former PM Tony Blair is
probably the person responsible,
protecting MP Margaret Hodge She
should have been sent to prison in
1994 for her role in protecting
the pedophile ring operating in
the London Borough of Islington
instead of going to Parliament.
Hodge is an Oppenheimer family
member who backed Blair.
I have heard they fired
hundreds in Zug...does anyone
have a link?
Kayman
"The BOE is trying to figure out who is going to need a
bail out before shit hit the fan."
More precisely, the BOE is trying to figure out how much
money will be needed to stiff the taxpayers on behalf of their
swill drinking friends.
kliguy38
Glencore was a massive Ponzi from the start and designed to
fail. When it goes it will pull a 2 Trillion in derivatives down
its rabbit hole. They know it and they're stalling for another
bagman to take the derivatives. gl with that one.
RE: Russian oil production statistics from various sources
Ron,
I personally never questioned the reliability of Russian oil statistics. But as you have repeatedly
raised this issue, I did a brief assessment of the data from various sources.
The Russian Energy Ministry provides very detailed data on oil + condensate production by each Russian
producer on a daily basis. As in Soviet times, these numbers are reported directly by the companies
to the Ministry. They can be easily verified as all oil produced is transported by pipelines owned by
the state –owned Transneft. Small quantities are processed for internal use by the companies at mini-refineries,
but their throughput is also reported to the ministry.
The Ministry reports production in tons without converting it in barrels per day. However other sources
(including Russian and foreign oil companies operating in Russia) use conversion ratios at 7.33 and
7.3 for Russian oil production. In the table below I calculate both numbers. NGL production is reported separately and is not included in C+C numbers.
IEA oil production statistics include C+C+NGLs, however in their recent monthly Oil Market Reports
the IEA is also mentioning C+C production for Russia. These numbers are very close to the data provided
by the Russian Energy Ministry. In the past, the IEA did not disclose separate numbers for the Russian
C+C, and it was first mentioned in the May OMR (p.25):
"Despite sanctions and lower oil prices, Russian producers managed to maintain crude oil output near
record levels through April, hovering around 10.7 mb/d since the start of the year. Including gas liquids,
Russian output exceeded 11 mb/d in both March and April."
Note, that the IEA works closely with Russia and gets data directly from the Russian Energy Ministry.
The EIA has detailed oil and other liquids production data for many countries and releases it excel
format:
(International Energy Statistics, Petroleum Production
http://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=50&pid=53&aid=1).
This is very useful when you don't have other sources of data. However in many cases the EIA does not
get information directly from national sources and uses third party data. Besides these numbers are
relatively rarely updated and in some cases look incorrect. For example, their newest international
oil production data are for April 2015.
The EIA also publishes "Total liquids supply" data for the key producers in the STEO, where the numbers
are updated monthly. (STEO excel file, Table 3b. Non-OPEC Petroleum and Other Liquids Supply).
Note that the updated numbers for Russia in the September STEO are 143 kb/d higher for April and
132 higher for March, compared with the EIA International Energy Statistics. Given that the EIA constantly
estimates Russian refinery processing gains at 26 kb/d, we can easily calculate C+C+NGL production estimates
up to August by subtracting 26 kb/d from the STEO Total liquids numbers.
As a result, as can be seen from the table below, EIA's C+C+NGL production estimates for Russia are
only marginally below the IEA's numbers (the average discrepancy for Jan.-Aug. 2015 is ~40 kb/d).
You can also note that the EIA's estimate for Russia's NGLs output in the first 4 months of 2015
is around 755kb/d, while the IEA's number is only ~350 kb/d. I think that the EIA classifies all or
part of Russian condensate production as NGLs, while in the IEA and the Russian Energy Ministry's statistics
it is included in the C+C output.
Finally, JODI data is based on national statistics. As it says on its website: "The data are submitted
by the national authority of the participating country. These data are considered authoritative and
are not subject to alteration by any of the JODI partner organisations." (https://www.jodidata.org/about-jodi/faqs.aspx).
Nevertheless, in some cases JODI data differs significantly from national statistics. JODI does not explain its methodology, and its
officials do not respond to emails to comment on why its data differs from figures provided by national
agencies. JODI provides data on both Russian oil and NGL production. NGL data is much higher than IEA's numbers,
but slightly lower than the EIA. JODI data is released with significant delay to the IEA and especially to national statistics. I also
noticed that, unlike the IEA, they generally do not update the numbers released earlier. That can partly
explain, why JODI numbers for Russia are lower than data from other sources. On average, JODI's C+C+NGL
numbers for January-July 2015 are 203 kb/d lower than IEA and 164 lower than EIA.
In general, all serious experts on Russian oil industry use the official numbers provided by the
Energy Ministry.
Russian oil production statistics from various sources
I think Russian production would be easier to measure given it is much lower decline, there aren't
as many companies nor as many governmental agencies measuring it.
It appears to me US data is the most variable and likely inaccurate.
I think AlexS has solved the discrepancy between the EIA/JODI data and the IEA/Russia data. It is
mostly a matter of how pentanes plus should be classified.
The EIA puts some of these(field or wellhead pentanes plus) in the C+C category and the pentanes
plus produced during natural gas processing (to produce dry gas to ship to customers) is included in
the NGL category. Canada and Russia group all pentanes plus together in the condensate category (which
makes perfect sense from a chemistry perspective), this accounts for about a 400 kb/d difference between
EIA estimates for Russian C+C and the Russian Energy ministry estimates. The rest of difference might
be due to the EIA assuming a different estimate for the density of Russian C+C (possibly they use the
density of the Urals blend which would have a reciprocal of 7.25 barrels per metric ton) than the IEA
(which uses about 7.31 barrels per metric ton).
In fact, the lighter is the barrel, the more barrels are in 1 ton. 43961 ktons reported by the Energy Ministry for September is 10741 kb/d with 7.33 conversion ratio 10697 kb/d with 7.3 10551 kb/d with 7.2 10404 kb/d with 7.1 10258 kb/d with 7.0 10111 kb/d with 6.9
As I said earlier, the most widely used ratio is 7.33 (the numbers in Reuters and Bloomberg articles,
as well as all Russian statistics by Energy Intelligence, etc.) and 7.3 (apparently used by the IEA) I also prefer 7.3, as I think the average Russian barrel is heavier than 7.33.
That said, the Russian oil output is getting lighter due to the growing share of new fields in eastern
Siberia, Far East (Sakhalin) and some other regions. Thus, according to Platts, the Urals blend API
is 31.55 API, ESPO (East Siberia) is 34.8, Sokol and Vityaz (Far East) are 39.7 and 34.4 API degrees, respectively. (Source:
http://www.platts.com/im.platts.content/insightanalysis/industrysolutionpapers/espoupdate0510.pdf
) So in theory, as the share of lighter crudes rises, the conversion ration should also increase. But
I doubt that the IEA, EIA or JODI are changing their conversion ratios.
The EIA and JODI do not specify which conversion ratios they are using for Russia. If they are using
7.2 or 7.1, that could partly explain the discrepancy between their numbers and Energy Ministry and
the IEA numbers.
However the key difference is the volume of condensate and NGL output. It seems that JODI and the
EIA account most of condensate production as NGLs. Therefore, their NGL volumes for Russia are much
higher than the IEA, and their C+C volume estimates are lower than the numbers provided by the IEA. The IEA normally reports only combined C+C+NGL volumes, but this year they also include C+C production
numbers for Russia (in the OMR main text). By subtracting C+C from C+C+NGL we get the IEA's estimate
for Russian NGL production at 340-350 kb/d in the past several months. This compares with the EIA's
755 kb/d average monthly estimates (January-April) and JODI's 710 kb/d estimate (January-July).
I think that the IEA's numbers are more accurate, as in 2010 they published a study on global NGL
production, where they carefully analyzed NGL and condensate production for the key producing countries
using national statistics, as well as information provided by individual companies. ("Natural Gas Liquids Supply Outlook 2008-2015." IEA, April 2010.
http://www.iea.org/publications/freepublications/publication/ngl2010_free.pdf ) Here are their numbers for Russia's output levels in 2008: Condensate: 356 kb/d "Other NGLs": 180 kb/d Total NGL and condensate: 536 kb/d
From the IEA report: "The Russian Ministry of Oil and Energy does not report NGLs per se, but they
do report LPG and condensate production per company. In this study we have applied the reports of LPG
and condensate production per company as a starting point to arrive at a proxy for Russian NGL production.
Based on the reported figures at August 2009 the LPG production of Russian gas processing plants was
230 kb/d, while the condensate production was 361 kb/d, a total of 591 kb/d."
In this report, the IEA projected a sharp increase in Russia's "Condensate and other NGLs" production
from 536 kb/d In 2008 to 817 kb/d in 2015. Indeed, as we know now, both condensate and NGL output has increased even
faster in the past few years due to: 1) increasing production of wet gas, 2) better utilization of previously
flared associated gas, and 3) development of several new gas condensate fields. Thus, in the first quarter
of 2015, gas condensate output jumped 18% year on year to 7.86 million tons (~640 kb/d) due to the launch
of new production facilities in West Siberia, primarily by Novatek and Gazprom Neft. As per the IEA
numbers, NGL output also almost doubled from 180 kb/d in 2008 to 340-350 kb/d in 2015.
Apparently, JODI did not researched as deep as the IEA into the Russian NGL and condensate output,
so they account most of condensate as NGLs. As regards the EIA, their list of sources for International Energy Statistics [http://www.eia.gov/cfapps/ipdbproject/docs/sources.cfm]
does not include the Russian Energy Ministry. This is rather strange, as they get data from the national
agencies of such countries, as Cuba, Mongolia and others. Apparently their numbers for Russia are based
on statistics from JODI, the IEA and the "Russian Energy Monthly, Eastern Bloc Research" (never heard
of it).
That said, I do not suspect JODI and the EIA of being biased against Russia. These are just different
statistical methodologies.
If you measure 100 cc of oil in a graduated cylinder, since the density, specific gravity, is less
than water, 100 cc of oil will weigh less than 100cc of water. 1 cc of agua weighs 1 gram, 1 cc of oil
will weigh less than one gram, you will need more oil, a greater volume, to obtain a weight of one gram
for the oil.
A metric ton of oil will occupy a volume greater than one cubic meter, more barrels.
Jan 2012 Refineries came on line (?) Mother Russia keeps the good stuff for value added high density
i.e.. Diesel/jet fuel? Russian polymers in the 90's were terrible and next to useless for packaging.
Many markets now well supplied with SABIC Polymers.
https://www.sabic.com/americas/en/productsandservices/plastics/
No, Russian production is genuinely at an all-time high. It's not like the Russians count Lukoil's
production in Iraq as "Russian" LOL!
Consider also that Russia is under sanctions specifically
designed by the West to harm its oil output.
Peak-oilers are over-eager to claim that country "X" or "Y" has peaked in terms of oil production.
This is often not the case.
The only countries that have peaked in oil production, are the capital rich ones of the West.
The reason for that is very clear. Those countries started exploiting their oil reserves earlier,
and even more importantly have had the capital and technology to extract even the most marginal of
deposits. Even in those cases, ultra-cheap financing can lead to temporary booms (US shale, Canadian
sands) even if production takes place at a considerable financial loss.
Countries like Iraq, Iran, Russia or Kazakhstan still have lots of untapped reserves.
This also partly explains the current World Crisis that could even escalate into WWIII.
The author uncritically accepts the myth of the "Great American Shale Revolution," which, as you
say, is a play in which "production takes place at a considerable financial loss."
Nevertheless, the take-away is the importance that oil and gas play in geopolitics.
Faith in an Unregulated Free Market? Don't Fall for It: Perhaps
the most widely admired of all the economic theories taught in our
universities is the notion that an unregulated competitive economy
is optimal for everyone. ...
The problem is that these ideas are flawed. Along with George A.
Akerlof ... I have used behavioral economics to plumb the soundness
of these notions. ...
Don't get us wrong: George and I are certainly free-market
advocates. In fact, I have argued for years that we need more such
markets, like futures markets for
single-family home
prices or occupational incomes, or markets that would enable us
to trade claims on gross domestic product. I've written about these
things in this column.
But, at the same time, we both believe that standard economic
theory is typically overenthusiastic about unregulated free
markets. It usually ignores the fact that, given normal human
weaknesses, an unregulated competitive economy will inevitably
spawn an immense amount of manipulation and deception. ...
Current economic theory does recognize that if there is an
"externality" - say, a business polluting the air in the course of
producing the goods it sells - the outcome won't be optimal, and
most economists would agree that in such cases we need government
intervention.
But the problem of market-incentivized professional manipulation
and deception is fundamental, not an externality...
david said...
"But the problem of market-incentivized professional
manipulation and deception is fundamental, not an externality..."
Glad to see Shiller pushing this line.
But that's true of loads of what gets called externality --
that's the trouble with the term, it presumes some idyllic
unregulated market with just a few troubling side effects to
regulate away. The markets are made so that certain actors gain
rewards and others bear costs, fundamentally. Externality suggests
tweaks, but to go back to the Stavins bit from a few days ago, we
need to be thinking structure and power.
JohnH said...
An unregulated free market is a recipe for oligopoly and
monopoly, the very antithesis of a free market.
pgl said in reply to JohnH...
"The problem of market-incentivized professional manipulation
and deception is fundamental, not an externality" goes well beyond
anti-trust concerns."
Paul Mathis said...
Unregulated Free Markets Never Existed
Nearly 4,000 years ago the Babylonian King Hammurabi carved onto a
large stone a code of laws regulating contracts: the wages to be
paid to an ox driver or a surgeon, the liability of a builder for a
house that collapses, property that is damaged while left in the
care of another, etc. – Wikipedia.
Governments have been regulating and enforcing contracts ever
since because no economy can function without such regulation and
enforcement. And whenever government regulation is absent,
businesses collude to fix prices, divide up markets and drive out
competitors thereby nullifying any illusion of "free market"
competition.
GeorgeNYC said...
Just ask any "free market" advocate if they believe that the
stock market is a good example of their vision for a "free market".
They will invariably say "yes" as the stock market is the cathedral
of religious capitalism.
Point out to them that the "stock market" is actually one of the
most highly regulated "markets" with strict disclosure requirements
(enforced by the government) and insider trading prohibitions (also
enforced by the government), to name but a few, without which much
of our faith in the "market" would be completely eliminated (and
whose weak enforcement invariably lead to concerns about fraud). Of
course, there are also a huge number of "private" regulations that
ultimately have the force of the government behind them in that
they allow for exchanges to "self-regulate".
Most people do not understand that force is required to maintain
the type of transparency needed to allow the proper information
flow necessary to actually have a market work with true efficiency.
"Free" is a complete misnomer. "Open" would probably be better term
although that does not really fully capture the requirements.
likbez said in reply to GeorgeNYC...
That's brilliant: "the stock market is the cathedral of
religious capitalism".
The term "free market" became symbol of faith for neoliberalism and
obtained distinct religious overtones. Because neoliberalism is in
reality a secular religion. That's why neoliberalism is often
called casino capitalism.
And at the same time it is powerful instrument of propaganda of
neoliberalism, a very skillful deception that masks what is in
practice the advocacy of the law of jungle.
Advocates of "free market" (note that they never use the term
"fair market") are lavishly paid by Wall Street for one specific
purpose: first to restore and now to maintain the absolute
dominance of financial oligarchy which now successfully positioned
itself above the law. Kind of return to feudalism on a new level.
Bud Meyers said...
Great posts on this topic:
Free Markets are Fraudulent Markets (by Eric L. Prentis)
Willbros Group Inc. has completed amendments to its 2015 term-loan and ABL credit facilities.
The amendments establish less-stringent term loan financial covenants beyond the end of the first
quarter of 2016 that are designed to address the impact of current market conditions.
Consistent with the company's expected revenue levels for 2016, the ABL commitment has been reduced
from $150 million to $100 million, with an accordion feature to expand up to $175 million to accommodate
future revenue growth.
These amendments also enable Willbros to proceed with its asset sale initiatives, including the
sale of its Professional Services segment, which will allow the company to strengthen its balance
sheet through debt reduction.
The amended financial covenants are more aligned with current market conditions and the company's
performance objectives, and the amendments approve the sale of certain assets, including discrete
assets that it may market in future periods. Net proceeds will be used primarily for debt reduction
and secondarily for working capital.
====================================================
PDC Energy extends maturity of revolving credit facility
PDC Energy Inc. has extended the maturity of its revolving credit facility by two years to
May 2020. The borrowing base has been reaffirmed at $700 million of which the company has elected
to keep its commitment level at $450 million.
CFO Gysle Shellum stated, "We are very pleased with the support of our bank group and its agreement,
given the current market conditions, to not only reaffirm our current borrowing base, but to also
extend the maturity of the revolving credit facility by two years. This liquidity and flexibility
provides us the ability to continue operating with a clear focus on maintaining favorable debt
metrics and executing on our strategic vision of delivering shareholder value through continued
production and cash flow growth, and strong returns."
PDC Energy's operations are focused on the horizontal Niobrara and Codell plays in the Wattenberg
field in Colorado and on the condensate and wet gas portion of the Utica shale play in southeastern
Ohio.
===============================================
Chesapeake Energy Corp. has amended its five-year, $4 billion revolving credit facility agreement
maturing in 2019 with its bank syndicate group.
Key attributes include:
• Facility moves to a $4 billion senior secured revolving credit facility from a senior unsecured
revolving credit facility
• The initial borrowing base is confirmed at $4 billion, consistent with current availability
• Previous total leverage ratio financial covenant of 4.0x trailing 12-month earnings before interest,
depreciation and amortization (EBITDA) is suspended
• Two new financial covenants include a senior secured leverage ratio of 3.5x through 2017 and
3.0x thereafter, and an interest coverage ratio of 1.1x through the first quarter of 2017, increasing
incrementally to 1.25x by the end of 2017.
Chesapeake's credit facility may become unsecured when specific conditions set forth in the credit
agreement are met. During an unsecured period, the total leverage ratio would be reinstated and
the senior secured leverage ratio and interest coverage ratio would no longer apply. While Chesapeake's
obligations under the facility are secured, the amendment gives Chesapeake the ability to incur
up to $2 billion of junior lien indebtedness. As of Sept. 30, Chesapeake has $12 million in outstanding
letters of credit under the facility with the remainder of the $4 billion available.
New Source Energy Partners LP, due to a pending borrowing base deficiency under its revolving
credit facility, will be prevented from paying the quarterly cash distribution on its 11% Series
A cumulative convertible preferred units.
"While it was the Partnership's intention to pay this distribution, there are covenants in our
credit agreement with our reserve based lending group that prevent our ability to make the payment
while in a deficiency," said Kristian Kos, chairman and CEO. "We are not in a deficiency at this
time. However, based on initial communication from our reserve based lending group, we expect
to be in a borrowing base deficiency after our biannual redetermination takes place in early October,
which will prevent us from making a distribution on Oct. 15. We will be working with our lenders
to finalize the new borrowing base over the next several days, as well as exploring alternatives
to remedy the deficiency to allow the Partnership to resume making distributions on the preferred
units as soon as possible."
New Source Energy Partners is an independent energy partnership engaged in the production of its
onshore oil and natural gas properties that extends across conventional resource reservoirs in
east-central Oklahoma and in oilfield services that specialize in increasing efficiencies and
safety in drilling and completion processes.
=====================================================
Bill Barrett Corp.'s (NYSE: BBG) semi-annual borrowing base review has been completed with
the bank group reaffirming the $375 million borrowing base related to its revolving credit facility
maturing in April 2020. The credit facility has $375 million of commitments and there are currently
no borrowings under the credit facility.
As part of the redetermination process, the company and its lender group agreed to amend the maintenance
covenants in the revolving credit facility by replacing the leverage covenant limiting the maximum
total debt to trailing 12-month EBITDAX ratio of 4.0x with a covenant limiting the maximum senior
secured debt to trailing 12-month EBITDAX ratio of 2.5x through March 31, 2018, after which the
leverage covenant reverts to a maximum total debt to trailing 12-month EBITDAX of 4.0x, as of
June 30, 2018. In addition, an interest coverage ratio requirement was included, pursuant to which
the ratio of EBITDAX to interest expense may not be less than 2.5 to 1.0 for each quarter through
March 31, 2018.
=======================================================
Approach Resources confirms reaffirmation of lender commitments in credit facility at $450M
Approach Resources Inc. has completed the scheduled semiannual borrowing base redetermination
of its revolving credit facility, and as a result, the bank group has set the lender commitment
amount and borrowing base at $450 million.
Under the terms of the credit agreement, the bank group redetermines the borrowing base semiannually,
using the banks' estimates of reserves and future oil and gas prices. The next borrowing base
redetermination is scheduled to occur by April 1, 2016. As of Sept. 24, Approach had $276 million
outstanding under its revolving credit facility, resulting in liquidity of $177 million.
Approach Resources is an independent energy company focused on the exploration, development, production,
and acquisition of unconventional oil and gas reserves in the Midland Basin of the greater Permian
Basin in West Texas.
Enterprise Products Partners LP's operating subsidiary, Enterprise Products Operating LLC,
has increased its bank credit facilities by $500 million to provide the company with up to $5.5
billion of aggregate borrowing capacity.
The facilities consist of an amended $4 billion multi-year revolving credit agreement that matures
in September 2020 and a new $1.5 billion 364-day revolving credit agreement, both of which are
unconditionally guaranteed by Enterprise on an unsecured and unsubordinated basis. As of today,
aggregate available borrowing capacity under the increased bank credit facilities is $4.7 billion.
==================================================
Gastar Exploration Inc. has completed its second scheduled borrowing base redetermination of
its revolving credit facility for 2015 and, as a result, the borrowing base has been reaffirmed
by the lending participants at $200 million.
Currently, Gastar has drawn $65 million under its revolving credit facility, resulting in $135
million of unused borrowing capacity. The next scheduled borrowing base redetermination is to
occur by May 1, 2016.
Gastar's principal business activities include an emphasis on unconventional reserves, such as
shale resource plays. In Oklahoma, Gastar is developing oil-bearing reservoirs of the Hunton Limestone
horizontal play and expects to test other prospective formations on the same acreage, including
the Meramec shale play (middle Mississippi Lime) and the Woodford shale play, which Gastar refers
to as the STACK play. In West Virginia, Gastar is developing liquids-rich natural gas in the Marcellus
shale play, and has drilled and completed two dry-gas Utica/Point Pleasant wells on its acreage.
========================================
RSP Permian completes bolt-on Midland Basin acquisitions and increases borrowing base
RSP Permian Inc. closed an amendment with the lenders under its revolving credit facility that,
among other things, increases the borrowing base 20% to $600 million. The company currently has
no amounts drawn under its revolving credit facility and the next scheduled borrowing base redetermination
is May 1, 2016.
Exterran Holdings Inc. (NYSE: EXH) has provided an update to the planned financing in connection
with its previously announced separation.
In November 2014, Exterran Holdings said that it intends to separate its international contract
operations, international aftermarket services, and global fabrication businesses into a stand-alone,
publicly traded company named Exterran Corp. Upon completion of the spin-off, Exterran Holdings,
which will continue to own and operate its contract operations and aftermarket services businesses
in the US, will be renamed Archrock Inc.
As previously announced, Exterran Corp. entered into a $750 million revolving credit facility
on July 10 that would become available upon the completion of the separation and the satisfaction
of certain other conditions. On Oct. 5, Exterran Corp. amended and restated the credit agreement
to provide for a new $925 million credit facility, consisting of a $680 million revolving credit
facility and a $245 million term loan facility. The revolving credit facility will have an interest
rate subject to a leverage grid with an expected initial interest rate of LIBOR plus 2.75%. The
term loan will carry an interest rate of LIBOR plus 5.75%, with a 1.00% LIBOR floor.
Availability under the new credit facility is conditioned upon the completion of the separation
and the satisfaction of certain other customary conditions. The revolving credit facility will
mature five years after the effective date of the separation transaction, and the term loan facility
will mature two years after the effective date of the separation transaction.
The new credit facility includes, among other covenants, financial covenants requiring Exterran
Corp. to maintain (after the separation) an interest coverage ratio of not less than 2.25:1.00
and a total leverage ratio of not greater than 3.75:1.00. Should Exterran Corp. refinance the
term loan facility with the proceeds of certain qualified unsecured debt or equity issuances,
the financial covenants in the revolving credit facility will be modified to require that Exterran
Corp. maintain a total leverage ratio of not greater than 4.50:1.00 and a senior secured leverage
ratio of not greater than 2.75:1.00, while the interest coverage ratio will not change. Such capitalized
terms are defined in the amended and restated credit agreement.
In connection with the spin-off, Exterran Holdings anticipates that Exterran Corp. initially will
borrow under its new credit facility and transfer an amount of proceeds to Exterran Holdings which,
when taken together with the proceeds from borrowings under the Archrock credit facility as described
below, will enable Exterran Holdings to repay all of its existing indebtedness.
As of June 30, on a pro forma basis after giving effect to the spin-off, Exterran Corp. would
have borrowed and transferred to Exterran Holdings approximately $539 million. Subsequent to June
30, and prior to the completion of the spin-off, Exterran Holdings expects to incur additional
borrowings under its existing credit facility of between $40 million and $50 million to finance
expenses related to the completion of the spin-off, which will increase the amount that Exterran
Corp. borrows under its new credit facility and transfers to Exterran Holdings.
Also, Exterran Holdings entered into a $300 million credit facility on July 10 that would become
available upon the completion of the separation and the satisfaction of certain other conditions.
On Oct. 5, Exterran Holdings executed a first amendment to the credit agreement that, among other
things, increases the aggregate commitments under the revolving credit facility from $300 million
to $350 million. The revolving credit facility includes, among other covenants, financial covenants
requiring Archrock Inc. to maintain (after the separation) an interest coverage ratio of not less
than 2.25:1.00 and a total leverage ratio of not greater than 4.25:1.00 (except that the maximum
total leverage ratio during a specified acquisition period will be increased to 4.75:1.00), as
those capitalized terms are defined in the credit agreement. The revolving credit facility will
have an interest rate subject to a leverage grid with an expected initial interest rate of LIBOR
plus 1.75%.
"... output from the world's
biggest consumer drops and Shell and PIMCO claim the worst may be over (while Goldman sees lower
for longer suggesting this rally is a squeeze). However, while Energy stocks and raw materials
are soaring, credit markets remain notably less impressed. ..."
"... at $50 big oil will maintain dividends and bonuses but cut capex to the bone. kick
the can bitchez. ..."
WTI Crude is back above $50 to its highest in almost 3 months following a 10%-plus
gain on the week (the 2nd best since Jan 2009). This surge has sparked the biggest surge in
European and US Oil & Gas stocks since 2008 as Bloomberg notes, output from the world's
biggest consumer drops and Shell and PIMCO claim the worst may be over (while Goldman sees "lower
for longer" suggesting this rally is a squeeze). However, while Energy stocks and raw materials
are soaring, credit markets remain notably less impressed.
Oil may rise to a "baseline" of about $60 a barrel in one year's time as the impact
of supply cuts becomes more evident from early 2016, Greg Sharenow, an executive vice-president
at Pimco, said in an e-mail. U.S. crude output is down about 440,000 barrels a day from
a four-decade high of 9.61 million barrels in June.
Still, companies remain cautious after a rally earlier this year was shortlived.
While production cuts may help draw a line under the rout, prices are set to remain "lower for
longer" because of excess inventories, according to Pimco, which manages $15 billion of commodity
assets. Shell plans for a long stretch of low prices, Van Beurden said this week in London.
"People could be thinking, how much worse can it get from here, so there's a rotation from
short positions to long," Michael Powell, a managing director of investment banking at Barclays
Plc, said in London this week. "Then you ask, is this the spring of this year all over
again?"
buzzsaw99
at $50 big oil will maintain dividends and bonuses but cut capex to the bone. kick
the can bitchez.
Herdee
Suckers rally, just manipulated like all markets in order to give big oil in the U.S. the
chance to hedge on the downside for winter recession. All the crooks on Wall Street need
another load of suckers for a big fat pay check before Christmas.
LawsofPhysics
Who gives a shit about paper bullshit?
Some people will have access to the calories and commodity chemicals required to maintain a
decent standard of living. Most will not.
"... An oil crisis is eventually inevitable -- and it is inevitable that the oil will be burnt
– somewhere. Where doesn't matter in environmental terms. The best imo we can hope for politically
is to slow down oil consumption so it lasts a little longer. ..."
"... If Ron is right about Peak oil happening shortly, i.e. within a year or two, the tune might
change. To quote OFM "In the event of a real crisis we may wish like hell for a non existent Keystone". ..."
"... Told me something very interesting. He said, that he and other guys in his industry aren't
drilling for oil, but rather some were drilling "Water Injection Wells." Says, companies have to
continue drilling these deep wells to get rid of the toxic water that comes from extracting oil,
especially shale oil. ..."
"...
He also says as shale wells get older and lose production it becomes even less commercially viable
to keep the well pumping when they have to inject higher volumes of water back into the ground that
are coming via the shale oil industry. ..."
"... I thought ROCKMAN'S post on peak oil.com, which Jeffrey referred to here recently was very
telling. Something like 30% of the EFS wells completed in July, 2014 are presently shut in. That
is a terrible percentage. Peruse the monthly ND well production report. Lots of shut in wells in
ND too. Many are not Bakken, but quite a few are, which is not good considering the play is not ten
years old. ..."
"... I'd say a company such as Whiting is not looking good right now. SEC PDP PV10 will be less
than long term debt at year end, production is falling, still cash flow negative and still must drill
and complete wells to keep production from falling of a cliff. ..."
"... So to summarize: of the 129 EFS wells that began producing in July 2014: 40 wells (31%) suffered
a 100% decline rate per year. Actually it's higher since not all produced for the entire 12 months
but I'll let that slide: there were 4 wells that stopped producing after a month or so and only recovered
less than 6,000 bo each. And the 89 wells still producing in July 2015: they have suffered a decline
rate of 73%. ..."
"... Electric expenses are only second to labor in most water floods IMO, and many times can even
be higher than labor. However, chemicals also are a major expense. ..."
An oil crisis is eventually inevitable -- and it is inevitable that the oil will be burnt
– somewhere. Where doesn't matter in environmental terms. The best imo we can hope for politically
is to slow down oil consumption so it lasts a little longer.
We have a somewhat better shot at limiting coal consumption because wind and solar power plus
gas can be readily substituted for coal.
This comment is about what WILL be rather than what OUGHT to be.
If Ron is right about Peak oil happening shortly, i.e. within a year or two, the tune might
change. To quote OFM "In the event of a real crisis we may wish like hell for a non existent Keystone".
If the environmental lobbies were really concerned about CC, they should be pushing for a North
American approach on how to deal with all oil production, not just focused on Canadian oil.
SRSrocco, 10/04/2015 at 1:58 pm
Ron & Group,
Maybe some of you that are working in the field can add to this. I had a phone conversation with
a fella who has been looking for oil in Texas, Louisiana and Oklahoma for the past 30+ years. Says…
he knows just about everyone looking for conventional plays in his neck of the woods.
Told me something very interesting. He said, that he and other guys in his industry aren't
drilling for oil, but rather some were drilling "Water Injection Wells." Says, companies have to
continue drilling these deep wells to get rid of the toxic water that comes from extracting oil,
especially shale oil.
Says this could become a big issue going forward as the EPA may start cracking down on this further.
He also says as shale wells get older and lose production it becomes even less commercially viable
to keep the well pumping when they have to inject higher volumes of water back into the ground that
are coming via the shale oil industry.
Would love to see if anyone else here can comment on this.
shallow sand, 10/04/2015 at 2:19 pm
Depends on the well.
Bakken wells seem to produce less water as they age. Mississippian production in KS and
OK seems to have a high water cut, making same uneconomic. EFS and Permian more of a mixed bag.
Earthquake issues arise from these wells, not from the frac itself.
shallow sand, 10/04/2015 at 2:57 pm
Steve. I'm not entirely sure on water cut in Bakken, seems it does vary well to well.
Just as with any other oilfield, some wells are better than others.
As I have pointed out here many times before, OPEX per BOE usually is lowest immediately after
the well is completed, especially if it is flowing.
I thought ROCKMAN'S post on peak oil.com, which Jeffrey referred to here recently was very
telling. Something like 30% of the EFS wells completed in July, 2014 are presently shut in. That
is a terrible percentage. Peruse the monthly ND well production report. Lots of shut in wells in
ND too. Many are not Bakken, but quite a few are, which is not good considering the play is not ten
years old.
LTO economic issues are coming home to roost. Just hard to say how much longer banks and investors
keep propping it up.
I'd say a company such as Whiting is not looking good right now. SEC PDP PV10 will be less
than long term debt at year end, production is falling, still cash flow negative and still must drill
and complete wells to keep production from falling of a cliff.
However, no personal liability for debt and hype can keep extend and pretend going for a long
time, maybe long enough to kill a lot of other high cost production.
SRSrocco, 10/04/2015 at 3:17 pm
shallow,
I couldn't agree more about your assessment of the current state of affairs in the U.S. Shale
Oil Industry. Actually, I have found out a lot of data by reading many of your comments here in the
blog. I have been a bit low-key in commenting lately, but I still enjoy reading many of Ron's posts
and comments.
As you may be aware, I have my own blog,
https://srsroccoreport.com/ . It's a precious metal website that includes energy into the mix.
Energy is excluded by most precious metal analysts… which I find completely frustrating to say the
least.
While some label me a Gold or Silver Bug, I look at the precious metals as stores of economic
energy… whether that be oil, gas, coal or human-animal labor. I agree that the "Extend & Pretend"
model has been going on longer than most realized. However, when it finally cracks, I would stand
very far away from anything tied to debt… STOCKS, BONDS, REAL ESTATE and etc.
So, it will be interesting to see how things play out this fall if we finally get the Stock Market
Crash from hell.
They started drilling in the Bakken in 1953. Very few wells that started producing
in 2007 have stopped producing, only 3% in the Bakken/Three Forks. For wells starting production
in 2008 about 5% of wells have stopped producing, for 2009 wells 3% have stopped producing.
I define "stopped producing" as 12 months or longer of zero output counting back from the most
recent month reported. I used the data through Feb 2015 so these numbers may have changed somewhat
over the past 8 months.
I question whether Rockman used a reliable method for reporting on the Eagle Ford. In many cases
the RRC will report output as zero when the company has not yet reported output for a lease (or the
data is pending review for accounting reasons), Drilling info gets its data from the RRC and the
data is not very complete. The 30% of wells that Rockman claims have stopped producing in the Eagle
Ford may just be an artifact of this incomplete data.
So to summarize: of the 129 EFS wells that began producing in July 2014: 40 wells (31%) suffered
a 100% decline rate per year. Actually it's higher since not all produced for the entire 12 months
but I'll let that slide: there were 4 wells that stopped producing after a month or so and only recovered
less than 6,000 bo each. And the 89 wells still producing in July 2015: they have suffered a decline
rate of 73%.
I don't think Rockman would make such a silly mistake as you suggest. It appears to me that he
is tracking each well and the 40 that dropped out did so at different times and simply never returned
to production.
I don't have access to the Drilling info database so perhaps you are correct. I am very
skeptical of Rockman's claims. I think he assumes that because output is reported as zero, that the
output is in fact zero.
I followed some Eagle Ford wells for a while and the "missing output" is often just delayed reporting
which shows up later. For a better test Rockman would have to look at wells that started producing
in July 2013 and see how many of those wells were still producing in July 2014, that would avoid
most of the delayed reporting artifacts.
If he did so he would probably find that 5% or fewer wells had stopped producing (where this is
defined as zero production for 12 consecutive months or more).
Rune. Thanks! I thought maybe you had addressed this.
I think an interesting exercise related to the high decline and increasing water cut would be
to assume a company, such as Oasis, we're to cease all drilling, completion and refrac work.
Is there any way OAS, who I think is 100% ND and MT, could come close to retiring debt at the
present strip.
I would note OAS is attempting to sell all of its non-Bakken/TF acreage and production.
A confidentiality agreement is required to view the data. The public data indicates 625 BOEPD
from 95 wells. I looked at MT site, several wells are shut in. Looks the same for ND.
I read the article Jeffrey linked comparing LTO wells to water soluble houses. I can't really
tell what is better for these companies. Keep drilling at a loss or stop and try to pay down debt.
What a deal.
Might be amusing if we weren't in a pickle with much of our production also.
A rough metaphor for the shale players is the book and movie "Thinner," by Stephen King. A gypsy
places a curse on the lead character, who weighs about 300 pounds. No matter how much he eats, he
loses weight, and only by consuming vast quantities of food per day is he able to minimize the weight
loss.
The chart shows Oasis credit and debts stacked (columns) along their retirement profile (time
axis) and the growing lines (using October-15 as baseline) shows estimates on Oasis cumulative net
cash flow with oil prices at respectively $50/b and $70/b [WTI] and no wells added post October-15
(this causes a steep decline in LTO production).
The chart assumes that the credit facility is fully utilized by October 2015.
With average oil price of $50/b Oasis may clear the first hurdle, the second one (due Feb 2019
becomes challenging). With average oil price of $70/b Oasis may find it difficult to meet debt retirements as from 2022.
How oil prices develop is a big if, but I expect these to be low for some time. The other thing
is possible rollovers of debts. To me the best strategy in a low oil price environment would be to stop drilling (LTO) wells that
has the prospects of becoming unprofitable [due to the high front end loaded production]…..and pray
for a higher oil price.
EPA's regulations require that all onshore "produced water" be reinjected, very few exceptions. Of
course, as well age, the water cut increases and reinjection becomes a significant cost factor.
Noted last post, I suspect we have underestimated OPEX for shale out years. Lower oil output means
the onsite tanks fill slower to be off loaded by less frequent truck visits.
But the trucks for production water still have to make the trip to drain the faster filling water
tanks.
A water injection well is a different animal to me than a "water disposal well". An injection well
is used in field operations to maintain reservoir pressure by injecting water or reinjecting gas into
the reservoir and would be drilled by the operator not a third party service provider. Water would probably
have to be treated chemically before injecting into a reservoir.
A salt water disposal well is used to dispose of produced water that is a by product of field operations.
Often these are drilled and operated by 3rd party service contractors but many times an operator will
drill and operate its own disposal wells.
In Texas, the general rule is that produced salt water from one surface tract can not be disposed
of on a another surface tract without the consent of the surface owner. Consent is generally given in
return for a per barrel fee. It is my experience, that operators take advantage of surface owners in
this regard especially when the surface owner is absentee. Other times the surface owners operate these
wells as a business and accept produced water from many different operators.
Some surface owners also sell fresh water to operators as a business too.
Large unitized fields generally have their own disposal wells for produced water and the operators
run them as part of the unit operations.
Many salt water disposal operators try to convert old abandoned wells into disposal wells. There
has to be a formation with enough porosity and permabilty to take the water either on a vacuum (which
is the ideal situation) or on a pump which takes a lot of electricity to operate.
How much electricity it takes to dispose of produced water makes a big difference in well economics
right now.
In my experience, it takes more pressure, and thus more electricity, to inject water in the producing
zone, as opposed to disposing of water in the most suitable non-producing zone.
Electric expenses are only second to labor in most water floods IMO, and many times can even
be higher than labor. However, chemicals also are a major expense.
Having a salt water disposal well that can take a lot of water on a vacuum or at low pressure can
be an asset. I have recently seen some commercial disposal wells for sale, with monthly net income as
high as $30K.
A good water supply well is also very useful in water flood operations. However, very important that
the water can easily commingle with water in the producing zone. Otherwise, tremendous chemical expense
and/or down hole problems may result. Also, tends to clog lines.
I would say most US water floods are not doing well economically at present. In the last thread had
a discussion about an MLP, Mid-Con, and their expenses.
Many MLP are heavy into water floods. Also, think OXY and Chevron are big water flood players in
the Permian, in addition to CO2 floods. I think many CO2 floods originally were water floods.
MBP indicated secondary and tertiary production is still profitable in the Permian. Would be interested
to see OPEX, taxes and G&A for some of the larger water and CO2 floods.
Kinder Morgan has two of the largest CO2 floods in SACROC and Yates. Might see if they break out
those costs. I think they have an advantage in that they own a lot of CO2 transmission lines.
"... CAPEX
cutbacks will bite hard after a lag period and supply will be unable to meet demand which may
lead to a super spike in oil prices, followed by recession and lower demand. ..."
"... In my view, that might happen not earlier than the beginning of next decade. There is still
a surplus in the market of around 2 mb/d. It would take time before it is erased. As prices start
to rise again, there will be additional supply from Iran, Iraq and Brazil. Libyan oil will also
eventually return to the market. ..."
"... Super spikes in oil prices are possible in the future. The oil industry is cyclical and
is known for big fluctuations in prices. But I do not think that potential price spikes in the
next decade is what is seriously worrying the Saudis at this moment. So their decision not to
cut output now seems quite logical to me. ..."
"... I believe that Canadian oil sands and US LTO output will fall faster than OPEC anticipates
and may bring supply and demand into balance by June 2016 (assuming OPECs demand forecast is correct).
..."
You said: "Here is the problem if OPEC follows the path that you suggest. CAPEX
cutbacks will bite hard after a lag period and supply will be unable to meet demand which may
lead to a super spike in oil prices, followed by recession and lower demand."
In my view, that might happen not earlier than the beginning of next decade. There is still
a surplus in the market of around 2 mb/d. It would take time before it is erased. As prices start
to rise again, there will be additional supply from Iran, Iraq and Brazil. Libyan oil will also
eventually return to the market.
Finally, while LTO output might indeed "begin to crash in 2016" if oil stays below $50, the
shale industry will not be killed. After all, the necessary infrastructure remains in place; there
is a vast fleet of drilling rigs and fracking equipment. Some companies might go bust, but their
assets will be bought by bigger and stronger players. Financial markets will be cautious and access
to capital for LTO producers will be more difficult, but it will not be cut. I agree that "LTO
may not rebound as fast as some believe", but I think it will take no longer than 6 to 9 months.
If and when WTI reaches $65 LTO industry will show first signs of life, and at $75-80 it will
resume steady growth.
Annual growth rates of 1 mb/d are in the past, but 500 kb/d are quite possible, probably not for
7-8 years, as Mark Papa says (see Ron's link below), but at least for 4 -5 years.
Super spikes in oil prices are possible in the future. The oil industry is cyclical and
is known for big fluctuations in prices. But I do not think that potential price spikes in the
next decade is what is seriously worrying the Saudis at this moment. So their decision not to
cut output now seems quite logical to me.
Well if your assumptions about new oil coming to market are correct then there will
be no danger of a superspike in oil prices.
I don't think $70/b oil will cause a lot of new output to come to market. The Saudis export
about 8.8 Mb/d of crude and petroleum products, an extra $20/b amounts to $176 million per day
or $64 billion per year.
For all of OPEC about 27 Mb/d of crude plus products are exported, so raising oil prices by
$20/b increases revenue by $520 million per day (assuming 1 Mb/d lower output) or about $190 billion
per year.
The oil market may adjust very smoothly in the absence of any cartel action, but this will
be historically unprecedented.
I have a little faith in markets, but you must be a true believer in free markets. I am not,
markets need some regulation and in the absence of the RRC or OPEC, the oil market will be Volatile.
Shallow,
I am much on the same page as AlexS here.
It is hard to know what OPEC's true objectives are; there is a lot of chatter in the media.
I noticed KSA recently (again) cut the price to some of their Asian customers.
A lower oil price
stimulates consumption (demand) and there are some new developments that still may grow the supply
side. Then there is Brazil, Iran, Iraq and Libya (to name some).
To me the big unknown is how demand, especially in emerging Asian economies develops and the
slowdown in China's imports of commodities (iron ore, coal, nat gas etc) are signs of a slowing
economy. China has been pulling their neighbors, so as China slows so will others.
If one follow the commodities flows to China through the Chinese factories the end products
normally ends up with consumers all over the world. Lower commodity prices may be a sign about
consumer's general financial health (a demand issue). These are indicators that may be helpful
in understanding directions for global oil demand.
There are also some reports about China now filling their strategic petroleum reserve. In other
words, what one needs to do is break the demand into consumption and stock build.
OECD has a huge (and growing) stock overhang which needs to be worked through.
Now I hold it 70+% probable that OPEC will not cut during their next meeting later this year.
I would think that $50/b will not result in a lot of new oil coming from Brazil, Iraq is in
chaos, Libya about the same so probably not a lot of new supplies coming from any of those 3.
We might see some new output from Iran, the question for me is will this offset the declines in
Canada, US, and the North Sea due to CAPEX cutbacks. You are correct that there are a lot of stocks
out there, so any danger of a spike in oil prices is minimized by the excess stocks (roughly 250
million barrels based on OPEC's Monthly report in September).
I believe that Canadian oil sands and US LTO output will fall faster than OPEC anticipates
and may bring supply and demand into balance by June 2016 (assuming OPECs demand forecast is correct).
The slowdown in China may be positive for many Asian nations that compete with China exporting
their products to other nations, but only if there is not a bigger fall in exports to China than
the increase in exports to other nations. The fall in the value of the Yuan in August may help
China's exports.
Most economic forecasts have World growth at about 3% in 2015, these are not much better than
long term weather forecasts so we will find out in time.
One thing I would say is that if AlexS and Rune agree on a forecast of the oil industry, it
is likely correct.
On the other hand Jeffrey Brown and Steve Kopits seem to think the oil market will become tight
sooner rather than later.
IEA, EIA and OPEC forecast that supply and demand will be balanced by 4Q 2016 ,
and they anticipate relatively modest increase in Iran supply and no increase in Libya.
That means that global crude and products inventories will continue to increase for at least the
next 3 or 4 quarters, although not as fast as in the first half of 2015.
Once the balance is reached and then demand starts to exceed supply, it will take time before
the excess volume of inventories is wiped out.
"... Seems like that add pops up a lot. With WTI averaging about $46 for Q3 and right there yet today,
seems like OIL BUST is now the more appropriate term. ..."
"... Oil production and related liquids is generating about $5 billion per day less worldwide than
it did in the 2012-2014 time frame. Big transfer of funds from one group to another. ..."
"... Saudi Arabia, with its huge foreign reserves, could withstand for 3 or 4 years at $50 oil.
By that time, prices will improve. ..."
"... We could live with 60-70% of the 6/14 high for quite awhile, which would be $63-74 WTI.
..."
"... That price range sounds about right for 2016, but I think we may see it creep
up by 2017 (maybe at a 5 to 10% annual rate of increase) because those prices will not be enough
to encourage much investment so demand will outstrip supply and drive oil prices up. I think it likely
we will see $100/b by 2018 (possibly higher), if the peak has arrived by 2018 (and output is either
on a plateau or slowly declining) then oil prices may head to about $150/b within 3 to 5 years, though
a recession would put a damper on the oil price rise eventually (within 1 or 2 years of reaching
$150/b is my WAG.) ..."
Gotta wonder bout such an Ad in an article titled "us-shale-oil-industry-will-simply-vanish"
Most Likely it's the Investor that will vanish – the oil industry will be "right sized" when forced
focus on fundamentals. Sad.. but the Ad title … OIL BOOM is spot on.
Seems like that add pops up a lot. With WTI averaging about $46 for Q3 and right there yet today,
seems like OIL BUST is now the more appropriate term.
Oil production and related liquids is generating about $5 billion per day less worldwide than
it did in the 2012-2014 time frame. Big transfer of funds from one group to another.
KSA realizing around $180 billion less on an annual basis. Wonder how long before they feel
backed into a corner enough to do something. Looks like Russia may outlast them, as KSA is pegged
to dollar and Russia isn't.
Maybe Jeffrey can send KSA royals some good bean dish recipes and some free ice cream cone coupons
from DQ. LOL!!
AlexS. KSA could go longer than that as I assume many banks would be willing to loan them money
with reserves as collateral. They also could issue many more billions of unsecured bonds.
However, OPEC did not go years without cutting in 1986, 1999 and 2009.
Each time the cut worked. The price went up significantly. 1986 was not as successful as the
other two cuts.
I may be wrong, but for US producers, it is likely the only hope.
In 1986, OPEC actually started increasing production after unsuccessfully trying to stabilize
prices by cutting output over the previous 5 years. Their market share dropped from 45.4% in 1979
to 27.6% in 1985, but was constantly increasing from 1986 and has reached 41.9% in 1998. Over the
whole period prices remained low (with only a short spike during the Gulf war in 1990). But, for
OPEC countries, this was partially offset by the increased production volumes from 15.9 mb/d in 1985
to 30.7mb/d in 1998 (almost twice).
I am just looking at history regarding a cut. The past may not be repeated, I agree.
1985-1986. WTI dropped 62.4% from 11/85 to 7/86, from around $31 to $11.50. In November, 1986,
OPEC set a target price of $18. 1/87 WTI averaged $18.65. By 7/87 the average was up to $21.34. I
do agree the price collapsed again in 1988, but recovered. The price typically was 60-70% of the
$31 high in 1985 until the 1998 collapse.
1998-1999. The price dropped approximately 55% from late 1997 to 12/98, when the monthly average
was $11.35. I remember that very well. Glum Christmas Party. We were at $8 and change. 3/23 OPEC
announced 2.2 million barrel cut. 7/99 average $20.10. 12/99 average $26.10.
2008-2009. Price dropped 71%. June, 2008 average $133.78. February average $39.09. OPEC announced
stages of cuts, 500K 9/08, 1.5 million 10/08, 2.2 million 12/08. By 6/09, monthly average 69.64.
By 12/09, $77.99
2014-15. Price dropped almost 64% from June, 2014 to August, 2015. June averaged $105.79. August,
2015 averaged $42.87.
Maybe OPEC will not cut in December, 2015. Going by history they will soon. They have not let
things go more than 18 months from the peak in the past. 12/4 meeting will be at 18 months from June
peak.
Go read news stories from 1986, 1999 and 2008-2009. KSA was concerned about the price each time
and stated such. Things are not peachy, contrary to both KSA and Russia official mantras.
Again, I could be wrong, just looking at history. Otoh, maybe lower for longer is needed to stifle
the ridiculous North American CAPEX. When reading stories from late 2008, COP had announced a CAPEX
budget cut of 18% to $2.8 billion for 2009. By 2014 the CAPEX budget had ballooned to over $17 billion.
COP, of course, is a big player in tar sands and all major US LTO plays, so would be a good proxy
for "out of control spending.".
That price range sounds about right for 2016, but I think we may see it creep
up by 2017 (maybe at a 5 to 10% annual rate of increase) because those prices will not be enough
to encourage much investment so demand will outstrip supply and drive oil prices up. I think it likely
we will see $100/b by 2018 (possibly higher), if the peak has arrived by 2018 (and output is either
on a plateau or slowly declining) then oil prices may head to about $150/b within 3 to 5 years, though
a recession would put a damper on the oil price rise eventually (within 1 or 2 years of reaching
$150/b is my WAG.)
Others predict a permanent recession (or very slow growth) due to high debt levels.
If that hypothesis is correct, the future economic outlook is indeed very grim, even in this scenario
supply would decrease faster than demand (due to low prices and lack of investment) and oil prices
would eventually rise (probably not until 2020), but at a slower rate of increase maybe reaching
$100/b in 2025.
I don't find the excess debt story very compelling, but many do.
Parallels with 1985-86, 1998-99, 2001-02 and 2008-09 may lead to erroneous conclusions.
Sharp oil price declines in 1998-99, 2001-02 and 2008-09 were caused by cyclical demand reduction
during global recessions. It was relatively easy, for OPEC, to support prices by cutting output,
as demand quickly rebounded. OPEC restored production levels in a few months and didn't lose its
market share.
By contrast, oil price decline in the 80s was due not only to a deep recession (1980-83), but
also to long-term trends triggered by the oil price shocks of 1973-74 and 1979-80. These included
oil substitution by natural gas in power generation and industry, oil/energy saving measures, and
a sharp increase in oil production in the North Sea, Alaska, Mexico and Western Siberia. OPEC initially
tried to offset falling demand and the tide of rising non-OPEC supplies by cutting its own output,
but this proved inefficient. Competitors were taking its market share and prices continued to decline.
Therefore, Saudi Arabia and other OPEC members changed their market strategy from defending prices
to defending market share.
The current oil price slump is due to long-term trends in supply (primarily LTO, but also Canada
and some OPEC members). Cutting OPEC output to maintain prices would only support LTO and other non-OPEC
supplies, including costly projects such as Arctic. As we have seen in 2Q15, even at $60 WTI tight
oil producers are ready to increase drilling activity, but at the current $45 LTO production is declining.
Therefore, it doesn't make sense for Saudi Arabia and its neighbors to cut output and support competitors.
They will wait until rising demand and stagnating or declining non-OPEC production will finally erase
excess supply. That will take much less time than in the 80-90s, as current spare capacity is only
about 2.5 mb/d vs. 11-12 mb/d in 1985.
"... 2016 will be another year
of record mainland deficit which need to be covered by the offshore sector and its 6,900 bn NOK sovereign
wealth fund (SWF). ..."
"... As Eurodollar liquidity dries up and consequently pushes up the price of actual dollar (note,
Eurodollars are international claims to domestic US dollars but for which no such dollars actual
exists) the problem for petro-states compounds. One way this manifest itself is through international
purchasing power of prior savings. ..."
"... In other words, the drawdown of the SWF will exceed its inflow even after adding financial
income flows. The last remnant of the petro-dollar will thus die in 2016 ..."
"... For a country 100 per cent dependent on continued leverage in the Eurodollar system the
absolutely best case scenario is for the US economy to grow just slowly enough for international
monetary policy to again realign; reducing the value of the USD through continued ZIRP in the US. ..."
According to the proposed budget submitted by the current 'blue-blue' government the Norwegian deficit
will reach another record high in 2016. Mainland taxes are expected to bring in 1,008 billion NOKs,
while expenditures are estimated at 1,215 billion NOKs. In other words, 2016 will be another year
of record mainland deficit which need to be covered by the offshore sector and its 6,900 bn NOK sovereign
wealth fund (SWF).
While record mainland deficits covered by the petroleum sector is nothing new
in Norwegian budget history, on the contrary it is closer to the norm, the 2016 budget did raise
some eyebrows. The other side of the ledger, the net inflow to the SWF from activities in
the North Sea will, again according to budget, be lower than the required amount to cover the deficit.
This has never happened before and is testimony of the sea change occurring in the world of petrodollar
recycling. Interestingly enough, the need to liquidate SWF holdings is helping to create further
deflation in the Eurodollar system in a self-reinforcing loop.
As Eurodollar liquidity dries up and consequently pushes up the price of actual dollar (note,
Eurodollars are international claims to domestic US dollars but for which no such dollars actual
exists) the problem for petro-states compounds. One way this manifest itself is through international
purchasing power of prior savings. A SWF as the Norwegian was created through a surplus of exports
over imports meaning it can only be utilized through future imports over exports. When the Norwegians
look at their wealth expressed in Norwegian kroner it all looks fine, but expressed in dollars the
SWF has shrunk considerably in size. Thus, the surfeit imports expected by the Norwegian populace
cannot be met. Norway rode high on a wave of liquidity which pushed up commodity currencies, leading
Norwegians to consume more imported goods today, without realizing they were tapping into the principal
of their future. When the tide turns the gross misconception is revealed.
The Government claims it is all fine though. The current down-cycle will, according to them,
end early 2016 so despite a 2 percentage point reduction in corporate- and personal income tax,
mainland tax revenues are expected to increase 1.9 per cent. That is obviously a pipedream, just
as the expected 17.9 per cent increase in interest and dividend income which will make sure the
SWF continue to grow at a healthy pace despite the massive mainland deficit.
Assuming oil prices remain low, mainland tax revenue will plummet as they are very much a
function of what goes on offshore, while expenditure will rise as they do in all welfare states
during a down cycle.
If we are right, a global recession is imminent, meaning the expected increase in dividend
income will never materialize.
In other words, the drawdown of the SWF will exceed its inflow even after adding financial
income flows. The last remnant of the petro-dollar will thus die in 2016.
For a country 100 per cent dependent on continued leverage in the Eurodollar system the
absolutely best case scenario is for the US economy to grow just slowly enough for international
monetary policy to again realign; reducing the value of the USD through continued ZIRP in the US.
Robust growth in the US will prompt Yellen to hike, spiking the dollar (as Eurodollar claims
scramble for actual dollars) while paradoxically a recession in the US will lead to the exact
same outcome. The goldilocks scenario of 1-2 per cent growth is the best that the Norwegian
government can hope for. It will minimize the gap between the lies and propaganda spewed out by
the Ministry of Finance and reality.
Latina Lover
Death to the Fed Reserve! Time for a currency reset. Down with the Banksters, or rather,
hang them high!
Oil surged above $50 a barrel in New York for the first time since July on speculation that demand
is picking up.
... ... ...
WTI for
November delivery rose $1.62 to settle at $49.43 a barrel on the New York Mercantile Exchange. It
was the highest settlement since July 21. Futures touched $50.07. The volume of all futures
traded was 45 percent higher than the
100-day average at 3:01 p.m.
... ... ...
Global oil demand will increase by 1.5 million barrels a day this year, El-Badri said in the
statement to the IMF’s International Monetary and Financial Committee. Commercial oil inventories
in developed countries remain about 190 million barrels above the five year average , he said.
While financial market can dictate oil price for a considerable length of time then can't do it
forever. At some point the fact that a lot of oil production need break-even price of 65 and realistic
price $75 per barrel will change the game Wall Street is playing. Some "overenthusiastic" shorts might
lose. Also credibility Wall Street is probably close to zero to attempt to manipulate market via
MSM are not as effective as in the past.
Last month, Courvalin said that oil prices could fall as low as $20 as the global glut drags into
next year. See last month's post, "There
Will Be Blood: Goldman Slashes Oil Price Forecasts." Here's the laundry list of what Goldman
says hasn't changed in the past week:
The global oil market is currently well oversupplied.
This oversupply is driven by strong production growth outside of the US with Lower 48 production
already declining and gradually tightening light US crude balances.
Low prices are required in 2016 to finally bring supply and demand into balance by year-end
and sustain a US production decline of 585 kb/d next year.
Although demand growth has surprised to the upside this year at 1.6 million b/d growth, risks
are clearly to weaker demand growth in 2016.
Dave wrote:
Goldman has lost all credibility LONG ago. They are looking to load up before the rebound and
are trying to drive prices down temporarily.
Earnst wrote:
Only about 20% of trade is between actual buyer's and seller's. There is a terrific bias towards
longs and the use of technical analysis as well as conditioned responses to factors such as middle
east conflict. It was a new day yesterday but by God it's an old day now; they'll capitulate.
Big Al wrote:
These are the same guys who called for oil in the $20s. They are either: trying to protect
some short positions, clueless as to oil and gas industry fundamentals or incompetent at best.
Everyone in the industry knows that shorting energy is like playing Russian roulette. You could
get lucky, but if you keep playing long enough, you wind up dead.
Jeff wrote:
Hmmmm.... Rig count at lowest level in years. US production swinging lower. Saudis signaling
for higher prices as they bleed $12B per month. Seems like higher prices up to $60 not unreasonable.
dsr wrote:
Not many know this, but Goldman owns a large interest in an oil refinery in Indiana. The
lower oil is the higher the crack spreads for them, equals $$$$$. They also sell 70,000 barrels
of crude per day to another refinery and then buy the product to sell on the market. Do a Google
search on Goldman's forecast for energy over the last 18 months and you will see the light of
absurdity. It's beyond funny. We have lost 1 million barrels of oil per day in non-opec production
in the last 6 months, and at the same time demand is surging, and this guy says "not much has
changed." No credibility.
kim wrote:
The vampire squids are having to eat crow right now and they are trying harder than ever
to jawbone down the price of oil to save their credibility and probably make a few shekels in
the process. Put a little salt and pepper on that 20 dollar per barrel crow that you are having
to eat there Damien; makes it go down better.
Phil wrote:
If Goldman said it will go down, bet for oil, it will go up!
George wrote:
And where is the $200/barrel oil they predicted a couple of years ago? Oh, not here yet so
now they are predicting $20. Losers.
anonymous33 wrote:
people should read the report. Nowhere does the analyst or Goldman predict $20 oil. That number
is specified as a very specific condition which even they say is not going to happen. Typical
over-reaction by the public.
The financial turmoil of the past month has brought the high yield debt market to a screeching halt.
A number of deals have been called off or shifted to the loan market. Late last month, chemical company
Altice had to cut back a bond offering and increase the interest rate to 11% on a portion of a multi-billion
dollar deal.
Just $12 billion in high yield bonds were issued last week, down from $34 billion
during the same week a year ago, according to S&P Leverage Commentary and Data. Total issuance of
leveraged loans and high yield bonds is down by nearly $140 billion this year compared to 2014, to
about $575 billion.
The biggest risks to the global economy are now in emerging markets, where private companies have
racked up considerable debt amid a fifth straight year of slowing growth, the International Monetary
Fund said Wednesday.
The current values of futures and options contracts for January 2016 delivery (Market
Prices and Uncertainty Report) suggest the market expects WTI prices to range from $32/b to
$67/b (at the 95% confidence interval) in January 2016.
... ... ...
Projected U.S. crude oil production averages 9.2 million b/d in 2015 and 8.9 million b/d in
2016.
Blast from the past. Note that key arguments still look reasonable... But prediction is not ;-)...
"... New unconventional oil reserves in the U.S. require an average break-even price of $65, which
does not justify or support a $75 price. ..."
"... Barrons assumes that all new unconventional reserves are here for the long term and will
continue to increase production, which is not the case. ..."
"... The article references Citigroup energy analyst Eric Lee, who believes that most
of this new oil could be recovered for around under $75 per barrel, leading to a global decrease
in price. ..."
"... after examining existing extraction cost data it is hard for the supply side economics to actually
work out and support $75 oil for a sustained period of time. ..."
"... This increased demand would put worldwide oil consumption at 91.60 million barrels per day in
2014 and 92.97 million barrels per day in 2015. ..."
Barron's assumptions as to the leading factors of lowered oil pricing do not make sense after examining
the supply side economics.
New unconventional oil reserves in the U.S. require an average break-even price of $65, which
does not justify or support a $75 price.
Barron's assumes that all new unconventional reserves are here for the long term and will
continue to increase production, which is not the case.
The cover of Barrons this past week read "Here
Comes $75 Oil". The article highlights that due to several new "game changers" in the oil production
market that within the next 5 years the oil market would fall to $75 a barrel. The three main reasons
that would contribute to cheaper oil are deep-water oil, shale oil, and oil sands. All of these newfound
resources are estimated at roughly one trillion barrels in newfound oil. Adding that onto the existing
global oil reserve estimated at 1.5 trillion, makes this newfound oil a major factor in the future
of oil pricing. The article references Citigroup energy analyst Eric Lee, who believes that most
of this new oil could be recovered for around under $75 per barrel, leading to a global decrease
in price.
As much as $75 oil sounds nice and would no doubt be a major boon to the U.S. and world economies.
Yet after examining existing extraction cost data it is hard for the supply side economics to actually
work out and support $75 oil for a sustained period of time. According to the
U.S. Energy Information
Administration (EIA), they expect worldwide consumption of petroleum products to grow by 1.2
million barrels per day in 2014 and 1.5 million barrels per day for 2015.
This increased demand would put worldwide oil consumption at 91.60 million barrels per day in
2014 and 92.97 million barrels per day in 2015.
"... investments in new or
expanded oil projects will be reduced by 22.4 percent to $521 billion this year – down $130
billion from 2014 – thereby reducing the supply of crude and putting upward pressure on prices. ..."
"... He said he expects global demand for oil
will rise by 1.3 million barrels a day in 2016. ..."
"... When will the end of that tunnel appear? Within the next 18 to 24 months, el-Badri
predicted. ..."
In London, OPEC Secretary-general Abdallah Salem el-Badri said investments in new or
expanded oil projects will be reduced by 22.4 percent to $521 billion this year – down $130
billion from 2014 – thereby reducing the supply of crude and putting upward pressure on prices.
"Less supply in the very near future. Less supply means high prices,"
el-Badri said in a speech at the Oil and Money conference.
El-Badri's expectations on investment were supported by the executive director of the
International Energy Agency (IEA), Fatih Birol, who told the meeting that investments in oil
projects this year will fall by about the same rate forecast by el-Badri.
"Upstream investment will be at least 20 per cent lower [this year] than in 2014,"
said the chief of the
Paris-based IEA, which represents 29 oil-consuming countries. "In terms of money spent, it's
the highest [drop] in history."
Oil prices will also rise, ironically, because the current low prices have encouraged
consumers to buy more fuel, according to el-Badri. He said he expects global demand for oil
will rise by 1.3 million barrels a day in 2016.
The current low price of oil has strained the budgets of many oil-producing countries,
including wealthy Middle Eastern states. The price of oil is now less than $50 per barrel, less
than half what it was in June 2014. Yet el-Badri argued, "We are not in disarray. We see some
light at the end of the tunnel."
When will the end of that tunnel appear? Within the next 18 to 24 months, el-Badri
predicted.
Ben van Beurden, the CEO of Royal Dutch Shell, doesn't see oil prices stabilizing quite that
soon, however. He told the conference that while oil prices are due to recover,
their
rise won't be as fast as el-Badri expects
... ... ...
This [shale] technology can't make money unless oil sells for at least $60 per barrel.
"...
At 848, the number of U.S. drilling rigs is only half what it was in January, and the lowest
level since 2003. The Department of
Energy said Tuesday it estimated U.S. oil production fell by 120,000 barrels a day last
month, and will continue to fall through mid-2016. It now expects U.S. crude output to fall to an
average of 8.9 million b/d next year from 9.2 million this year. ..."
"... The International Energy Agency now expects global demand to rise by 1.7 million b/d this
year. ..."
"... Pretending that there's still some kind of competition between shale oil and OM's and
ignoring the worldwide credit collapse is just plain stupid. OM's are clearly in liquidation
because of the credit collapse, and not because they're winning some artificial competition
against the shale oil producers who're themselves effectively out of business. ..."
"... Massive credit is required to drill, and it's not there. ..."
Baker Hughes' closely-watched rig count showed that the number of drilling rigs in the U.S.
turned down sharply in September after signs of a brief revival in the previous two months.
At 848, the number of U.S. drilling rigs is only half what it was in January, and the lowest
level since 2003. The Department of
Energy said Tuesday it estimated U.S. oil production fell by 120,000 barrels a day last
month, and will continue to fall through mid-2016. It now expects U.S. crude output to fall to an
average of 8.9 million b/d next year from 9.2 million this year.
... ... ...
The International Energy Agency now expects global demand to rise by 1.7 million b/d this
year.
KI time
Pretending that there's still some kind of competition between shale oil and OM's and
ignoring the worldwide credit collapse is just plain stupid. OM's are clearly in liquidation
because of the credit collapse, and not because they're winning some artificial competition
against the shale oil producers who're themselves effectively out of business.
Massive credit is required to drill, and it's not there. Government has
effectively provided more than $4.2 Trillion$ in bailouts since 2005 as cover for the
worldwide credit collapse. Now Government is stone broke and can't do it anymore...
"... while there are alternatives ranging from electric batteries to natural gas, none are
as convenient or deliver the same energy-dense punch as plain old petroleum products. ..."
"... the way oil is bought, sold and used has
changed almost beyond recognition in less than a year. For the first time in generations, oil
is being driven by markets [aka Wall Street speculators -- NNB] rather than giant cartels.
..."
"... Bad
for the bulls, right? Maybe not â€" oil always seems to bubble upward. Paul Horsnell, head of commodity research at Standard
Chartered Bank in London, tells OZY that U.S. production is “falling relatively quickly.” As a result,
he says, a sharp price increase is in the cards, perhaps to near $75, compared with prices in the
$50 range today. Philip Verleger, president of the consulting firm PKVerleger, also sees oil rising
in the near term; he says U.S. companies have been laggards about reporting their cutbacks, and that
government statistics overstate oil production as a result. ..."
For better or worse, oil never really seems to lose out in the long run. You’d think the case
against it would be easy to make: It’s last century’s go-to energy source and a nightmare for the
environment. There are also those nagging concerns about
peak oil and even
peak car,
given that millennials seem way less interested in their own wheels than their elders were at that
age. But oil is still by far the biggest traded commodity in the world. It’s uniquely useful, and
so far irreplaceable, as a cheap, liquid fuel â€" after all, you can’t run a car on coal or fly a plane
on solar, and while there are alternatives ranging from electric batteries to natural gas, none are
as convenient or deliver the same energy-dense punch as plain old petroleum products. All the fracking
in the world hasn’t yet diminished the sense that the days of Texas Tea are far from over.
By contrast, the way oil is bought, sold and used has
changed almost beyond recognition in less than a year. For the first time in generations, oil
is being driven by markets [aka Wall Street speculators -- NNB] rather than giant cartels.
OPEC, long the bogeyman of the oil market,
has been neutered by a huge surge in U.S. production; at the same time, low gas prices don’t seem
to be encouraging people to drive longer or buy more gas guzzlers the way they have in the past.
“This time it is not business as usual,” said Maria van der Hoeven, executive director of the Paris-based
International Energy Agency, in a recent
speech.
The most jaw-dropping change by far: OPEC’s effective capitulation in its decades-old game of
rigging oil prices. Last November, Saudi Arabia opened its oil taps in what experts considered
an attempt to kill off “high cost” U.S. shale-oil production. But it turned out that U.S. operations
haven’t been so high cost after all; oil expert Daniel Yergin, vice chair of the research and consulting
company IHS, notes that U.S. prospectors improved their efficiency by 65 percent in just a year.
U.S. oil production is up to stay, he says â€" and that means oil prices are likely to stay low.
Bad
for the bulls, right? Maybe not â€" oil always seems to bubble upward. Paul Horsnell, head of commodity research at Standard
Chartered Bank in London, tells OZY that U.S. production is “falling relatively quickly.” As a result,
he says, a sharp price increase is in the cards, perhaps to near $75, compared with prices in the
$50 range today. Philip Verleger, president of the consulting firm PKVerleger, also sees oil rising
in the near term; he says U.S. companies have been laggards about reporting their cutbacks, and that
government statistics overstate oil production as a result.
Some forecasters believe oil’s great run won’t end for decades â€" most of us still love our cars,
and demand for them continues to grow in the developing world. But there’s also the threat that governments
worried about global warming and pollution might finally cap the gusher.
Says Verleger: “The oil
industry has no friends.”
October could be a crucial month for struggling drillers. With
drillers undergoing credit
redeterminations, October could see a wave of debt restructuring and cuts to credit
lines, potentially forcing deeper cuts in the shale patch.
... ... ...
In the U.S., production declines continue, although fitfully and inconsistently. After several
months of large declines in production, the supply picture has become a bit murky. For example,
output fell by 222,000 barrels per day between April and May, and then by another 115,000 barrels
per day from May to June. But in July, production actually increased by 94,000 barrels per day.
The gains came from the Gulf of Mexico, and not the shale patch. Offshore projects are long-term
propositions and don't respond quickly to shifts in oil prices. However, even taking out the
offshore gains, U.S. production would have only declined by 53,000 barrels per day, a slower pace
than what was seen in previous months.
gcjohns1971
"Saudi Arabia will continue to seek a rebound in oil prices only by a contraction in
production from countries such as Russia, Canada, and the United States."
This is a red herring because the United States, even in the unlikely event of an oil
surplus, is by law not an oil exporter.
What the 'Shale Revolution' has done is send those formerly exporting to the US to fight for
markets elsewhere.
... ... ...
cashtoash
But Garrrrrtman said on CNBS [yesterday on fast money] that oil has bottomed, time to buy
buy buy
Larry Summers continues his call for fiscal expansion:
Global economy: The case for expansion: ...The problem of secular
stagnation - the inability of the industrial world to grow at
satisfactory rates even with very loose monetary policies - is
growing worse in the wake of problems in most big
emerging markets, starting with China. ... Industrialised
economies that are barely running above stall speed can ill-afford
a negative global shock. Policymakers badly underestimate the
risks... If a recession were to occur, monetary policymakers lack
the tools to respond. ...
This is no time for complacency. The idea that slow growth is only
a temporary consequence of the 2008 financial crisis is absurd. ...
Long-term low interest rates radically alter how we should think
about fiscal policy. Just as homeowners can afford larger mortgages
when rates are low, government can also sustain higher deficits.
...
The case for more expansionary fiscal policy is especially strong
when it is spent on investment or maintenance. ... While the
problem before 2008 was too much lending, many more of today's
problems have to do with too little lending for productive
investment.
Inevitably, there will be discussion of the need for structural
reform... - there always is. ...
Traditional approaches of focusing on sound government finance,
increased supply potential and the avoidance of inflation court
disaster. ... It is an irony of today's secular stagnation that
what is conventionally regarded as imprudent offers the only
prudent way forward.
[The full post is much, much longer.]
bakho said in reply to pgl...
If Bush would have done fiscal stimulus instead of tax cuts and low interest rates in 2001,
we could have avoided the worst of the 2008 mess. When the wealthy hoard capital in an
unproductive way and use their political power to increase their wealth, it leads to a stalled
economy.
Peter K. said...
Everyone is for fiscal stimulus. Even Republicans like Ben Bernanke and Martin Feldstein.
"The problem of secular stagnation - the inability of the industrial world to grow at
satisfactory rates even with very loose monetary policies - is growing worse in the wake of
problems in most big emerging markets, starting with China."
Interest rates are low by historical standards but monetary policy isn't "loose."
If it was loose we'd see inflation and tight labor markets.
bakho said in reply to Peter K....
Monetary stimulus at the ZLB is weak and carries more risk than fiscal stimulus. The
problem for Yellen and the Fed: fiscal policy is dragging the economy down. Monetary policy
would be adequate if fiscal policy were doing its part. It does not even come close. The Fed
can create more money, but the wealthy are positioned to grab it so very little goes to where
it is needed.
Monetary policy, no matter how good cannot fully correct for bad or inadequate fiscal and
regulatory policy.
D said in reply to Peter K....
"Even Republicans like Ben Bernanke..."
Maybe that should be: former Republicans like Ben Bernanke.
"I didn't leave the Republican Party. I felt that the party left me."
-JJF
Peter K. said...
"It is an irony of today's secular stagnation that what is conventionally regarded as
imprudent offers the only prudent way forward."
Summers borrows/steals from Krugman.
bakho said in reply to Peter K....
The Fed lacked the authority for Cramdown and Geithner who had the power block most of the
help that should have bailed out home owners. Obama's Harvard buddies were against Cramdown,
the GOP is a wholly owned subsidiary of the banksters so a good policy was blocked.
BigBozat said in reply to JaaaaayCeeeee...
"But why is Larry Summers saying that the problem before 2008 was too much lending? Said so
baldly, doesn't it just support austerians, like the Tory argument that Labor caused the
recession by spending too much on entitlements?"
Only if you conflate "lending" with "public debt" (and/or argue that spending on entitlements
is a totally non-productive use of the public fisc). If the Tories are good at conflating
(and/or believe entitlements are a complete waste of money), then yeah I guess they could make
claims... 'tho they'd be either disingenuous or ignorant in doing so.
FWIW, I tend to associate "lending" more with private sector activity. What Larry means by
"too much lending" - in this case, anyway - was the cheap & poorly/fraudulently underwritten
credit-fueled housing sector bubble.
Dan Kervick said in reply to BigBozat...
The problem was private debt. There was long secular run of private debt to gdp prior to
the crash. Eventually private debt was at its highest level since 1929.
Global financial firms' estimated $100 billion or more exposure to Glencore may draw more scrutiny
as regulatory stress tests approach after the commodity giant's stock plunge this year.
"... For example the energy cost to major chemicals of running their plants is significant in the
united states this about 6% of the national energy consumption. Since 1994, Dow has reduced its energy
intensity by 22 percent through a structured program targeting process improvements. This has saved
1.6 quadrillion BTUs, equivalent to the energy required to generate all of the residential electricity
used in California for one year. The savings have totaled $8.6 billion on an investment of $1 billion.
..."
"... Vertical means incorporating finding, processing, converting chemically modifying,
distributing and selling products. However even in the present time it is interesting to note how
BP beat its guidance in the last quarter and other companies such as Exxon are not doing too badly. ..."
"... Exxon is an interesting case since it purchases more crude oil that it actually produces,
and so a lower price helps its energy and raw materials cost structure. ..."
"... In conclusion oil is, like it or loath it, a central pillar of our modern society. Alternative
sources, such as solar cells (photovolteic), wave, wind and geo thermal, do not currently posses
the necessary infrastructure to support the global energy need. ..."
Petroleum is
a volatile product. The chemistry that enables it as such a high density energy and ubiquitous energy
source is volatile. The economic environment around oil is volatile, with a growing tide of alternative
energy sources, and climate change issues. The political environment around oil is volatile. However
oil currently is and will I believe remain for the foreseeable future, the essential underpinning
of modern societies around the globe. This is why companies like Exxon call themselves energy organizations.
Its not a vain attempt to change their image but rather a real understanding of the nature of chemicals
and energy and the value they bring. if you need to understand this, image that we had no fuel for
transportation, goods delivery, power-stations, and lights; it would be a very cold parochial world.
l
Recently we have seen a precipitous change in the energy or per barrel price of oil, across the broad
markets. To many people this is shocking and upsetting; a sign of a global economic contagion. However
this is not the first significant price shock in the energy sector. When I started in BP oil was
about 65-70 dollars a barrel for Brent Crude and was projected to go to 80-90. Unfortunatley due
to economics and supply or demand, it actually dropped. Well the oil majors learnt from that shock,
the Gulf and early Oil crises. They became fully integrated corporations. The drill, produce, refine,
blend, distribute and own end point of sales. They balance their exposure in the upstream and highly
risky area, with that of continuous margin driven volume production in refining, and more batch driven
specialty chemicals in the downstream and products domain. Now as the oil price drops, the margins
and profit in upstream decreases, but the energy costs of running crackers and separating and converting
columns decreases.
For example the energy cost to major chemicals of running their plants is significant in the
united states this about 6% of the national energy consumption. Since 1994, Dow has reduced its energy
intensity by 22 percent through a structured program targeting process improvements. This has saved
1.6 quadrillion BTUs, equivalent to the energy required to generate all of the residential electricity
used in California for one year. The savings have totaled $8.6 billion on an investment of $1 billion.
So as prices drop the downstream parts of integrated petrochemicals is healthy. The gasoline stations,
do not clearly make a lot of money, but the refineries and chemical production outlets are very healthy
and currently running at maximum capacity, (a friend verified last week). This balanced portfolio
is how the companies manage the significant shifts in costs. It also is why they really need an integrated
systems view of the whole business. They need to manage, cost, risk and velocity across different
sectors, with differing information, material and economic considerations. being able to have flexibility
across a refinery to take advantage of local and global price shifts and consequent supply and material
shifts (quality content etc) is important.
Further to this, oil and the exploration of oil has often been subject to regulations. There have
been a number of very sad incidents involving oil companies that have affected the environment. In
order to continue to operate, the petrochemical companies are very mindful of their "Green License
to Operate". therefore they carefully track using inventory and supply chain technologies all of
the products, their regulatory and environmental impact and their health, safety and fire code compliance.
They do this across all their divisions, to both ensure information tractability and of course compliance
to specified procedure.
Lastly oil has always been as a product subject to taxation regimes. These change and as many
of you will have heard the allowances for drilling in for example the United States are considerable.
Exploration and Production has always been the riskiest side of the vertically integrated, oil company's
portfolio. Vertical means incorporating finding, processing, converting chemically modifying,
distributing and selling products. However even in the present time it is interesting to note how
BP beat its guidance in the last quarter and other companies such as Exxon are not doing too badly.
http://www.exxonmobilperspectives.com/wp-content/uploads/2011/10/Global-oil-price-factors-420x305.png
NoteExxon is an interesting case since it purchases more crude oil that it actually produces,
and so a lower price helps its energy and raw materials cost structure.
In conclusion oil is, like it or loath it, a central pillar of our modern society. Alternative
sources, such as solar cells (photovolteic), wave, wind and geo thermal, do not currently posses
the necessary infrastructure to support the global energy need. In order to provide a mode complete
energy portfolio, Petrochemical companies are actively investigating carbon capture and conversion
to methanol for energy consumption. They are likewise working very hard to optimize their entire
business processes, documentation and innovation activities along a systems model approach
"... If the U.S. shale
complex finally folds under the weight of its own debt, bad economics, and less forgiving capital
markets allowing Riyadh to raise prices again having secured the future of the country's market
share ..."
"... However, there are quite a few things that can go wrong here that would serve to
destabilize the situation and if the rumors about a rebellion within the royal family are true,
the slightest misstep could end up being catastrophic. ..."
...between maintaining subsidies, defending the riyal peg, and fighting two proxy wars, Saudi
Arabia's fiscal situation has deteriorated rapidly, forcing Riyadh to tap the bond market in an
effort to help plug a hole that amounts to some 20 percent of GDP.
... ... ...
Referring to reports that the number of drilling rigs deployed by U.S. shale producers is
falling, Naimi said: "Eventually, economic producers will continue to prevail," the paper
reported.
Naimi disagreed with analysts who believe OPEC's market share would fall further, the paper
reported. "On the contrary, OPEC's market share will be higher," he said.
Maybe so, but make no mistake, this is a precarious time for the Saudis. If the U.S. shale
complex finally folds under the weight of its own debt, bad economics, and less forgiving capital
markets allowing Riyadh to raise prices again having secured the future of the country's market
share, and if Iran and Russia end up being content with preserving the regional balance of
power and don't move to push the issue in Iraq and Yemen once they're done "saving" Syria, then
the Saudis may well weather the storm.
However, there are quite a few things that can go wrong here that would serve to
destabilize the situation and if the rumors about a rebellion within the royal family are true,
the slightest misstep could end up being catastrophic.
Global oil demand will grow by the most in six years in 2016 while non-OPEC supply stalls,
according to a monthly U.S. energy report that suggests a surplus of crude is easing more quickly
than expected.
Total world supply is expected to rise to 95.98 million barrels a day in 2016, 0.1 percent less
than forecast last month, the U.S. Energy Information Administration said in its Short-Term
Energy Outlook. Demand is expected to rise 270,00 bpd to 95.2 million barrels a day, up 0.3
percent from September's forecast.
Russia's energy minister said Russia and Saudi Arabia discussed the oil market in a meeting last
week and would continue to consult each other.
OPEC Secretary-General Abdullah al-Badri said at a conference in London that OPEC and non-OPEC
members should work together to reduce the global supply glut.
Iran's crude sales were on track to hit seven-month lows as its main Asian customers bought less
than before.
Jeff Currie, global head of commodities research at Goldman Sachs, says the risk of crude oil
reaching $20 a barrel is driven by "breaching storage capacity."
R.T. Arcand
The problem is, you can't believe anything these Racketeers masquerading as Bankers at
Goldman Sachs say. After all they're the ones who will tell you to buy, so they can do a
pump and dump against you.
Not to mention that these pathetic fools in 2008 had to go so low as to throw in the towel
on Free Market Economics to become a bunch of pathetic Fascist TARP Welfare Queens because
they were too stupid to keep their fraud with the Ratings Agencies alive with their fraudulent
bundled mortgages. Goldman Sachs is the parasite that needs to be destroyed if this nation or
even humanity is to advance.
Compare how much the Apollo program cost, compared to the Fascists in the banks and their
fraud and bailouts. It's time Americans go after these fascists with the same urgency the
"Greatest Generation" did.
One True Measure of Stagnation: Not in the Labor Force
This is a stark depiction of underlying stagnation: paid work is not being created as population
expands.
Heroic efforts are being made to cloak the stagnation of the U.S. economy. One
of these is to shift the unemployed work force from the negative-sounding jobless category
to the benign-sounding Not in the Labor Force (NILF) category.
But re-labeling stagnation does not magically transform a stagnant economy. To
get a sense of long-term stagnation, let's look at the data going back 38 years, to 1977.
I've selected data from three representative eras:
The 20-year period from 1977 to 1997, as this encompasses a variety of macro-economic conditions:
five years of stagflation and two back-to-back recessions (1977 - 1982), strong growth from 1983
to 1990, a mild recession in 1991, and growth from 1993 to 1997.
The period of broad-based expansion from 1982 to 2000
The period 2000 to 2015, an era characterized by bubbles, post-bubble crises and low-growth
"recovery"
In all cases, I list the Not in Labor Force (NILF) data and the population of the U.S.
1977-01-01: 61.491 million NILF population 220 million
1997-01-01 67.968 million NILF population 272 million
Population rose 52 million 23.6%
NILF rose 6.477 million 10.5%
1982-07-01 59.838 million NILF (start of boom) population 232 million
2000-07-01 68.880 million NILF (end of boom) population 282 million
Population rose 50 million 22.4%
NILF rose 9.042 million 15.1%
2000-07-01 68.880 million NILF population 282 million
2015-09-01 94.718 million NILF ("recovery") population 322 million
Population rose 40 million 14.2%
NILF rose 25.838 million 37.5%
Notice how population growth was 23.6% 1977-1997 while growth of NILF was a mere 10.5%
As the population grew, job growth kept NILF to a low rate of expansion. While the population soared
by 52 million, only 6.5 million people were added to NILF.
In the golden era of 1982 - 2000, population rose 22.4% while NILF expanded by 15%. Job growth
was still strong enough to limit NILF expansion. The population grew by 50 million while NILF expanded
by 9 million.
But by the present era, Not in the Labor Force expanded by 37.5% while population
grew by only 14.2%. This chart shows the difference between the two eras: those Not in the
Labor Force soared by an unprecedented 26 million people--a staggering 15.6% of the nation's work
force of 166 million. (Roughly 140 million people have some sort of employment or self-employment,
though millions of these earn less than $10,000 a year, so classifying them as "employed" is a bit
of a stretch).
This is a stark depiction of underlying stagnation: paid work is not being created
as population expands. Those lacking paid work are not just impoverished; they lose the skills and
will to work, a loss to the nation in more than economic vitality.
The concept of "tipping point" - a change beyond which there's no turning back - comes up a lot
in climate discussions. An obvious tipping point involves polar ice. If the earth keeps warming -
both in the atmosphere and in the ocean - at some point a full and permanent melt of Arctic and Antarctic
ice is inevitable. Permanent ice first started forming in the Antarctic about 35 million years ago,
thanks to global cooling which crossed a tipping point for ice formation. That's not very long ago.
During the 200 million years before that, the earth was too warm for permanent ice to form, at least
as far as we know.
We're now going the other direction, rewarming the earth, and permanent ice is increasingly disappearing,
as you'd expect. At some point, permanent ice will be gone. At some point before that, its loss will
be inevitable. Like the passengers in the car above, its end may not have come - yet - but there's
no turning back....
I think the American Southwest is beyond a tipping point for available fresh water. I've written
several times - for example,
here - that California and the Southwest have passed "peak water," that the most water available
to the region is what's available now. We can mitigate the severity of decline in supply (i.e., arrest
the decline at a less-bad place by arresting its cause), and we can adapt to whatever consequences
can't be mitigated.
But we can no longer go back to plentiful fresh water from the Colorado River watershed. That
day is gone, and in fact, I suspect most in the region know it, even though it's not yet reflected
in real estate prices.
Two of the three takeaways from the above paragraphs are these: "California and the Southwest have
passed 'peak water'" and "most in the region know it." (The third takeaway from the above is discussed
at the end of this piece.)
I think it is very dangerous. and I am not taking about market next month here or the next
quarter. Right now I can't understand why companies are sold at this multiple of earning,
22 for S&P500. A lot of those earnings are mirage. I remember times when 5 or 6 were good
numbers. If you really dig in earning, that nobody wants to do. Earning are overstated in many
cases.
Gloom, Boom & Doom Report Editor Marc Faber discusses how low interest rates have helped to
raise asset prices with Bloomberg's Scarlet Fu, Joe Weisenthal and Alix Steel on "What'd You
Miss?" (Source: Bloomberg)
"... USO holds front-month futures,
and to avoid taking physical delivery when those contracts mature, it rolls its position forward
to the next futures contract-but the farther-dated contracts are often higher priced (due to storage
costs and other factors), meaning that when USO sells its front-month contract it will be able to
buy less of the next-month futures. This has led to underperformance for the fund this year, which
has fallen nearly twice as much as spot oil prices. ..."
Unfortunately, Roy notes, the United States Oil Fund (USO),
the most common way to play oil, has often backfired for investors. USO holds front-month futures,
and to avoid taking physical delivery when those contracts mature, it rolls its position forward
to the next futures contract-but the farther-dated contracts are often higher priced (due to storage
costs and other factors), meaning that when USO sells its front-month contract it will be able to
buy less of the next-month futures. This has led to underperformance for the fund this year, which
has fallen nearly twice as much as spot oil prices.
Luckily, USO isn't the only way to play oil.
The PowerShares DB Oil Fund (DBO)
seeks to minimize the costs of rolling contracts forward by choosing the most advantageous futures
contract to switch to, instead of always using the next month's, as USO does. Roy also notes that
the United States Brent Oil Fund (BNO)
holds Brent oil, popular in Europe, which in recent years has started to diverge in price more frequently
from West Texas Intermediate, a grade of oil commonly sold in the U.S. In the first three quarters
of 2015, Brent lost less than WTI.
However, none of those oil products were able to avoid the big drop in crude prices. For more
buy-and-hold investors, Roy suggests the Energy Select SPDR (XLE)
that holds energy-related stocks (like Exxon (XOM),
Chevron (CVX) etc.).
He concludes:
For long-term investors, an equity-based energy ETF like XLE is superior to the futures-based
ETFs mentioned earlier, for several reasons: 1) an investor doesn't have to worry about roll costs;
2) the companies can grow their oil production, creating value for shareholders even in a flat
oil price environment; 3) they often pay dividends. XLE currently has a yield of more than 3.3
percent.
Year-to-date, XLE is down by 21 percent, less than the futures-based ETFs. Over the past five
years, XLE is up 20.4 percent, compared with losses ranging from 40 to 58 percent percent for
the other three ETFs.
"... I was surprised how well the BBC political correspondent and ex-Tory
Party student Nick Robinson came out in his economic reporting compared to the woeful stuff that
those BBC correspondents claiming some sort of economic expertise faired. ..."
"... they are all of the neo-liberal religion; group-thinkers ..."
When I reread my collection of BBC articles for the period 2008-15, some of which I have reposted
on this blog in the past, I was surprised how well the BBC political correspondent and ex-Tory
Party student Nick Robinson came out in his economic reporting compared to the woeful stuff that
those BBC correspondents claiming some sort of economic expertise faired.
Since 2008, Robert Peston, Stephanie Flanders, Hugh Pym, and Andrew Neil have had terrible economic
crises, and it must be more than just governmental pressure that has produced such concentrated
ineptitude.
Alas, they are all of the neo-liberal religion; group-thinkers. Peston has never understood the
difference between a currency issuing government and a currency using non-government sector. Hence,
government financial accounts are totally different to a households financial accounts.
They all think that the government has to tax and/or borrow "money", before it has any to spend.
Never stopping to think where the people it taxed or borrowed from, got such "money" in the first
place.
Politicians and the IFS peddle the same myth. Liars and fakers the lot of them. Stick with the
accountants.
... What evidence is there that worries about a global economic slowdown are figuring prominently
in recent oil prices? Exhibit one is the remarkable
comovement between commodity and asset prices. Concerns about global economic weakness show
up in commodity prices and asset markets across the board. ...
The turbulence in the global financial markets in the past few weeks has been widely attributed
to a "China shock" that has increased the risks of a major downturn in global activity. Last month,
this blog concluded that our regular "nowcasts" for global activity had not yet corroborated this
narrative.
This month, we have identified the first clear evidence that the global economy has slowed down
since mid year, with emerging markets and advanced economies both now growing more slowly. ...
The latest update of the Brookings-Financial Times TIGER (Tracking Indexes for the Global Economic
Recovery) reveals sharp divergences in growth prospects between the advanced economies and emerging
markets, and within these groups as well.
Growth prospects for the advanced economies have improved, but this is largely on account of
good growth in the U.S. and the U.K. The euro zone remains mired in low growth and Japan's economy
appears to have stalled again. Commodity-exporting countries, both advanced and emerging, have
been hit by sharp growth slowdowns.
The U.S. economy continues to strengthen, with domestic demand picking up momentum, as reflected
in rising retail sales and investment. Despite healthy employment growth and a falling unemployment
rate, wage pressures remain muted. Inflation has stayed low, aided by a strong dollar and weak
energy prices, and the CPI index has flirted on and off with deflation. Credit growth remains
robust but U.S. equity markets, industrial production, and exports have all been held back by
economic weakness in the rest of the world. The strong possibility that the Federal Reserve will
commence its rate hike cycle in December points to how asynchronous the U.S. recovery is relative
to business cycle conditions in most other advanced economies.
The euro zone and Japan face a difficult combination of weak growth, near-deflationary price
changes, and the absence of fundamental reforms needed to revive domestic demand. Any growth at
all in the euro zone is considered a victory and the zone has certainly kept to those expectations,
growing at less than half a percent in the second quarter. The Japanese economy contracted in
the second quarter. Despite highly expansionary monetary policies, inflation in both economies
is barely positive.
Emerging market economies, which had become the main drivers of global growth in the aftermath
of the financial crisis, are now leading the world economy into a slump. Growth has fallen, business
and consumer confidence are eroding, and financial markets have taken a beating in these economies.
Most economic indicators point to a loss of growth momentum in China, with high-frequency indicators
such as electricity consumption and freight volumes pointing to an even sharper manufacturing
slowdown. While policymakers still have some room to boost growth closer to the 7 percent target,
the inability of monetary policy measures to gain traction in raising growth has elevated risks
to the financial system and shaken confidence in the economic management skills of the leadership.
These concerns have been exacerbated by recent missteps in managing stock market volatility and
the shift to a more market-determined exchange rate, both of which have been marred by an unclear
strategy and weak communication.
Among the major emerging markets, India alone continues to maintain strong GDP growth, although
industrial production and other indicators of economic activity suggest that the economy is in
less robust shape. ...
Icahn predicts junk bind crash for almost a year now. that does not mean that
he is wrong. But that does mean that he is a bad timer. Also he might be a buyer of CDS on
junk bonds. Carl Icahn mentioned that although the short-term outlook for the energy
sector is bad, the sector as a whole could make a comeback in a couple of years.
"... In the context of the high yield bond market, activist investor Carl Icahn
mentions the use of credit default swaps as a form of protection or insurance
against credit events. However, he terms these products as "arcane" and implies
that investors should possess sophisticated knowledge of the fixed income markets
to enter that playing field. ..."
Oil price nosedive could trigger a crash in the junk bond markets
According to Sean Hanlon's December 16, 2014, article Oil's
Price Decline Weighs On High Yield Debt in Forbes, US energy
companies borrowed heavily using the junk bond market to finance hydraulic
fracking operations. However, this occurred when oil prices were above the $100
per barrel level, resulting in an economically viable business model.
With the nosedive in oil prices in the latter half of 2014, the ability of
these energy firms to retain their profitability was called into
question-including their ability to service the payments on their high-yield debt.
... ... ...
As seen in the above graph, the prices of the iShares iBoxx $ High Yield
Corporate Bond ETF (HYG)
declined with the fall in oil prices. With the looming uncertainty over oil
prices, the times ahead are probably not bright for the high yield bond market.
Credit default swaps and a correction in high yield bonds
In the context of the high yield bond market, activist investor Carl Icahn
mentions the use of credit default swaps as a form of protection or insurance
against credit events. However, he terms these products as "arcane" and implies
that investors should possess sophisticated knowledge of the fixed income markets
to enter that playing field.
Credit default swaps (or CDS) are analogous to insurance contracts. The buyer
of the CDS makes periodic fixed payments to the seller of the CDS, who receives
these premiums and in exchange, compensates the buyer in the event of a default
involving the underlying reference entity.
ProShares launched the ProShares CDS North American HY Credit ETF (TYTE)
and the ProShares CDS Short North American HY Credit ETF (WYDE)
in August 2014. Although TYTE offers investors a long exposure to North American
high yield bonds, WYDE offers a short exposure to the same. For instance,
investment in WYDE could hedge a portfolio of high yield bonds against a drop in
prices. The decreased prices typically result from increasing defaults by energy
firms due to falling oil prices.
In the final part of this series, we'll discuss Carl Icahn's view on the energy
sector. The analysis specifically focuses on the outlook for oil companies such as
EOG Resources (EOG),
Exxon Mobil (XOM),
Phillips 66 (PSX),
and Valero Energy Corporation (VLO).
Phillips 66 and Valero are oil refiners, EOG Resources is independent and lacks
downstream operations, and Exxon Mobil is an integrated company.
EOG Resources has an 8.2% weight in the iShares US Oil & Gas Exploration &
Production ETF (IEO).
Phillips 66 has a 7.2% weight in IEO, and Valero has a 4.9% weight in IEO. EOG is
also part of the iShares US Energy ETF (IYE),
with a 3.1% exposure.
In a note seeking to "explain" why the US labor participation rate just crashed to a nearly 40
year low earlier today as another half a million Americans decided to exit the labor force bringing
the total to 94.6 million people...
... ... ...
...
this is
what the Atlanta Fed has to say about the most dramatic aberration to the US labor force in history:
"Generally speaking, people in the 25–54 age group are the most likely to participate in the labor
market. These so-called prime-age individuals are less likely to be making retirement decisions
than older individuals and less likely to be enrolled in schooling or training than younger individuals."
This is actually spot on; it is also the only thing the Atlanta Fed does get right in its entire
taxpayer-funded "analysis."
However, as the chart below shows, when it comes to participation rates within the age
cohort, while the 25-54 group should be stable and/or rising to indicate economic strength
while the 55-69 participation rate dropping due to so-called accelerated retirement of baby booners,
we see precisely the opposite. The Fed, to its credit, admits this: "participation among the prime-age
group declined considerably between 2008 and 2013."
Yeah see what happens! Great idea! Remove the only thing keeping this country in one piece!
Let's not close corporate tax loopholes and handouts, egregious MIC spending or in any
significant way stop financial crime. Before we address those trifling concerns which amount
to many trillions, let's cut TANF and SNAP benefits to recipients who statistically are mostly
CHILDREN. I for one hate having cities that aren't on fire and have been pining for LA Riots
times one hundred thousand. Yes let's not address elites crimes first let's crack down on
single moms and children. We wouldn't want to do anything to address Jamie Dimon, Lloyd
Blankfein and Hank Paulson's crimes. Let's go after the real power brokers who got us here,
children in poverty. And by doing so let's unleash days of rage and an American Spring.
Absolute genius!!!!
cynicalskeptic
Sadly that is exactly what will happen when the merde hits the fan. The poor and starving
WILL riot in the streets - as they have throughout history when they lose all hope. Clearly
TPTB know this - and know time is running out. They are preparing - militarized police and an
obsession with monitoring the population, repressing ANY discontent (like Occupy Wall Street).
Things are as bad as they were in 1932 - government money is the only thing preventing 'Hoovervilles'
and obvious signs of what has happened - minimal payments to keep people from taking to the
streets. Yes, some people do abuse these programs and the abuse of things like disability is
increasing as people run out of options, but the root cause of all this is the LACK OF JOBS.
Our political leaders - following the wishes of corporate leaders - have embraced 'free trade'
- sending American jobs overseas - and bringing in cheap labor (illegal at the low skill end
and H1B's at the high skill end), all in a never ending effort to find the cheapest possible
labor costs. Some goods may be cheaper but that means little if people are unemployed and
cannot afford to buy anything. A toaster from China may cost less but who cares when you can't
afford the bread to put in it?
Perimetr
Fed to the unemployed:
"Let them eat cake"
And remember what happened to the French aristocrats . . .
ZerOhead
DEA might be hiring... they are looking into possibly replacing their workers who are
failing drug tests.
"When so many think the numbers are manipulated to some nefarious end, it
is no wonder that empirical observations carry so little weight in informing
thought on how the economy works."
"... Cheniere Energy Inc. (NYSE: LNG) was the clear highlight of the week. This
liquefied natural gas player had a very high-profile buyer step up to the plate
more than once. Activist investor and Wall Street legend Carl Icahn bought a
gigantic amount of the company's stock. ..."
We cover insider buying every week at 24/7 Wall St., and we like to remind our readers that
while insider buying is usually a very positive sign, it is not in of itself a
reason to run out and buy a stock. Sometimes insiders and 10% owners have stock
purchase plans set up at intervals to add to their holdings. That aside, it still
remains a positive indicator.
Cheniere Energy Inc. (NYSE: LNG) was the clear highlight of the week. This
liquefied natural gas player had a very high-profile buyer step up to the plate
more than once. Activist investor and Wall Street legend Carl Icahn bought a
gigantic amount of the company's stock. He purchased 2,042,928 shares at a
price of $47.14 apiece. The total for the buy came to a massive $96.3 million. Not
stopping there, Icahn purchased an additional 1,503,313 shares at $48.30. The
total for second buy was a whopping $72.6 million.
Oddly enough, as Icahn was buying millions of shares of Cheniere Energy, the
CEO of the company was selling. He parted with a total of 100,000 shares at
between $46.25 and $50.42 per share. The total for the sale came to $4.8 million.
It was also the only one major company that reported insider selling last week.
Cheniere shares ended trading on Friday at $50.50, and it is pretty easy to assume
that Icahn's high-profile purchase was viewed as very positive.
The world's biggest crude oil tankers earned more than $100,000 a day for the first time since
2008, amid speculation that a surge in Chinese bookings is curbing the number that are left
available for charter.
Ships hauling 2 million barrel cargoes of Saudi Arabian crude to Japan, a benchmark route,
earned $104,256 a day, a level last seen in July 2008, according to data on Friday from the
Baltic Exchange in London. The rate was a 13 percent gain from Thursday.
"... Roughly the US will need more than 9,000 wells at more than $50 billion to
counterbalance the declines. ..."
"... ... ... ... ..."
"... Sooner or later, you'd realize that Shale is an industry of diminishing returns. In plain
terms, a temporary bubble waiting to burst thanks to depletion. SEST? Enjoy. But then, we've
warned you. ..."
As you can see, Bakken is the star of the region. So, who wants to point that the Emperor has
no clothes? In other words, the higher-than-normal rate of depletion of fracked wells?
Well, what is depletion? Depletion is a naturally occurring phenomenon. All non renewable
resources undergo reduction over a period of time. Oil and gas aren't exempted from this
equation, either
... ... ...
Fracked wells age very fast. The initial production is very high so is the rate of depletion.
The point is, a newly fracked well may produce 1,000 barrels a day, but this falls by sixty
percent the next year, thirty five by the third and fifteen percent by the fourth. Oil companies
should replace forty to forty five percent of the current production each year to
maintain/increase production. For now at least, the number of wells and cost of production can
keep pace with profits because of the higher oil prices. But what happens when the price comes
down?
The depletion rates will make the wells unviable and the search of oil will continue
elsewhere. Roughly the US will need more than 9,000 wells at more than $50 billion to
counterbalance the declines.
... ... ...
Sooner or later, you'd realize that Shale is an industry of diminishing returns. In plain
terms, a temporary bubble waiting to burst thanks to depletion. SEST? Enjoy. But then, we've
warned you.
Looks like Bloomberg is becoming Fox of economic and financial news...
"Other countries, such as Russia, are pumping at full tilt" looks like a lie. Russia production
might be cur if additional tax on oil producers is restored by government.
I also like ""The U.S. producers are the only ones doing their part to reduce the global glut,"
-- another lie. shale producers are uncompetitive at this level f prices and some can't even serve
their debt. the same is true for oil sands. They are cutting all corners, endangering
the environment.
There is no return to "cheap oil" regime despite period of overinvestment that was bright by
prices above $80 per barrel.
The fact that "Retail investors which pulled $393 million in September" just confirm that they
are a food for Wall Street sharks... Moreover investment in oil ETFs with their complex
"futures based" algorithms of matching oil price is in itself probably a sign of not being too
intelligent. The game on this table of Wall Street casino is a for professionals and HFT
robots, not for lemmings (aka retail investors).
"... U.S. crude output is down 514,000 barrels a day from a four-decade high reached in June,
Energy Information Administration data show. The number of rigs targeting oil in the U.S. dropped
to a five year low, Baker Hughes Inc. said Oct. 2. ..."
Hedge funds trimmed bullish oil bets for the first time in six weeks, losing faith in a swift
recovery as Russia boosted output to the highest since the Soviet Union collapsed.
Speculators reduced their net-long position in West Texas Intermediate crude by 9.1 percent in
the week ended Sept. 29, according to data from the Commodity Futures Trading Commission. Longs
dropped from a 12-week high while shorts increased.
U.S. crude output is down 514,000 barrels a day from a four-decade high reached in June,
Energy Information Administration data show. The number of rigs targeting oil in the U.S. dropped
to a five year low, Baker Hughes Inc. said Oct. 2. WTI traded in the tightest range since
June last month as China's slowing economy and the highest Russian output in two decades signaled
the global glut will linger.
"The U.S. producers are the only ones doing their part to reduce the global glut," John
Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. "Other
countries, such as Russia, are pumping at full tilt. The cutbacks by shale producers here aren't
going to have much impact, especially given the slowing global economy."
... ... ...
Russian oil output rose to a post-Soviet record last month as producers took advantage of the
weak ruble to push ahead with drilling. The nation's production of crude and condensate climbed
to 10.74 million barrels a day, 1 percent more than a year earlier and topping a record set in
June, according to data from the Energy Ministry's CDU-TEK unit.
... ... ...
Investors pulled $393 million in September from United States Oil Fund, the largest U.S.
exchange-traded product that tracks crude futures, the biggest withdrawal since April.
"... Icahn slams using junk bonds for doing deals, comparing it to drug addiction, writing, "Making
acquisitions with junk bonds may increase earnings for the short-term, but this gives companies a
short-term high, just as heroin does to their users." ..."
Yahoo Finance has obtained a policy paper written by Carl Icahn on income inequality that the
billionaire financier recently sent to Donald Trump and others on Wall Street and in Washington.
In the paper, Icahn warns of "dangerous systemic problems that will affect each and every American
in the coming years."
The five and a half page paper has some similarities to the
video that Icahn is releasing on
www.carlicahn.com, but focuses more on imbalances
in our society.
The paper was sent to Trump before the GOP presidential candidate revealed his economic proposals.
"I sent it to a number of people," Icahn said. "A few of the ideas in the paper are reflected in
Donald Trump's plan. I think that shows what an open-minded guy he is, which is what we need in the
White House."
In the paper, Icahn takes a decidedly egalitarian tone, writing:
"The average worker makes approximately $50,000 per year. The average annual compensation of
the thirty highest paid CEOs is approximately $47 million per year. (I don't believe this disparity
was ever this great even in most dictatorships!) You will hear many politicians argue that government
should not interfere with the 'business judgment', of our companies and, therefore they cannot
pass laws to encourage 'income equality.' This is completely untrue – the sad fact is that the
government has actually passed many laws that have brought about 'income inequality.'"
In a phone interview with Yahoo Finance Icahn says, "In this country, you talk about the wealth
gap and politicians say, 'well, you can't legislate equality,' but we legislate inequality."
Of all the corporate raiders and junk bond kings that came of age in the 1980s, Carl Icahn has
become the richest and most powerful. He shows little sign of slowing down. Now 79, and with a net
worth of some $21 billion according to Forbes, Icahn has moved beyond being a fixture of CNBC and
the business pages to being something of a general news subject. With unusual tentativeness and nuance
Icahn has linked himself to Donald Trump thereby guaranteeing him a place at the grown-ups' table
this news cycle. In the recent phone interview with Yahoo Finance, Icahn says that while he admires
Trump, (the two worked with each other in the maw of the Atlantic City casino business) the two don't
see eye to eye on everything. Icahn wouldn't comment specifically on where they disagree. As for
being Trump's Treasury Secretary, Icahn apparently said he would and then retracted that point. "He's
his own man," Icahn says of Trump.
In the policy paper, Icahn writes about the complicity of CEOs and Wall Street:
"…the American worker is also getting 'screwed' …boards and CEOS have allowed property, plants
and equipment of our companies to become the oldest on record and, as a result, the growth rate
in productivity per hour of our workers has also become the worst on record and has actually decreased
compared to last year. The average age of corporate property, plants and equipment is an astounding
22.3 years, the oldest it has reached since 1941. But I do not believe that most boards and CEOs
really give a damn. With many exceptions, CEOs only care about short term results. Perhaps you
can't really blame them because unfortunately, Wall Street judges them based on quarter to quarter
results and CEOs receive their egregious compensation based on those short-term results."
Icahn also writes about CEOs and how hard it is to remove them: "How would we feel if laws were
passed that certain criteria had to be met to vote for President and there were no term limits on
the President's ability to serve, thus making it almost impossible to remove Obama? Amazingly, there
are many state laws in existence that protect the CEOs that are analogous to the example I just made."
Icahn slams using junk bonds for doing deals, comparing it to drug addiction, writing, "Making
acquisitions with junk bonds may increase earnings for the short-term, but this gives companies a
short-term high, just as heroin does to their users."
Icahn closes his piece by again coming back to the plight of the common man versus CEOs: "When
it comes time to pay the Piper, CEOs will have taken their bonuses and again the workers will be
left, holding the proverbially 'empty bag.'"
Carl Icahn warn about junk bonks bubble. more then 2 trillion of junk bond spread in various ETF
and mutual funds in case of crisis will be illiquid. Warning of many companies are fallacious.
They are archived by tricks like mergers and acquisitions and stock back backs. It's all
financing engineering. It's loading companies with bet.
Billionaire investor Carl Icahn reiterated
his warnings about high-yield bond ETFs in a wide-ranging
video released on his website overnight, complaining
that these so-called junk bonds "are being sold en masse to the public" by companies such as BlackRock,
whose high-yield bond ETF (HYG) holds
about $13 billion worth of assets.
"People are buying these not really understanding what they're buying," Icahn said in the video,
referring specifically to BlackRock's "junk bond" ETFs.
Ironically, nearly 1 percent of what those people are buying is debt issued by
Icahn's company itself.
The HYG ETF holds four separate bonds issued by the investor's company,
Icahn Enterprises. These four bonds
cumulatively make up 0.7 percent of the ETF - for a total notional value of $91 million, according
to
data available from BlackRock's ETF arm, iShares.
It is worth noting that BlackRock does not have any say in the holdings of its ETF; the HYG simply
tracks the Markit iBoxx USD Liquid High Yield Capped Index. Nor is the presence of Icahn Enterprises
bonds in the ETF new; various Icahn Enterprises securities can be found in it going back to April
2012.
Icahn's broader point about high-yield debt is that stimulative
Federal Reserve policies have created
a stock and bond bubble that will be resolved messily, due to a lack of willing buyers and hence
loss of liquidity. BlackRock, for its
part,
contends that ETFs can provide liquidity and improve market stability
Icahn's office did not immediately respond to a call for comment.
New orders and production both fell sharply and a measure of hiring also declined, according
to the ISM, a trade group of purchasing managers. All three measures still barely remained in
expansion territory.
U.S. manufacturers are getting hit by slower growth in China, the world's second-largest economy,
and a stronger dollar, which makes U.S. goods more expensive overseas. The 15 per cent rise in
the dollar's value in the past year has also made imports cheaper compared with U.S.-made goods.
Oil and gas drillers are also cutting back on their orders for steel pipe and other equipment in
the wake of sharply lower oil prices.
Prediction "The weakest of these companies will default in the coming year, and if oil prices
fall another $10, perhaps most of these companies will default. " definitely proved to be false.
But it looks like junk bond problem does exist. see Icahn warning Spe 26, 2015. Actually he issues
similar varning in Ocr 2014 --
Carl Icahn says high-yield 'junk' bond market in a bubble - CNBC Reuters
"... As for what might cause the junk market to crack, one prime candidate is the oil industry.
The shale boom has led a lot of energy companies to ramp up production using other people's
money, much of which is coming from junk bonds. Now, with oil down from $100/bbl to around $80,
the nice fat coverage ratios on these bonds are looking disturbingly skinny. This chart shows the
divergence between overall junk spreads and energy-sector junk spreads. ..."
"... ... ... ... ..."
Oct 03, 2015 | November 18, 2014
One of the surest signs that a bubble is about to burst is junk bonds behaving like
respectable paper. That is, their yields drop to mid-single digits, they start appearing with
liberal loan covenants that display a high degree of trust in the issuer, and they start
reporting really low default rates that lead the gullible to view them as "safe". So everyone
from pension funds to retirees start loading up in the expectation of banking an extra few points
of yield with minimal risk.
This pretty much sums up today's fixed income world. And if past is prologue, soon to come will
be a brutally rude awakening. Most of the following charts are from a long, very well-done
cautionary article by Nottingham Advisors' Lawrence Whistler:
Junk yield premiums over US Treasuries are back down to housing bubble levels...
... ... ....
As for what might cause the junk market to crack, one prime candidate is the oil industry.
The shale boom has led a lot of energy companies to ramp up production using other people's
money, much of which is coming from junk bonds. Now, with oil down from $100/bbl to around $80,
the nice fat coverage ratios on these bonds are looking disturbingly skinny. This chart shows the
divergence between overall junk spreads and energy-sector junk spreads.
... ... ...
The weakest of these companies will default in the coming year, and if oil prices fall another
$10, perhaps most of these companies will default. This will of course be dismissed as a
localized disturbance unlikely to spread to the broader economy - which is exactly what they said
about subprime mortgages last time around.
Bruce C
The whole "shale oil" theme is a "scam". The original investors fell for the very same
thing that continues to be rehashed, so they engineered a way to unload it onto the
"relatively dumb" money. That's where we are now. After those new INSIDE investors/suckers
realized that projected resources were not the same as extractable ones (at certain price
levels) and that current production rates were subject to (downward) change (because the whole
process is basically insane and extreme) it only makes sense that more funding could only be
obtained by issuing bonds (equity was extracted in the "first round" when new wells geysered,
etc.)
But don't laugh too hard, yet. Between a totally foolish and pathetic Congress, a totally full
of shit President, a desperate national central bank, and "TBTF" philosophy in general, this
construct may well be supported way beyond its "natural" life.
History is a fascinating spectrum of human nature. There doesn't seem to be any limits to the
lows or the highs, and especially the durations of effort and "pragmatism" to advance certain
agendas and IDEALS. That's not always "good" or "bad", and it is definitely hard to know in
real time.
socalbeachdude
John, you are 100% correct in your article, particularly with your conclusion that this
"will of course be dismissed as a localized disturbance unlikely to spread to the broader
economy - which is exactly what they said about subprime mortgages last time around."
Frank DiGiovanni
Funny.. Your website is about the demise of the dollar.. Than its about oil stocks who have
plunged along with oil due to a strong dollar .. Seems you are just looking for negatives..
digriff > Frank DiGiovanni
While you are assuming the strong dollar is the cause of the oil prices I would say "the last
guy to drown in the pool is technically the best swimmer (dollar) but did still drown in the
end".
Frank DiGiovanni > digriff
Point is .. You have been complete incorrect on the dollar.. Then write negatively on oil..
You are just a negative person.. Currency value is all relative to other currency; have to
have winners and losers.. Not everybody drowns. You seem foolish with such a comment..
"... If the government approves the planned tax
hike, investments could slump by 50 percent and total oil production drop by 100 million metric
tons over next three years, Energy Minister Alexander Novak said in an interview to state TV
Friday. ..."
I took the Weekly Energy Review and averaged it into monthly average. As you can see it
differs greatly from both the Monthly Energy Review and the Petroleum Supply Monthly. However for
last July and August it agrees pretty closely with the Monthly Energy Review. And it says [USA]
production dropped just over 200,000 barrels per day from August to September.
This is the weekly data, since December from the Weekly Petroleum Status Report. It has U.S.
production dropping every month since June.
... ... ...
I thought the below article said a lot about Russia.
Russia's Energy Ministry estimated last week that oil output would be stable until 2035 at a
level of about 525 million metric tons a year, or 10.5 million barrels a day, as investment in
new projects offset declines at older fields. If the government approves the planned tax
hike, investments could slump by 50 percent and total oil production drop by 100 million metric
tons over next three years, Energy Minister Alexander Novak said in an interview to state TV
Friday.
"In a lower capex environment, the output decline at mature Russian fields may reach some 5
percent already next year," Alexander Nazarov, oil and gas analyst at OAO Gazprombank, said by
phone. "New projects won't be able to cushion the total decline."
They are saying that if they get enough investment in new projects to offset declines in their
old fields, then they can keep production flat for the next 20 years. Otherwise they are headed
lower. Their old fields will be declining at about half a million barrels per year. I don't think
even if they do get the tax breaks they can come up with that much new oil. And most certainly
they cannot do it for 20 years.
... ISIS attacks in Libya could have a much more direct impact. On October 1, ISIS militants
attacked
one of Libya's main oil ports, Es Sider. The port is under the control of the recognized
government and has been closed since December 2014, preventing Libya from reviving oil exports.
One guard at Es Sider was reportedly killed but the attack was repelled. Still, Libya has been
torn apart by conflict, and the two warring factions are at a stalemate, with a security vacuum
across most of the country.
The average hourly wage dropped slightly in September, bringing the annual rate of growth
over the last three months compared with the prior three to 2.2 percent, the same as its rate
over the last year. The drop in the hourly wage, combined with the fall in hours, led to a 0.3
percent drop in the average weekly wage.
... ... ...
On the whole this report suggests the labor market is considerably weaker than had been generally
believed. The plunge in oil prices is taking a large toll on the formerly booming mining sector.
In addition, the high dollar and the resulting trade deficit is a major hit to manufacturing.
The 138,000 three-month average rate of private sector job growth is the lowest since February
of 2011. The strong growth in government jobs is not likely to continue with budgets still tight.
With GDP growth hovering near 2.0 percent, weaker job growth is to be expected, but it will make
it much more difficult for the Federal Reserve Board to raise rates this year.
Mike Sparrow:
This looks like a adjustment to the ADP's 2015 mean more than anything else. That is the
trouble with the birth/death model. It misses turning points and this mid-cycle correction
started in January. Yet, they kept NFP elevated in many of the next 7 months outside March
which was another mess(created by the weather that time). ADP was much more tamed and
consistent.
The good news is, it looks like the global economy may have bottomed in September and China's
move to more consumption balance is panning out a bit, which will help growth there. Though
the multi-national boom is over as investment driven growth necessarily reduces in these
countries. Monthly wages also accelerated.
anne said in reply to Mike Sparrow...
I think the ADPs are better than the NFPs, though on a wet field field hockey in tricky and
who knows which school will win. Anyway, Go ADPs! I was a midfielder.
am said...
Correct take off by DB that this weak report makes rate rises this year difficult to
justify. Chair Yellen identified weakness in the labour market in her last report. This latest
monthly labour report shows that that weakness continues.
DB concentrates on the weak stats for the prime age groups of men and women and states that
it is clearly not retirement related. If he has any analysis on older cohorts continuing in
employment longer than normal and impacting on the 25-54 cohort employment rates then I would
appreciate a link.
It is clear that there is a structural change in employment. It may also be partly
demographic but it is more than that hence I say structural.
cm said in reply to JohnH...
You can only offshore jobs that can actually be performed offshore. Not to deny offshoring
which has been rampant in tech and various industries where services/labor can be delivered
over the internet, but the probably more significant factors overall have probably been
automation and computer/IT enabled "self service" i.e. pushing work off to the customer/client
or just cutting the service level - e.g. "self help" web FAQs instead of printed manuals and
phone support, or phone support (offshore or not) who basically read from the same
documents/scripts you can search on the internet for yourself.
cawley said in reply to JohnH...
While I want to be cautious in thinking that I speak for anyone else, I would guess most of
the QE supporters on this blog fully recognize that there are other factors besides interest
rate/fed policy.
In fact, I would hazard (tho I may be wrong) that most of them would have preferred stronger
fiscal policy.
Maybe I'm just projecting my own view which is that fiscal policy would have been preferable.
Unfortunately, it was not happening. Clearly the republicans weren't in the mood - at least as
long as there was a non white muslim atheist socialist communist dictator from the other party
in the House f/k/a White. To me, it doesn't seem like Obama had a sufficient appetite either -
altho some argue that didn't matter.
That being the case, monetary policy was pretty much the only game in town. Is it a panacea?
Hell no. Has it been enough to get the economy back to full employment? Obviously not. Is it
possible there are/will be some pernicious unintended consequences? Maybe, but I would argue
they are second order concerns compared to employment and probably manageable.
But I've got no reason to think that withholding QE would have resulted in better fiscal
policy - or any other change that would have improved employment. And I tend to think that the
counterfactual consistent with no QE and the same fiscal policy would have been even worse
employment.
Peter K. said in reply to JohnH...
"Strong dollar, weak dollar. It doesn't seem to matter. "
You're just a nihilist. Facts and theory don't matter. Dean Baker:
"In addition, the high dollar and the resulting trade deficit is a major hit to
manufacturing. The 138,000 three-month average rate of private sector job growth is the
lowest since February of 2011."
New Deal democrat said in reply to pgl...
This downshifting in the employment numbers was foreseeable, and foreseen:
It is party strong US$, partly oil patch collapse, and part pass-through from last year's
stall in housing starts.
Fred C. Dobbs said...
What the Terrible September Jobs Report Means for the
Economy
http://nyti.ms/1Vsx2rO via @UpshotNYT
NYT - Neil Irwin - Oct 2
The September jobs numbers are
easily the worst of 2015 so far. They offer an unpleasant
combination of a bad overall headline, bad details and bad
timing, amid a volatile and unsettling time in global
markets.
The weak numbers offer some vindication for those
Federal Reserve officials who preferred to hold off on
interest rate increases last month to ensure the economy
was on sound footing before tightening the money supply.
They also give reason to worry that those wild market
swings in August were less random fluctuations and more an
indication that something deeper is wrong with the global
economy - not so much that the stock market drop in August
caused weak September jobs numbers, but that there is an
underlying economic fragility causing both.
The question now is whether it means anything - whether
the United States economic expansion, which seemed set to
roar into 2015, is slowing in some meaningful way. We
don't know that yet, and it would be a mistake to leap to
that conclusion. But that possibility became quite a bit
more plausible after the September numbers popped onto
economists' computer screens.
As always, it is a useful exercise on jobs report
Fridays to take a deep breath and remember that this is
but one set of indicators, with a large margin of
statistical error, that will be revised repeatedly. But
the fact that the latest jobs numbers are consistent with
another report, from the Institute of Supply Management,
earlier this week that suggested United States
manufacturing slowed to a standstill in September doesn't
do anything to help an economy-watcher maintain that zen
perspective.
The new numbers are poor on pretty much every level.
American employers added a mere 142,000 jobs last month,
far below the analyst forecast of 201,000 or the average
over the last year of 229,000. Revisions pushed July and
August numbers down substantially. The unemployment rate
was unchanged at 5.1 percent.
This is usually the point in one of these stories where
we would list the silver linings - the countervailing
details that suggest it isn't as bad as all that. This
report doesn't really offer any. Average weekly hours
fell. Average hourly pay was unchanged. The number of
people in the labor force fell by 350,000, and the number
of people who reported having a job fell by 236,000.
We don't even have a major snowstorm or other weird
weather event to blame, nor a strike in a major industry,
nor some outsize shift in the results from one category of
employer that might suggest an aberration.
The most positive angle I could come up with, with
credit to the anonymous Twitter user @modestproposal1, is
the possibility that with the unemployment rate scraping
relatively low numbers, we should expect the rate of job
creation to slow simply because the pool of potential
workers is dwindling.
That said, that theory doesn't match up with the
stagnant hourly pay and data in the survey of households
suggesting people may be leaving the work force. ...
modest proposal @modestproposal1
Remain cognizant that job growth may naturally slow as we
approach full employment and will instead be interpreted
as economy slowing
Fred C. Dobbs said in reply to Fred C. Dobbs...
The pool of skilled/trained
workers dwindles; those who remain
are simply not worth hiring?
"... Not only were far fewer jobs added
than we expected, the jobs added were low wage, part-time jobs … such as bartenders and restaurant waitstaff. ..."
Bartenders And Wait Staff Dominate Jobs Added, Manufacturing Jobs Decline (Fed's Fischer
See No Bubbles)
The September jobs report was nothing short of disastrous. Not only were far fewer jobs added
than we expected, the jobs added were low wage, part-time jobs … such as bartenders and restaurant waitstaff.
Even worse, higher paying manufacturing jobs declined.
"... The frenzied drilling that made it No.
1 in personal-income growth and job creation for five consecutive years hasn't lasted long enough
to support the oil-fueled building explosion ..."
many previous oil-boomtowns across Texas and North Dakota are facing a real-estate crisis. As
Bloomberg reports, the former bustling "man-camps" of towns like Williston, ND are now desolate with
hundreds of skeletons or wood & cement as predictions that fracking would sustain production and
a robust tax base for decades have failed completely.
... ... ...
Chain saws and staple guns echo across a $40 million residential complex under construction in
Williston, North Dakota, a few miles from almost-empty camps once filled with oil workers.
As Bloomberg reports, after struggling to house thousands of migrant roughnecks during
the boom, the state faces a new real-estate crisis: The frenzied drilling that made it No.
1 in personal-income growth and job creation for five consecutive years hasn't lasted long enough
to support the oil-fueled building explosion.
Civic leaders and developers say many new units were already in the pipeline, and they anticipate
another influx of workers when oil prices rise again. But for now, hundreds of dwellings approved
during the heady days are rising, skeletons of wood and cement surrounded by rolling grasslands,
with too few residents who can afford them.
"We are overbuilt," said Dan Kalil, a commissioner in Williams County in the heart of
the Bakken, a 360-million-year-old shale bed, during a break from cutting flax on his farm.
"I am concerned about having hundreds of $200-a-month apartments in the future."
The surge began in 2006, when rising oil prices made widespread hydraulic fracturing economically
feasible. The process forces water, sand and chemicals down a well to crack rock and release the
crude. Predictions were that fracking would sustain production and a robust tax base for decades.
Laborers descended on the state, many landing in temporary settlements of recreational vehicles,
shacks and even chicken coops. Energy companies put up some workers in so-called man camps.
In 2011, Williams County commissioners approved 12,000 beds, says Michael Sizemore, the county
building official.
Everyone levered up on this "no-brainer"...
The camps were supposed to be an interim solution until subdivision and apartment complexes
could be built.
Civic leaders across the Bakken charged into overdrive, processing hundreds of permits and
borrowing tens of millions of dollars to pay for new water and sewer systems. Williston has
issued $226 million of debt since January 2011; about $144 million is outstanding. Watford City
issued $2.34 million of debt; about $2.1 million is outstanding.
and many remain delusional...
"We didn't build temporary housing on purpose because we viewed North Dakota as a long-term
play," said Israel Weinberger, a principal at Coltown Properties, which invests in multi-family
real-estate developments.
"We think the local production of oil is here to stay. Yes, prices have dropped, but it's
a commodity and commodities fluctuate. There is always a risk."
Fracking's success has created another glut...
As the migrant workers leave, their castoffs pile up in scrap yards such as TJ's Autobody &
Salvage outside Alexander, about 25 miles (40 kilometers) south of Williston. More than 400
discarded vehicles crowd its lot, including souped-up pickup trucks and an RV with rotting
potatoes and a dead mouse in the sink.
"I wake up and RVs are in my driveway," said owner Tom Novak. "It's insane; there are empty
campers everywhere."
Unfortunately most are no longer from agrarian roots, and have no concept of living within
one's means, and storing away excess in times of feast - for the times of famine that
inevitably follow.
Education is not the only cause of inequality, but it's part of the problem:
Are
American schools making inequality worse?, American Educational Research Association: The
answer appears to be yes. Schooling plays a surprisingly large role in short-changing the nation's
most economically disadvantaged students of critical math skills, according to a
study published today in Educational Researcher, a peer-reviewed journal of the American Educational
Research Association.
Findings from the study indicate that unequal access to rigorous mathematics
content is widening the gap in performance on a prominent international math literacy test between
low- and high-income students, not only in the United States but in countries worldwide.
Using data from the 2012..., researchers from Michigan State University and OECD confirmed
not only that low-income students are more likely to be exposed to weaker math content in schools,
but also that a substantial share of the gap in math performance between economically advantaged
and disadvantaged students is related to those curricular inequalities. ...
"Our findings support previous research by showing that affluent students are consistently
provided with greater opportunity to learn more rigorous content, and that students who are exposed
to higher-level math have a better ability to apply it to addressing real-world situations of
contemporary adult life, such as calculating interest, discounts, and estimating the required
amount of carpeting for a room," said Schmidt, a University Distinguished Professor of Statistics
and Education at Michigan State University. "But now we know just how important content inequality
is in contributing to performance gaps between privileged and underprivileged students."
In the United States, over one-third of the social class-related gap in student performance
on the math literacy test was associated with unequal access to rigorous content. The other two-thirds
was associated directly with students' family and community background. ...
"Because of differences in content exposure for low- and high-income students in this country,
the rich are getting richer and the poor are getting poorer," said Schmidt. "The belief that schools
are the great equalizer, helping students overcome the inequalities of poverty, is a myth."
Burroughs, a senior research associate at Michigan State University, noted that the findings
have major implications for school officials, given that content exposure is far more subject
to school policies than are broader socioeconomic conditions.
Anonymous -> Anonymous...
do you think schools in China/India have funding on the level you are implicitly arguing for?
As Eva Maskovich is showing in NYC - it takes better teachers, not more money.
pgl -> Anonymous...
I live in NYC
"According to Success Academy Charter Schools founder and President Eva Moskowitz".
Ah yes - the charter school crowd. As in Mayor Bloomberg's push for privatizing our public
education system. They have a lot of really dishonest ads attacking our new mayor. So you are
with these privatization freaks? Go figure!
Anonymous -> kthomas...
I am an Asian immigrant who came to the US to pursue the American dream. My education allowed
me to run circles around most students at the university. I ended up with triple major and a post
grad degree. So, go ahead. call the rigorous schooling horrifying all you want. It is silly to
raise kids in an ultra sheltered environment. The jobs are going to go where qualified highly
productive people who want less money are. Then they will have to face reality anyway. We can
sit here and argue about it all we want. The truth is that kids in Asia can do the job I started
with sitting there better for a fraction of the cost here. And this is a job requiring advanced
degrees.
Anonymous -> Anonymous...
And you can add Eastern Europe to Asia. The competition is going to degrade our standard of
living as it has whether we like it or not.
DrDick -> Anonymous...
Sorry, but this is pure BS. We are talking about the presence of AP, foreign language, and
advanced math classes. Having new textbooks and enough textbooks for all students, class sizes,
laboratory equipment for science classes, and building maintenance, among many other very significant
differences.
yes. they spend on things that count. instead of hockey rinks and olympics standard gyms for
toddlers.
DrDick -> Anonymous...
None of which are characteristic of public schools. Have you ever even visited reality? Charter
schools suck up a much greater share of available public resources and further starve the schools
serving the poor and minorities, as happened in Chicago. Unlike you, I believe in fact based decision
making.
" The new school year has been marred for many students all over the country by severe budget
cuts, shuttered schools, and decimated staff. Philadelphia, where students went back to school
Monday, is seeing some of the most extreme effects of these budget cuts.
Nine thousand students will attend 53 different schools today than they did last fall after
24 were closed down. Class sizes have ballooned in many schools, with parents reporting as many
as 48 students in one classroom. Meanwhile, the district laid off 3,859 employees over the summer.
A new policy also eliminates guidance counselors from schools with fewer than 600 students,
which is about 60 percent of Philadelphia schools. Now one counselor will be responsible for five
or six schools at once. Arts and sports programs have also been sacrificed.
Philly's new barebones regime was implemented after Gov. Tom Corbett (R) and the Republican-dominated
legislature cut $961 million from the basic education budget, or 12 percent overall. Federal stimulus
funds cushioned schools from state cuts for a couple of years, but they are now dwindling.
The district is struggling to fill a $304 million deficit. In order to open schools on time,
the state gave an extra $2 million in funding and the city borrowed $50 million. Corbett is also
withholding a $45 million state grant until teachers unions agree to concessions of about $133
million in a new labor pact. The district plans to sell 31 shuttered school properties. "
"All Australian private schools receive some commonwealth government funding. So they are technically
all "Charter" schools although the term is not used in Australia."
Charter schools are precisely what Milton Friedman recommended. He has the integrity to call
this privatization. Anonymous does not. Funded by taxpayers but these schools are for profit entities.
Anonymous - have the courage to admit your agenda next time.
ilsm -> pgl...
Charter schools are like privatized arsenals, all cost cutting, profit and no performance.
US privatized the arsenals starting after WW I when a lot of "qui tammers" got to send arms
to the Brits.
How long before the charter industry complex has enough unwarranted influence to ruin education?
djb -> Anonymous...
the charter schools cherry pick the best students and they don't deal with problem kids
this I known, they do poorly especially in new York city
as pgl said it is the fact that schools are fund locally that is the problem
to use a favorite right wing phrase
public education is an "unfunded mandate"
it should be paid for by the federal government
then all the mostly right wing politician could use property tax for divide and conquer politics
and funding can go where it is needed
djb -> djb...
then all the mostly right wing politician could NO LONGER use property tax for divide and conquer
politics
DrDick -> pgl...
I think this is the primary issue. The schools in my hometown of 30K, national headquarters
for Phillips Petroleum with a major research facility at the time, were excellent and most students
went to college. Elsewhere in Oklahoma, students from similar sized towns were barely literate
when they graduated. The primary reliance on local funding guarantees perpetuation of inequalities
and the failure of the poor. This is exacerbated in larger communities by differential funding
and resources allocated to schools within the district. When I lived in Chicago, Lincoln Park
High School, in an affluent neighborhood, had world class programs. Meanwhile, schools on the
predominately black west side and south side were literally falling apart with peeling lead paint
and asbestos insulation falling on the students (along with occasional pieces of the cielings).
"... The quest for yield is pushing investors into risk in a frantic
hunt for yield in an environment where risk free assets yield at best an inflation adjusted zero
and at worst have a negative carrying cost. ..."
Low rates and asset bubbles: Fed policy in the wake of the dot com collapse helped
fuel the housing bubble and given what we know about how monetary policy is affecting the financial
cycle (i.e.
creating larger and larger booms and busts) we might fairly say that the Fed has become the
bubble blower extraordinaire. See the
price tag attached to Picasso's Women of Algiers (Version O) for proof of this.
Herding behavior:The quest for yield is pushing investors into risk in a frantic
hunt for yield in an environment where risk free assets yield at best an inflation adjusted zero
and at worst have a negative carrying cost.
Financial engineering: Icahn is supposedly concerned about the myopia displayed by
corporate management teams who are of course issuing massive amounts of debt to fund EPS-inflating
buybacks as well as M&A. We have of course been warning about debt fueled buybacks all year and
make no mistake, there's something a bit ironic about Carl Icahn criticizing companies for short-term
thinking and buybacks as he hasn't exactly been quiet about his opinion with regard to Apple's
buyback program (he does add that healthy companies with lots of cash should repurchases shares).
Fake earnings: Companies are being deceptive about their bottom lines.
Ineffective leadership: Congress has demonstrated a remarkable inability to do what
it was elected to do (i.e. legislate). To fix this we need someone in The White House who can
help break intractable legislative stalemates.
Corporate taxes are too high: Inversions are costing the US jobs.
In a video entitled "Danger Ahead" and released on Tuesday, Icahn said the Fed's rate
policy had enabled U.S. chief executives - many of whom he describes as "nice but mediocre guys"
– to pursue "financial engineering" that he said has exacerbated an already wide gap between rich
and poor in America.
Icahn, who slammed money managers who benefit from the so-called "carried interest" loophole
under which their earnings are taxed as capital gains rather than ordinary wage income, also endorsed
Donald Trump's presidential bid.
Trump unveiled a tax plan on Monday that he said would eliminate the loophole.
"Those guys who run these companies are borrowing money very cheaply, leveraging up their companies,
using it to do two things … They are going in and they are buying back stock or even worse, making
stupid takeovers," said Icahn, adding some recent acquisitions have been done at a too high a
price.
Much of this debt is bought via exchange-traded funds, a popular vehicle for trading baskets
of bonds and stocks.
Icahn said retail investors had a false sense of security about how easy it would be to sell
their holdings of such debt if the market turns.
"It's like a movie theater and somebody yells fire. There is only one little exit door,"
he said. "The exit door is fine when things are OK but when they yell fire, they can't get through
the exit door … and there's nobody to buy those junk bonds."
"... Exactly what was engineered, the oligarchs of the US Neoliberal Empire will now be able to
pick up "emerging market" assets for pennies on the dollar increase their already vast holdings and
secure Neoliberalism - or more correctly Neo-feudalism in fancy dress. ..."
"... We have seen the Neoliberals do this kind of empire building for the last 30 years first the
Savings and Loan "crisis" in the 1990s which transferred over 300 billion in middle class assets into
the hands of the Bass brothers and a few other oligarchs including the Cargill family at the time the
largest transfer of wealth in peace time. ..."
"... The Great Neoliberal Empire of the Exceptionals has a big big appetite which will not be satisfied
until the own the entire planet and rather than 4 billion people living on $2 a day it will be 7.3 billion.
The Neoliberal world view [is one] of a few thousand oligarchs and Bangladesh as the rest of the world.
..."
"The International Monetary Fund (IMF) has issued a double warning over higher US interest
rates, which it said could trigger a wave of emerging
market corporate defaults"
Exactly what was engineered, the oligarchs of the US Neoliberal Empire will now be able
to pick up "emerging market" assets for pennies on the dollar increase their already vast holdings
and secure Neoliberalism - or more correctly Neo-feudalism in fancy dress.
We have seen the Neoliberals do this kind of empire building for the last 30 years first
the Savings and Loan "crisis" in the 1990s which transferred over 300 billion in middle class
assets into the hands of the Bass brothers and a few other oligarchs including the Cargill family
at the time the largest transfer of wealth in peace time. Then a few more small transfers
and the the big "crisis" of 2007-8 which is ongoing and where close to a trillion in assets were
consolidated in the hands of oligarchs.
First load on the debt with money created out of thin air by banks, then foreclose after the
phony "bubble" bursts. Then walk away Scott free with the assets.
The Great Neoliberal Empire of the Exceptionals has a big big appetite which will not be
satisfied until the own the entire planet and rather than 4 billion people living on $2 a day
it will be 7.3 billion. The Neoliberal world view [is one] of a few thousand oligarchs and Bangladesh
as the rest of the world.
"... that the U.S. economy was adjusting to and shrugging off ..."
"... until
the financial crisis began the collapse of Wall Street ..."
"... With Dodd-Frank, it seems we are closer to 1998 (or at least in the middle). ..."
"... With 700 trillion in outstanding derivatives we don't know where the risks are and neither do
the banks or the regulators. One mistake in one spreadsheet could sweep away all the big banks in
the world. ..."
...Paul Krugman reviews... reasons why... [we] shouldn't worry too much.... I've long believed
that to understand business cycles we need to consider not just net flows but also gross interdependencies....
While China may only account for 15% of world GDP, it has been a huge factor in commodity markets...
55% of the increase in global petroleum consumption between 2005 and 2013.... Arezki and Matsumoto
note that China now accounts for about half of global consumption of iron ore, aluminum, copper,
and nickel.... U.S. exports of goods and services to China... [are] only about 1% of U.S. GDP.
But U.S. investment in mining structures (explorations, shafts, and wells) amounted to $146B at
an annual rate in 2014:Q4. By the second quarter of this year that number was down to $89B, largely
a result of cutbacks in the U.S. oil patch.... This development alone has already subtracted about
0.3% from U.S. GDP.... Another concern comes from financial linkages.... I don't know what the
ultimate implications for the U.S. of a significant recession in China would be. But things I
don't know cause me to worry.
If we take the current shock to oil-patch investment of 0.3% of GDP to be half the shock from
China, right now the shock from China is one-quarter of the 2005-2007 shock from the housing market
that the U.S. economy was adjusting to and shrugging off without much difficulty until
the financial crisis began the collapse of Wall Street. Thus, IMHO, the major lesson of 2005-7
is that for the macroeconomy it is finance and only finance--plus the ability of the government to
react properly and in a timely fashion--that matters. A sectoral shock one-quarter as large as 2005-7,
or indeed one-sixth as large as 1999-2001, ought not to matter much at all.
In the US prior to the bursting of the housing bubble in 2006, residential fixed investment had
grown 6.6%, from its usual average of around 5%. That seems relatively small, but a collapse in that
one market and its layers of overvalued derivatives led to a broader US collapse.
So China is a larger component of the global economy now than US housing investment was in 2006.
That wouldn't matter much for the rest of us is China were isolated from foreign investment. But
China overtook the US this year as the number one spot for foreign direct investment.
Maybe the world has learned from the global financial crisis, and larger capital requirements
and other regulatory measures are protecting us better than they did in 2007/8. But these facts all
seem relevant, and I would like to see some analysis of the situation from a systemic financial risk
perspective.
Dan Kervick said...
By the way, this quote utterly depresses me:
"That, at least, is the lesson I draw from 2005-2007. As long as aggregate demand is properly
managed, a decentralized market economy is a wonderfully flexible thing. It can and does adjust swiftly
to even big sectoral shocks."
If that is the main lesson you have taken away for 2005-07, then God help us all. Count me now
as officially terrified that the neoliberal techno-democrats, under Hillary Clinton and her 20th
century retro machine, are going to take the White House again in 2017.
I hope the view is nice, at least, from inside your rectum.
jonathan said...
The obvious counterpoint is that from August 2007 to August 2008, the Federal Funds rate fell
300 basis points. This monetary stimulus was likely responsible for the rise in exports and non-residential
investment, and thus the stability of aggregate demand. The Fed doesn't have such an ability to offset
negative AD shocks today.
[Very true--but the rest of the government does...]
jorgensen said in reply to Dan
Kervick...
Dan, what lesson do you say should have been learned from 2005-2007 (I thought that main lesson
was that the Bush tax cuts were a very, bad housing bubble producing, policy.)
T said...
Brad - The level of certainty in your tone is , er, troubling.
And it's odd coming from you after you bravely
admitted that you completely missed the financial crisis and still can't explain the effects of NAFTA.
It could well be that the macro boys will be furiously modelling international linkages just like
they're trying to incorporate a financial sector if this all heads south. Best to stay humble on
this China stuff. And you'd think you'd have started to figure out the distributional effects baked
into the neoliberal agenda by now. Maybe that's one item you can add to the year end mea culpa list.
jorgensen said in reply to Dan
Kervick...
China may be sixteen per cent of the world economy but most of that will be produced and consumed
in China and a huge drop might be hard on China but not directly effect the U.S. very much.
Canada, Australia and Brazil are going to be much harder hit than the U.S. There may be some feed
through effects - Canadian revenues from resources drop so its imports from the United States have
to fall but most of the pain will be felt in Canada and American consumers benefit from lower commodity
prices (lumber, copper, oil, steel).
We don't know how big the financial effects might be. We have reason to suspect that the Chinese
financial system is a house of cards. But we know that China has been exporting massive amounts of
capital for years so the amount of foreign exposure to the Chinese financial system should be limited.
I think that the biggest risk to America from China is not financial contagion or some diminution
of China as a market for American goods and services but rather that a slowing China will become
even more hyper-competitive than it already was in global markets for manufactured goods.
jorgensen said in reply to Dan
Kervick...
"China's economy might be relatively small, but it's share of the global economy is now over 16%."
As an afterthought - the 16% is calculated at purchasing power parity which will probably inflate
the relative importance of China in world trade.
I have to say that I don't find strong support for your view in your graph. Up until December
2007, it shows huge increases in non-residential investment and exports balancing the decline in
residential investment and government purchases,but for example is not solid statistical analysis.
It seems to me equally possible that there was a strange coincidence causing aggregate demand to
remain roughly constant from the peak of the housing bubble through December 2007.
In particular, I don't see the magic of the market in the increase in US exports (I see insane
fluctuations in exchange rates which were obviously unpredictable since I didn't predict them).
As you note, the case of 2001 is another example, but that really looks to me like a housing bubble
coming to the rescue after the dot com bubble burst. I don't know what bubble, if any, will protect
the US from a Chinese recession.
Also, you seem to be discussing the actually existing USA, yet you discuss the hypothetical ability
of "the government to react properly and in a timely fashion". That's the same government which might
or might not be open for business on Thursday. I don't see how any discussion of the US government
maybe, possibly, conceivably reacting properly has any relevance to the real world.
Dan Kervick said...
Jorgenson, in my opinion, the housing bubble was over a decade in the making and grew from overly-liberalized
financial conditions that were put in place in the decade before that. And the housing bubble is
only part of a larger, secular credit bubble that lead to an unsustainable rise in private debt to
GDP. The surge in private indenturing and indebtedness goes hand in hand with the ongoing destruction
of the social contract in the US, an obscene and decadent widening of inequality, the explosion of
corporate power, the bloating of the financial sector of that corporate economy, and the erosion
of the public sector as a coordinating driver of economic policy and long-term planning and public
investment strategies.
Brad is an intellectual stakeholder in the economic philosophies of the administration for which
he worked. He has become notorious - in my mind at least - for his blithe conviction that nothing
is really wrong with the prevailing order other than some bad short-term technocratic management
decisions in the (unexplained by him) implosion of much of the US financial sector in 2007/8. As
much as I like him personally, I have zero interest in his brand of neoliberal political economy
being given another crack at things.
I don't belong to a political party, and regard most of the economic policy of past 40 years as
a mistake.
Kansas Jack said...
BDL, but you end by saying, "plus the ability of the government to react properly and in a timely
fashion–that matters." BUT!! That is, to me, the key of it all. For what happens in the case of a
commodity market slowdown -- even if it is a smaller share than Hamilton believes as you argue--
that we have governments who cannot react properly. Markets that spiral downward because the fiscal
managers in Congress see no reason to intervene -- nay, believe it is morally wrong to do so and
further believe that it means we ought to tighten our belts-- has a bigger multiplier than I think
you are suggesting. So, while I agree with you that China OUGHT not to be a big deal, I think politics
today makes is a VERY big deal. Why am I wrong about that?
jorgensen said in reply to Dan
Kervick...
Dan
I agree that financial deregulation of the late 1990s was a mistake. I believe it to have been
founded on a rather naive blindness (or corrupt looking the other way) on how many people in the
financial industry are stupid or dishonest or both.
I see the housing bubble itself as a reaction to the Bush tax cut and the dot com bubble bursting
- in 2003 people had money to invest and thought houses were safer than stocks.
Financial deregulation enabled the housing bubble by making it easier for fraud to go undetected
but did not itself cause the bubble.
Pinkybum said in reply to jorgensen...
No the lesson was that deregulation of the financial industry forced the banks to give loans to
people who could not repay them. Less government regulation is really more in the deranged right-wing
world.
claudius said...
The crash in 2008 came from large financial institutions realizing that their collateral, hedges,
and reserves were actually worthless. Lehman gone and AIG bankrupt, and the house of cards falls
over.
So the only relevant question is, is there still a house of cards on wall st that will go tumbling
down with the first stiff breeze?
In 1998 and 1995, there were major economic collapses elsewhere, with no major negative wall st impacts
(LTCM aside). Are we back in 1998 with a robust system, or 2008 with a fragile system?
With Dodd-Frank, it seems we are closer to 1998 (or at least in the middle).
Thomas More said...
Dan is unfortunately correct.
Let's sort out specifically what's wrong with Brad's analysis:
[1] The collapse in housing investment wasn't isolated. It was closely connected to the huge bubble
in the stock market, much of which consisted of fraudulent mortgage-backed securities which were
sold in tranches to investors as low-risk, but were actually extremely high risk.
[2] We need to recall that as late as late 2008 economists like Brad were still claiming that because
the subprime mortgage market constituted only 5% of the total housing market, the broader economy
was in no danger of collapse even if the subprime mortgage market imploded. Clearly neoliberal economists
like Brad did not recognize that the huge amount of leverage created in the financial markets by
the subprime mortgage securities generated an enormously sensitive and unstable financial situation
in which a very small collapse in one sector could ripple outward nonlinearly to create a huge cascade
of financial and housing collapses.
[3] Brad appears to base his reasoning on normative macro models. Those work well for equilibrium
conditions in the markets. Normal macro models use linearized equations to model a system with relatively
small shocks. If we want to get technical, the equations are typically linear ordinary differential
equations with small Reynolds numbers. The problem is that since circa the mid-1990s the world has
experienced extremely non-normal macroeconomic conditions. How so? Well, in 1991 the USSR imploded
and turned capitalist, releasing some 800 million workers in the former communist countries. In 1989,
the Tiananmen uprising forced Chinese leadership to pivot to a capitalist economic system, releasing
some 1.3 billion workers. Together, the collapse of the USSR + China's switch to capitalism increased
the global labor market by circa 60%. This exerted a tremendous shock on labor prices -- to put it
technically, the Reynolds number became very very big. Adding in the gigantic shadow banking sector,
which ballooned under Clinton/Bush deregulation to a size that dwarfed the regular financial sector,
and include the exponential growth of bizarrely complex financial instruments like CDOs, and the
equations themselves became nonlinear, because very small changes in a CDO could potentially produce
enormous financial losses. Cap it off with the fact that the ex-physicists designing all the complex
financial derivatives using computers themselves often did not know what the financial derivatives
would do under boundary (extreme) conditions. You get a chaotic financial system not well modeled
by linear equations.
What's the upshot of Brad's faulty reasoning here?
First: the underlying conditions creating financial bubbles and huge nonlinearities in the financial
system have not been fixed.
"The Dodd-Frank legislation does not reform Wall Street. Rather it preserves the system that existed
prior to the 2008 crisis, according to Martin Wolf of the Financial Times of London. According to
former Treasury Secretary Tim Geithner, "The goal of financial reform was to make the system safe
for failure. It wasn't to prevent the failure of individual firms that take on too much risk, but
to make the aftershocks of failure less threatening to the system as a whole." Most importantly,
Dodd-Frank amended the Federal Reserve Act of 1913 to prohibit the central bank from bailing out
an insolvent financial institution on the verge of bankruptcy. It can only lend or inject capital
if the bank is solvent. According to Harvard economist Larry Summers the Fed is simply not capable
of understanding even when a member bank becomes insolvent.
"The Fed's monetary policy model at present does not take into consideration any factual or numerical
input from events either in domestic financial markets or global markets. This lack of input means
the Fed will always have trouble spotting a bubble that is developing out of speculation in the financial
or commodity markets." ["The Ten Reasons Why There Will Be Another Systemic Financial Crisis," Forbes
magazine, op. cit.]
Second: in 2007, America suffered from a single subprime real estate bubble and huge numbers of
risky investments in the form of derivatives. Today, in 2015, America suffers from four different
financial bubbles: the college loan bubble, the real estate rental-backed securities bubble, a second
tech bubble, and a subprime auto loan bubble. Plus, in 2015 the deregulations and opportunities for
fraud in the financial markets have *still* not been fixed. Viz., Gramm-Leach-Bliley repealing the
Glass-Steagall act has still not been repealed.
These statements are well documented and noncontroversial. Let's start with the fragility of today's
financial markets, unchanged since 2007:
"A major factor in the last crisis was, of course, the rapid growth of low-quality mortgages.
Between 2000 and 2006, the combination of subprime and Alt-A loans rapidly grew their share of mortgage
originations. Since the crisis, subprime alone has fallen from a peak of more than 20% of originations
in 2006 to roughly 0.3% as of 2014. However, the spigot has opened elsewhere. Auto loans have grown
rapidly to $970 billion. Through the middle of 2014, about 29% of all the securities based on auto
loans to individuals were classified subprime, and defaults are now rising. Student loans are not
broken out by quality (i.e., subprime), but there are two issues with them that are important to
note. First, they have grown rapidly to $1.36 trillion. Moreover, as graduates and younger people
are having a difficult time entering the work force, delinquencies on student loans in repayment
are an estimated 27.3%. As it happens, the Federal government owns $883 billion (65%) of the student
loans, so defaults will lead to more government bond issuances and, ultimately, more inflation."
["Are we headed for another financial crisis?" CFA institute, 11 June 2015]
"No one understands the derivative risk positions of the Too Big To Fail Banks, JP Morgan Chase,
Citigroup, Bank of America, Goldman Sachs or Morgan Stanley. There is presently no way to measure
the risks involved in the leverage, quantity of collateral, or stability of counter-parties for these
major institutions. To me personally they are big black holes capable of potential wrack and ruin.
Without access to confidential internal data about these risky derivative positions the regulators
cannot react in a timely and measured fashion to block the threat to financial stability, according
to a National Bureau of Economic Research study." ["Another Financial Crisis Is Inevitable, Promises
The Fed Vice Chairman," Forbes, 19 July 2014]
We could go on to mention the enormous growth in high-speed trading which firms themselves can't
predict and don't understand, ever larger disruptions as a result of these automated trading systems,
including the "flash crash," but the point is clear: lack of transparency, the skyrocketing growth
of the shadow banking system with its complex derivative financial instruments, and the failure to
regulate or break up the "too big to fail" banks have resulted in a financial system _more_ fragile
today than it was in 2007.
As for the college loan bubble, see "The scary reality of the student loan bubble in 5 charts."
The rate of increase in student debt compared to inflation is now worse than at the peak of the subprime
mortgage bubble, total student loans are now larger than the total outstanding amount of U.S. credit
card debt: http://moneymorning.com/2013/03/05/the-scary-reality-of-the-student-loan-bubble-in-5-charts/
As for the rental-back mortgage securities housing boom, see the following:
"Here's what's driving up housing prices," CNN money, 4 May 2015.
"`Price increases -- even in the most desirable places -- can't continue to outstrip income growth
forever,' said Keith Gumbinger, vice president of HSH.com. `At some point, no one will be able to
afford a home.'"
"Housing Market's Foundations Crack - Sales of New and Existing Homes Look Less Than Inspiring,"
Wall Street Journal, 29 December 2014.
"California Housing Market Cracks in Two, Top End Goes Crazy," Wolf Richter, 26 November 2014.
The median price for a house in San Francisco is now $661,000: the median price for a house in San
Diego is $520,000. For comparison, at the peak of the last real estate bubble the median price for
a house in San Diego was $650,000 and San Francisco has now surpassed its previous median price peak
at the top of the bubble.
As for the second tech bubble, see the article "Bubble 2.0?" techcrunch website, 16 May 2015.
Fed chair Janet Yellen recently warned about this:
"Federal Reserve Chairwoman Janet Yellen weighed in on the prospects of an equity bubble at a
meeting with International Monetary Fund Director Christine Lagarde earlier this month. The danger
warnings beat to the drums of Mark Cuban's worse than 2000 prediction because the tech sector was
singled out as the asset class with overinflated valuation.
"A quick glance at the NASDAQ Composite Index's breach of the infamous 5000 would seem to support
these claims."
Third: there has been no progress in forcing transparency on the global shadow banking system
since 2007. As a result, the economists at the Federal Reserve (and economists like Professor DeLong)
are not even able to estimate the size and nature of financial risk in the shadow banking markets.
"Nor does the Fed have any oversight powers over the Shadow Banking System, which amounts to $75
trillion worldwide of financial activities by non-banks that in 2008 triggered runs on the system
that threatened its stability. Shadow banking, which runs the gamut from money market mutual funds
to short term repurchase financing agreements, commercial paper and other aspects of investment banking,
are activities that can trigger panicky runs on the financial system. Shadow banking is also inherently
fragile due to the lack of a central bank safety net or the deposit insurance that supports bank
deposits. The whole inter-relationship between shadow banking and traditional banking is not very
well understood. In short, shadow banking increases the likelihood that systemic risk will be triggered
from the breakdown and gaps that exist between it and traditional banking." ["The Ten Reasons Why
There Will Be Another Systemic Financial Crisis," Forbes magazine, op. cit.]
Given this evidence, it becomes incumbent on a reasonable observer to ask -- on what basis does
Brad issue his confident claim that a small downturn in China will not produce a nonlinear ripple
effect leading to the bursting of one or more of these new 2015 financial bubbles and a subsequent
crash of the whole U.S. economy?
Did Brad predict the bursting of the last financial bubble? Was he even aware that it existed?
Economists like Professor DeLong seem to believe that the current financial system is perfectly
fine and that only slight tinkering around the edges is needed to keep everything shipshape. By contrast,
other people like Nassim Taleb have been warning about financial black swan events for a number of
years. Given the track record of events since the year 2000, which of these two groups should we
believe?
jorgensen said in reply to claudius...
"With Dodd-Frank, it seems we are closer to 1998 (or at least in the middle). "
With 700 trillion in outstanding derivatives we don't know where the risks are and neither do
the banks or the regulators. One mistake in one spreadsheet could sweep away all the big banks in
the world.
Another Scott said...
By the end of 2007, about $400 billion/year--2.5% of GDP--of spending on residential construction
that had been there in 2005 was no longer. Yet the U.S. economy was not in recession.
I know you and Dean Baker have gone round-and-round about this, but I'm confused as to why you
don't seem to agree on the scale of the problem.
5. The collapse of the housing bubble will throw the economy into a recession, and quite likely
a severe recession.
Housing construction is equal to approximately 5 percent of GDP. Construction of new homes has
been going on at a near-record pace over the last few years, in response to the run-up in housing
prices. Home construction could easily fall back 40 percent (this was the drop off in the 1981-82
recession), which would imply a direct loss in demand equal to 2 percentage points of GDP.
In addition, the large wealth effect associated with the housing bubble, which has spurred
a consumption boom in the last few years, will go into reverse as housing prices plummet. Research
from the Federal Reserve Board shows that a dollar in additional housing wealth leads to 4 to
6 cents of annual consumption. This implies that a loss of $5 trillion in housing wealth would
lead to a decline in annual consumption of between $200 billion and $300 billion. This loss in
consumption is equivalent to 1.6 to 2.5 percentage points of GDP.
Combining the 2 percentage point drop in demand due to a falloff in housing construction with
the 1.6 to 2.5 percentage point drop in demand due to the reversal of the housing bubble's wealth
effect leads to a falloff in demand of between 3.6 and 4.5 percentage points of GDP. If employment
fell in the same proportion, this would imply the loss of between 5.0 million and 6.3 million
jobs. Since the federal government is already running a large deficit, and the country is running
a very large trade deficit, the government's ability to use fiscal and monetary policy to boost
the economy out of the recession will be severely restricted.
That seems to me to be a cogent prediction of what actually happened, though actually on the low
side (8.8 M jobs were lost according to Google). But since there were still 2 years before the implosion,
I can cut him a little slack on that. ;-)
Are you ignoring the "wealth effect" that he talks about? Or is your argument that the timing
shows that the bursting of the housing bubble didn't correspond to the start of the Great Recession?
I think the timing can be explained as simply the fact that normal people knew that the bubble
was deflating (I recall seeing new construction in-fill developments in my area listed for $1.4M
and not going anywhere, then being listed at $1.0M a few months later....), but thought that it wasn't
going to affect *themselves* before they could refinance or sell. Remember everyone talking about
a "soft landing"? We were still saturated with "Flip this House" TV shows (which premiered in
July 2005)and "refinance
now!" TV ads until the day Lehman collapsed. And probably even later.
And the banksters were doing everything they could to keep their earnings inflated so they could
keep collecting their fat bonuses. When they finally couldn't hide their housing losses any more,
that's when the dominoes finally started tumbling (Countrywide, AIG, Lehman, etc., etc.). But it
all goes back to the housing bubble.
Looks like Shell wants to wait out the period of low oil prices, cutting investments to bare
minimum.
"... More
than half of the state's $5.2 billion this year could not be collected, forcing budget cuts and a
deep dive into a state savings account. ..."
In Alaska, Shell's announcement that it would suspend drilling in the Chukchi Sea after a test
well showed less promise than hoped for was one more blow to a state where energy-tax revenues -
which pay for most of the budget - are drying up as prices and production have fallen. More
than half of the state's $5.2 billion this year could not be collected, forcing budget cuts and a
deep dive into a state savings account. The Trans-Alaska Pipeline that made the state rich
after its completion in the 1970s is pumping only a quarter of its oil capacity.
"It's tough times," said Kara Moriarty, the president of the Alaska Oil and Gas Association, who
said that rumors of layoffs in the next few weeks or months, in both the corporate offices of oil
companies in Anchorage and in the drilling fields, were flying everywhere. "It's an incredibly
sobering day," she added.
As oil prices have continued their steady decline this year, rig after rig has been shut down,
costing thousands of jobs in the United States. Yet major oil producers have been loath to pull
the plug on their most ambitious projects - the multibillion-dollar investments that form the
backbone of their operations.
Until now. On Monday, Royal Dutch Shell ended its expensive and fruitless nine-year effort to
explore for oil in the Alaskan Arctic - a $7 billion investment - in another sign that the entire
industry is trimming its ambitions in the wake of collapsing oil prices.
... ... ...
The industry has cut its investments by 20 percent this year and laid off at least 200,000
workers worldwide, roughly 5 percent of the total work force. Companies also have retreated from
less profitable fields in places like the North Sea, West Africa, and some shale prospects in
Louisiana and North Dakota.
American oil companies have decommissioned more than half of their drilling rigs over the last
year, and production is beginning to drop in the United States...
... ... ...
With demand dwindling, the current market of 94 million barrels a day has roughly two million
barrels in surplus supply.
Steve Projan
This decision was not based on the test results of a single well but the current glut of
oil and its depressed price and renders the expensive to get arctic oil a poor investment, for
now. But I'll bet that Shell isn't giving back its lease. The (short term) losers are the
Alaskan citizens who are addicted to oil money that is rapidly running out (heavens these
takers might actually have to pay taxes rather than getting a check from the government).
At least for today a modest, although probably short term, win for the environment.
rexl, phoenix, az. 1 hour ago
Just think what is going to happen when the price of oil goes back above one hundred
dollars per barrel.
"... China's import volumes of crude oil were up 9.8% y-o-y in 8m15, so the effect you're describing
hasn't happened yet. ..."
"... I think the US oil production decline is mostly a domestic cycle, following earlier overinvestment,
..."
"... Debt now drives the globe – downward! The effects of decades of Keynesian deficit spending
and central banking run amok are coming home to roost. ..."
"... US QEs went into the stock market and via the carry trade into EM debt. ..."
"... For example, gasoline and jet fuel demand in China were both up more than 20% in August year
on year–absolutely a blow-out month. Oil demand was up an impressive 6.6%. Similarly, Nike saw fabulous
results in China in the three months ended August, with sales there up more than 30%. http://www.bbc.com/news/business-34355627
All of these indicators directly contradict any notion of recession. ..."
"... India imports 100% of oil consumption. China imports 55-60% (?) of oil consumption. World oil
supply per capita is no higher than in 2004-05 and where US oil production per capita was in the late
1970s, the onset of deindustrialization and financialization of the US economy. The world is where the
US was in the late 1970s ..."
"... Given an ongoing, and inevitable, decline in production in the net oil exporting countries,
unless the exporting countries cut their liquids consumption at the same rate as, or at a faster rate
than, the rate of decline in production, the resulting rate of decline in net exports will exceed the
rate of decline in production and the net export decline rate will accelerate with time. ..."
"... Here are China's commercial inventories, just for you. They are a solid 19 mb below
normal for oil, and 27 mb below for all crude and product inventories taken together. ..."
U.S. exports of goods and services to China in 2014 were $167 billion, only about 1% of U.S.
GDP. But U.S.
investment in mining structures (explorations, shafts, and wells) amounted to $146B at an annual
rate in 2014:Q4. By the second quarter of this year that number was down to $89B, largely a result
of cutbacks in the U.S. oil patch. This means that in the absence of offsetting gains elsewhere,
this development alone has already subtracted about 0.3% from U.S. GDP.
Of course, lower commodity
prices will force layoffs for oil companies and miners but leave more money in the hands of consumers.
However, additional spending from that channel has been
more modest than many of us were anticipating.
Tom Warner, September 27, 2015 at 1:22 pm
China's import volumes of crude oil were up 9.8% y-o-y in 8m15, so the effect you're describing
hasn't happened yet.
I think the US oil production decline is mostly a domestic cycle, following earlier overinvestment,
which was to some extent driven by wrong hopes that the Saudis would accommodate higher US output
by cutting theirs. The global knock-on effects are mainly among oil producers, many of which didn't
pass on the oil price drop to their domestic consumers, and many of which have reacted to falling
oil prices by increasing their net energy exports.
But the general tone of caution about China I agree with. The main effect from China globally
has been to reduce prices of building materials and metals, especially iron ore.
BC, September 27, 2015 at 5:58 pm
Tom, WRT to China's oil imports, take a look at China's oil production, consumption, imports
as a share of consumption, net imports of oil, the extent to which China is storing/hoarding oil
as a share of consumption, and electricity consumption, and the aggregate suggests that the Chinese
economy is growing at a fraction of the reported 7% real rate.
JBH, September 28, 2015 at 9:03 am
Tom: The main effect from China has been to wreak havoc on EM economies. Simultaneous with
the reversal of the US dollar carry trade, this has caused an increasing number of EMs to tilt
toward recession. EMs (ex China) have the largest ppt contribution to global growth this recovery.
When the locomotive slows, the train slows. EM currencies are plunging. To support them, monetary
policies are being tightened. Much EM corporate and sovereign debt is denominated in dollars.
Hence the need to support currencies to service debt and stave off default.
Debt now drives the globe – downward! The effects of decades of Keynesian deficit spending
and central banking run amok are coming home to roost. Since 2014:Q1, the net export contribution
to real GDP has been minus 0.6%. Another leg down coming. The daisy-chain from EMs to the US is
multi-stemmed real and financial. Growing fissures in the financial system are the worry. US QEs went into the stock market and via the carry trade into EM debt. All this is unwinding,
as it was always going to. Promises to become known the Great Unwind.
BC, September 27, 2015 at 1:23 pm
What must be understood is that China's "miracle" was not an organic process but one "made
in the USA" (and in part Japan), in that US supranational firms have invested (via offshoring
in search of labor arbitrage) trillions of dollars since the 1980s-90s, resulting in a scale and
rate of growth per capita in China that otherwise would not have occurred.
US and Japanese FDI peaked in 2011-13 and began contracting in the past year or so, not coincidentally
when China's "exports" (largely from US and Japanese firms' production of components, intermediate
goods, and finished goods) and goods-producing sectors began to contract.
Since 2013, China's labor force has been contracting. Along with reported wage growth, contracting
production, M1 and M2 growing 9-13%, and money supply at ~195-200% of GDP, China's productivity
is growing no faster than ~1%. Then, at a population growth rate of 0.5%, in aggregate, China's
real potential GDP per capita hereafter is effectively 0%, which is the post-2007 average trend
rate (new normal of secular stagnation) for the US, EZ, and Japan.
This outcome was never in doubt, as it was implied by the precedent of the middle-income trap,
excessive debt to GDP, and the demographic drag effects China is now experiencing, as is occurring
for the countries that make up 70-75% of world GDP.
Moreover, under these conditions, it should be no surprise that growth of trade has peaked
and begun contracting, as the US-China "trade" flows made up the largest share of global "trade"
for what I refer to as the Anglo-American imperial trade regime, which is not unlike that of Britain
from the 1870s-80s to WW I.
Now with the onset of the cumulative, self-reinforcing effects of Peak Oil, record debt to
GDP coinciding with unprecedented asset bubbles to GDP, hyper-financialization of the economy
(net flows to the financial sector absorbing all output), population overshoot, climate change,
low labor share, decelerating productivity, extreme wealth and income inequality, decelerating
money velocity, and fiscal constraints, the world faces the new normal/neutral of global secular
stagnation, which is likely to be further entrained by another global deflationary recession and
bear market possibly underway.
Tweaking tax, fiscal, and monetary policies under the foregoing conditions will make little
difference. The assumptions and policies that were deemed appropriate during the inflationary
and reflationary regimes of the Long Wave will be rendered ineffective or irrelevant during the
current debt-deflationary regime. The primary causes of the malaise are demographics, low labor
share, too much debt, overvalued assets hoarded by the top 1-10% at zero velocity, and extreme
inequality exacerbating the effects on capital formation and productivity (and growth of profits)
from low labor share and excessive debt.
Until debt is forgiven sufficiently and labor share/purchasing power increases (by higher wages
or lower or no regressive taxation on earned income) for the bottom 80-90%, the secular stagnation
will persist and its effects worsen until a crisis that risks the collapse of the mass-consumer
economy and of the institutions that depend on growth of the economy per capita.
It's "different this time", but apparently most eCONomists don't know it, don't know why it's
different and the implications, or they aren't paid to tell us.
The evidence suggests that China most likely has been suffering the side-effects of an over-valued
yuan since Q3 2014. Such a situation would benefit importers and consumers and hurt exporters
and producers. And it has.
For example, gasoline and jet fuel demand in China were both up more than 20% in August
year on year–absolutely a blow-out month. Oil demand was up an impressive 6.6%. Similarly, Nike
saw fabulous results in China in the three months ended August, with sales there up more than
30%. http://www.bbc.com/news/business-34355627 All of these indicators directly contradict any
notion of recession.
On the other hand, the Chinese have resisted devaluing the yuan in line with the won, yen or
Euro, and so China's competitiveness has substantially eroded, and that's clearly visible in capital
flows, exports, and industrial production. In principle, if China devalues, the demand for Nikes
and oil should ease off a bit, and exporters should be revitalized.
I would add that China's private debt-to-GDP ratio is very high, indeed, at levels associated
with financial crisis in many other countries historically. However, the proximate issue in China
is the exchange rate. We would get a better sense of the state of the underlying economy once
that issue is addressed.
Jeffrey, I suspect that the "Limits to Growth" (LTG) to global real
GDP per capita from Peak Oil, falling GNE, population overshoot, etc.,
will force a decline in demand for oil imports in China and India as trade
slumps and real GDP per capita decelerates to 0%.
India imports 100% of oil consumption. China imports 55-60% (?)
of oil consumption. World oil supply per capita is no higher than in 2004-05
and where US oil production per capita was in the late 1970s, the onset
of deindustrialization and financialization of the US economy. The world
is where the US was in the late 1970s, i.e., peak industrialization.
India is 40-45 to 80+ years too late to industrialization, and China's
growth has peaked and will decelerate to ~0% real per capita.
That fits with the ongoing decline per capita for US oil production
(now at the level of the late 1940s) as the log-linear US oil depletion
regime inexorably continues. Despite the fastest 5- and 9-year rates of
US oil production since 1927-30, the shale boom/bubble is but a blip for
the long-term US oil depletion regime per capita.
At the long-term trend rate of US oil depletion, US oil production
per capita will have declined by 50% since 1970 by no later than the early
2020s; however, the 50% threshold could occur sooner were another global
deflationary recession to occur, which appears increasingly likely. In
fact, as little as a decline in US oil production to 8-8.2Mbd in the next
3-5 years will achieve the 50% decline per capita. I suspect that we will
see the 50% per-capita threshold exceeded before 2020.
And we know what the implications are for when the US reaches and sustains
50% oil depletion per capita. The structural effects have already begun
to occur with real GDP per capita since 2007-08 averaging barely faster
than ~0% for the US, EZ, and Japan, and now for China's real potential
GDP. No amount of QE, ZIRP in perpetuity, and unprecedented asset bubbles
can reverse the inexorable US depletion regime and its effects of real
GDP per capita.
Neither will wind and solar (renewable energy or RE) make much of a
difference during the remaining oil depletion regime's descent. In fact,
growth of wind and solar has likely peaked with the price of oil and will
follow the oil cycle into negative growth in the years ahead. In effect,
given Peak Oil and LTG, we cannot afford to grow real GDP per capita AND
build out RE to necessary scale AND maintain the fossil fuel infrastructure
indefinitely hereafter. Something has to give and it will be growth of
real GDP per capita and the RE build-out.
As a result, we are likely to experience a last-man-standing contest
between the West and China for the world's remaining vital resources of
finite planet Earth.
Jeffrey J. Brown, September 28, 2015 at 4:15 am
Through 2013 we have seen a post-2005 decline in what I define as Global Net Exports of oil
(GNE, the combined net exports from the Top 33 net exporters in 2005), which is a pattern that
appears to have continued in 2014 (complete data not yet available from EIA). GNE fell from 46
MMBPD (million barrels per day) in 2005 to 43 MMBPD in 2013 (total petroleum liquids + other liquids).
The volume of GNE available to importers other than China & India fell from 41 MMBPD in 2005 to
34 MMBPD in 2013.
Here are the mathematical facts of life regarding net exports:
Given an ongoing, and inevitable, decline in production in the net oil exporting countries,
unless the exporting countries cut their liquids consumption at the same rate as, or at a faster
rate than, the rate of decline in production, the resulting rate of decline in net exports will
exceed the rate of decline in production and the net export decline rate will accelerate with
time.
In addition, given an ongoing, and inevitable, decline in GNE, unless China & India cut their
net oil imports at the same rate as, or at a rate faster than, the rate of decline in GNE, the
rate of decline in the volume of GNE available to importers other than China & India will exceed
the rate of decline in GNE, and the rate of decline in the volume of GNE available to importers
other than China & India will accelerate with time.
For example, from 2005 to 2013 the rate of decline in the volume of GNE available to importers
other than China & India (2.3%/year) was almost three times the observed rate of decline in GNE
from 2005 to 2013 (0.8%/year).
Minor correction: In 2013, India's total petroleum liquids production
+ other liquids production was 25% of total liquids consumption, China's
was 42%.
Here's a bit I wrote on oil prices and Arab unrest. Interestingly, unrest seems more correlated
with high oil prices, rather than low prices.
Keep in mind, the Saudi fiscal model went to hell after 1983, and particularly after the big
oil price drop from Feb. 1986–and this at a time when they were pumping only 3 mbpd. And yet the
monarchy survived.
It's not entirely clear that low oil prices lead to revolution.
Here are China's commercial inventories, just for you. They are a solid 19 mb below
normal for oil, and 27 mb below for all crude and product inventories taken together.
China's demand growth is set to slow to an annual rate of 2.3 percent by the fourth quarter
compared with 5.6 percent in the second quarter, a reflection of "weak car sales data, declines
in industrial activity, plummeting property prices and fragile electricity output," the IEA said
in a report on Sept. 11.
What if "normal" for 2011-14 is well above the trend rate of growth of demand hereafter?
"I've long believed that to understand business cycles we need to consider not just net
flows but also gross interdependencies. A downturn in China will affect some businesses much
more than others. If specialized labor and capital do not easily move to other sectors, that
can end up having significant multiplier effects.
Professor,
Thank you once again for a bit of reason in your analysis. Krugman as the leaders of the far-left
Progressive economists leads so many astray with his ultra-aggregate economics.
After spectacular rise there should be spectacular fail. the neoliberal mechanism of
redistributing wealth up in full swing. And I thin S&P500 is below 200 days average just for
21 day.
"... Plenty more are using the 2011 panic as a guide, which would mean a drop below 1750. ..."
The twelve-month average level of the S&P 500 has dropped for two straight months, something
that has only happened twice since 1995 – both as bear markets got underway.
... ... ...
So many people are assuming the S&P 500 must at least "re-test" its August low of 1867, down
more than 3% from here, it might be tempting to take the other side.
Plenty more are using the 2011 panic as a guide, which would mean a drop below 1750.
Now that we have Congressional dysfunction and a threatened debt-ceiling standoff on the radar,
maybe traders are over-extrapolating the similarities.
"... The
Argentine government managed to restructure about 93% of that debt through heavily discounted
bond exchanges in 2005 and 2010. But a small group of investors refused to tender their defaulted
bonds for new securities, and they have hounded Argentina in courts across the globe for close
to a decade seeking full repayment. ..."
The
Argentine government managed to restructure about 93% of that debt through heavily discounted
bond exchanges in 2005 and 2010. But a small group of investors refused to tender their defaulted
bonds for new securities, and they have hounded Argentina in courts across the globe for close
to a decade seeking full repayment.
As part of the restructuring process, Argentina drafted agreements in which repayments would
be handled through a New York corporation and governed by United States law. The holdout bondholders
found themselves unable to seize Argentine sovereign assets in settlement, but realized that
Argentina had omitted to provide for holdout situations and had instead deemed all bonds repayable
on pari passu (equal) terms that prevented preferential treatment among bondholders. The holdout
bondholders therefore sought, and won, an injunction in 2014 that prohibited Argentina from
repaying the 93% of bonds that had been renegotiated, unless they simultaneously paid the 7%
holdouts their full amount due as well. Together with the agreement's Rights Upon Future Offers
("RUFO") clause, this created a deadlock in which the 93% of renegotiated bondholders could
not be paid without paying the 7% holdouts, but any payment to the holdouts would potentially
(according to Argentina) trigger the 93% being due repayment at full value too; a sum of around
$100 billion which Argentina could not afford.[6] The courts ruled that as Argentina had itself
drafted the agreement, and chosen the terms it wished to propose, it could not now claim the
terms were unreasonable or unfair, and that this could not be worked around by asserting sovereign
status since the injunction did not affect sovereign assets, but simply ruled that Argentina
must not give preferential treatment of any group of bondholders over any other group when
making repayments.
…NML Capital Limited, a Cayman Islands-based offshore unit of Paul Singer's Elliott Management
Corporation, purchased many holdings in 2008, paying an estimated USD49 million for one series
of bonds whose face value was over USD220 million;[22] with the subsequent boom in Argentine
bond values, this face value grew to USD832 million by 2014.[26] They in turn established the
American Task Force Argentina lobbying group against Argentine bond restructuring efforts,[19]
and sued to enjoin Argentina's ongoing payments to the bondholders who had participated in
the earlier restructurings.[2]
####
Nothing can stop red blooded capitalists! I suspect that death is but a minor inconvenience.
And this is what awaits Ukraine. Welcome to Capitalism Kiev, please read the small font.
Oh, you don't read? Wonderful! We shall have a good time doing business together! How much for
Dnepropetrovsk?
Warren, September 26, 2015 at 2:24 pm
These hold-out creditors aren't called fondo buitre for nothing!!!!!
"... the inept idiots in Kiev borrowed from whomever they wanted, including a
group that helped push Argentina into near bankruptcy. ..."
"... "If Aurelius also refuses to take part, the bonds it holds will remain in default, potentially
allowing the hedge fund to chase Ukraine in courts in London and elsewhere. "That bond will remain
out there like some of the Argentine debt. Ukraine will remain in default," Nomura strategist Tim
Ash said, although he noted that Ukraine had fewer assets than Argentina for hedge funds to seize."
..."
"... the judges in the US ruled in favor of the hedge fund over Argentina, so there's clear
precedent ..."
Time for Financial News. As a result of the Gas/Oil Wars, Russia pulled ahead, because Putin used
the money intended for recapitalization of the gas/oil industry, to recapitalize the gas/oil industry.
Some in the West are shocked at that, firmly believing that he was supposed to steal the money. Ah
yes, the power of believing in your own propaganda.
"If Aurelius also refuses to take part, the bonds it holds will remain in default, potentially
allowing the hedge fund to chase Ukraine in courts in London and elsewhere. "That bond will remain
out there like some of the Argentine debt. Ukraine will remain in default," Nomura strategist Tim
Ash said, although he noted that Ukraine had fewer assets than Argentina for hedge funds to seize."
Oh yeah, the judges in the US ruled in favor of the hedge fund over Argentina, so there's clear
precedent. Whoopsie. The reason this looks really bad, is that there are no good solutions out of
this. If Ukraine defaults, it'll be stuck permanently on the teat of the US/EU, as I predicted in
June: https://ucgsblog.wordpress.com/2014/06/09/the-box-not-seen/
If the judges flip flop, Argentina will have a clear cut case against the hedge funds, pushing
Obama into a battle with the hedge funds, when they have the Republicans on their side. If Obama
pays this hedge fund, Franklin-Templeton will demand the same exact treatment, adding to Obama's
sentiment as the Debt King of the United States. Not to mention that Congress wouldn't authorize
that big a sum. There are no good options of out this, for either Poroshenko or Obama. To quote Gordon:
"da, cheburashke ne vezet"
With roughly 78 million baby boomers at or near retirement and average life expectancies
climbing, many independent-minded seniors are resisting the pressure to move to often costly
retirement communities or assisted living facilities and are instead making plans to stay at
home.
"... And in turn, Remove the United States as a Superpower in the Middle East ..."
"... The bigger story however has not been the fighting but the subterfuge which was ignored by
the Western mainstream media with regards to an economic war against Russia and Syria has been quite
successful thus far in the guise of sanctions and destroying the price of crude oil( via CNBC ..."
"... This indiscreet economic and political war on Russia might have been perceived as a clever
method to keep the bear trapped inside the Ukrainian box, contained so as to prevent any further impact
on Western economies and enough to help the Wests Middle East petro partners. ..."
"... The idea is a not so subtle message to the United States and Saudi Arabia; if you continue
to support ISIS and the various rebel forces in Syria and Iraq, a new united front will push them back
into your lap for your nation to deal with it. ..."
"... Without any supplies crossing from Turkey or Saudi Arabia, those forces will attempt to migrate
into the Kurdish controlled portions of Iraq and Turkey where they will eventually be dispersed or destroyed.
..."
"... Saudi Arabia is ill prepared to fight a two front war with Yemen on it south and ISIS/Al Qaeda
to its north thus there is a high probability that terrorist units will have little trouble penetrating
deep into Kuwait and the Saudi kingdom. Russia and Iran will view this as justifiable payback for the
Sunni militias that the kingdoms sponsored and as such, destabilize the monarchies to the point where
oil prices will be severely impacted in 2016; eventually driving the price of Brent Crude back over
$100 per bbl. As China has already locked in their prices via long term supply contracts with Iran and
Russia the opportunity for their forces to act in support of such an offensive in a peace keeping role
is viable, usurping the U.S. hegemony in the region. ..."
"... The idea by Europe, the United States, and Arab kingdoms that a pipeline was a viable plan
using mercenaries funded and supplied in the name of Syrian liberation was a myth from the beginning.
Now the incompetency of their strategy may soon backfire and impact their economies far more severely
than Russias, leaving a greater vacuum of power on the world stage; a void which will be filled by the
new Sino-Russian alliance to purge American influence from the Middle East after twenty years of relative
peace. ..."
And in turn, Remove the United States as a Superpower in the Middle East
On post super blood moon Monday,
Vladimir Putin will be meeting with President Obama to discuss the ISIS crisis in the Middle
East. There are many within the U.S. media who are promoting this meeting as some strange idea that
the Russians are about to ask the Americans for help against ISIS. While there might be a small gnat's
hair bit of truth to this, in reality, Putin is about to dictate terms and the United States is ill
prepared to deal with the consequences.
The bigger story however has not been the fighting but the subterfuge which was ignored by
the Western mainstream media with regards to an economic war against Russia and Syria has been quite
successful thus far in the guise of sanctions and destroying the price of crude oil( via
CNBC as of Friday, 9/25
):
This indiscreet economic and political war on Russia might have been perceived as a clever
method to keep the bear trapped inside the Ukrainian box, contained so as to prevent any further
impact on Western economies and enough to help the West's Middle East petro partners.
... ... ...
The Middle East is aflame right now and the economic situation along with terrorist Islamist ideologues
have exported their problems into Europe with a massive migration of millions of refugees from Syria,
Jordan, Libya, and Iraq. Mixed within these people are numerous terrorist operatives as was promised
by ISIS and Al Qaeda years ago but ignored by the naive European Union. The future problems this
will create are another story but the question has been promoted by some in the United States asking
why the Arab nations of the Arabian Peninsula have not taken any of the refugees. That answer is
obvious; their economies and domestic political situations are so tentative and fragile that an influx
of millions of new residents would probably tip nations like Kuwait and Saudi Arabia closer to full
blown civil war within their own borders.
... ... ...
The idea is a not so subtle message to the United States and Saudi Arabia; if you continue
to support ISIS and the various rebel forces in Syria and Iraq, a new united front will push them
back into your lap for your nation to deal with it. By later on this year and early next year
their should be sufficient forces on the ground in Syria and Iraq to push the ISIS militants into
a meat grinder, eventually cutting them off from their northern forces somewhere in north central
Iraq. Without any supplies crossing from Turkey or Saudi Arabia, those forces will attempt to
migrate into the Kurdish controlled portions of Iraq and Turkey where they will eventually be dispersed
or destroyed.
Meanwhile in the southern part of Iraq, ISIS will be left unchecked for a short duration and eventually
pushed into Saudi Arabia and the GCC states, to let the sponsors of this terrorist army deal with
the problems they funded and created. The brilliance of this strategy by the new alliance of Egypt,
Russia, Iran, Iraq, and Syria (which may soon include Jordan) is obvious; the return of the malcontents
who will feel betrayed by the House of Saud and other various sheikdoms of the region will create
domestic instability and as a result the destruction wrought on Iraq's oil infrastructure will now
become a GCC problem.
Saudi Arabia is ill prepared to fight a two front war with Yemen on it south and ISIS/Al Qaeda
to its north thus there is a high probability that terrorist units will have little trouble penetrating
deep into Kuwait and the Saudi kingdom. Russia and Iran will view this as justifiable payback for
the Sunni militias that the kingdoms sponsored and as such, destabilize the monarchies to the point
where oil prices will be severely impacted in 2016; eventually driving the price of Brent Crude back
over $100 per bbl. As China has already locked in their prices via long term supply contracts with
Iran and Russia the opportunity for their forces to act in support of such an offensive in a "peace
keeping" role is viable, usurping the U.S. hegemony in the region.
The idea by Europe, the United States, and Arab kingdoms that a pipeline was a viable plan
using mercenaries funded and supplied in the name of Syrian liberation was a myth from the beginning.
Now the incompetency of their strategy may soon backfire and impact their economies far more severely
than Russia's, leaving a greater vacuum of power on the world stage; a void which will be filled
by the new Sino-Russian alliance to purge American influence from the Middle East after twenty years
of relative peace.
The correction in August brought the market down ten percent," Shiller says. "But it's halfway
back up. It's still looking pretty frothy."
Shiller adds that his valuation confidence index, known as the CAPE ratio, is far above the
historical norm of 17. The ratio, which compares current stock prices to earnings over a ten-year
period, currently measures 24.5, near the peak it reached before the financial crisis in 2007.
"On top of that, I have survey data showing that [a high percentage of] people think the market
is overpriced," he says. "This this creates a little bit of fear that there could be a
correction. When we saw the correction in August of this year, there was some anxiety thrown into
people's hearts."
"... There is no and never has been "economics". Only political economy. That means that
neoliberal "Flat Earth Theories" will be enforced, by force if necessary. ..."
"... Blanchard is a pro system guy. A maintainer not a disrupter. When he lauds the thousand
schools cacophony, it's simply to spread caution about government macro engineering ..."
...IMF Survey: In pushing the envelope, you also hosted three major Rethinking Macroeconomics
conferences. What were the key insights and what are the key concerns on the macroeconomic front?
Blanchard:
Let me start with the obvious answer: That mainstream macroeconomics had
taken the financial system for granted. The typical macro treatment of finance was a set of arbitrage
equations, under the assumption that we did not need to look at who was doing what on Wall Street.
That turned out to be badly wrong.
But let me give you a few less obvious answers:
The financial crisis raises a potentially existential crisis for macroeconomics. Practical
macro is based on the assumption that there are fairly stable aggregate relations, so we do not
need to keep track of each individual, firm, or financial institution-that we do not need to understand
the details of the micro plumbing. We have learned that the plumbing, especially the financial
plumbing, matters: the same aggregates can hide serious macro problems. How do we do macro then?
As a result of the crisis, a hundred intellectual flowers are blooming. Some are very old flowers:
Hyman Minsky's financial instability hypothesis. Kaldorian models of growth and inequality. Some
propositions that would have been considered anathema in the past are being proposed by "serious"
economists: For example, monetary financing of the fiscal deficit. Some fundamental assumptions
are being challenged, for example the clean separation between cycles and trends: Hysteresis is
making a comeback. Some of the econometric tools, based on a vision of the world as being stationary
around a trend, are being challenged. This is all for the best.
Finally, there is a clear swing of the pendulum away from markets towards government intervention,
be it macro prudential tools, capital controls, etc. Most macroeconomists are now solidly in a
second best world. But this shift is happening with a twist-that is, with much skepticism about
the efficiency of government intervention. ...
pgl said...
"That mainstream macroeconomics had taken the financial system for granted. The typical macro
treatment of finance was a set of arbitrage equations, under the assumption that we did not need
to look at who was doing what on Wall Street. That turned out to be badly wrong."
Ah yes - the Efficient Markets Hypothesis (EMH). Nice academic theory but Wall Street exists
because they are deviations from EMH. And the scale of operations there - even the slightest deviation
can generate huge profits for them. And when the rest of us are not careful - huge costs to the
rest of the world.
It is not that these deviations are not known and how to address the downsides of them are
that complicated. What is complicated is making sure Congress and not and paid for by the Wall
Street crowd. Dodd-Frank was a nice start. It is a same that our expert on everything - Rusty
- has joined in the chorus to get rid of Dodd-Frank.
RC AKA Darryl, Ron said in reply to djb...
"now its getting spooky"
[Welcome to my world. I have always been ahead of trend, but usually
by several decades rather than just a few hours :<)
I would venture that you don't know the half of it yet. Let me elucidate.]
"...Olivier Blanchard will step down as Economic Counsellor and Director of the IMF's Research
Department at the end of September.
He will join the Peterson Institute for International Economics in October as the first C.
Fred Bergsten senior fellow, a post named for the founder of the influential 35-year-old, Washington-based
think tank..."
[Now tell me how that you can imagine anyone to be more mainstream status quo establishment
than that in the general spectrum of academic research and study economics? The plot thickens.
Like I said earlier today, we have been solidly in a Second Best world practically since FDR died
from the perspective of economics as a socio-political discipline exercised for the common good
in any manner discernible by the wage class.
The social expression of our anxiety and grief post-2008 is being played out in compartmentalized
parallel tracts organized by socio-economic class. We are experiencing denial, anger, bargaining,
depression and acceptance all at once now. Since the crisis was caused by the conservative agenda
of financial innovation and deregulation then they are expressing most of the denial. People that
lost their jobs and homes are expressing much of the anger, but a threatened white male population
deeply invested in the emotional capital of white supremacy and chauvinism is even louder in their
anger (and they are having a Tea Party to get to know each other and celebrate being white men).
Elites are doing the bargaining because they really don't want to lose establishment control to
populists. Folk that still don't have a job or a home are expressing the depression. Finally most
people that do have a home and a job that do not fall into any of the other groups are expressing
the acceptance.
Me? I recently got laid off, but was lucky enough having just turned 66 that with six years
service credit taken from my severance benefits added to my pension plus what little I had in
457 and 401 plans then I could retire and still pay my bills including four more years of mortgage
and HELOC payments. So, I am a bit cash strapped presently but have time to work on some projects.
I have been waiting to get the establishment on the ropes for nearly fifty years. So, I am not
healing from grief. I have been released and am looking for an opportunity to get the establishment
on its intellectual ropes.
I thought it was getting spooky when I first began to learn about mainstream economic thought
regarding capital gains windfalls, corporate mergers, and financial "innovation" in the mid-sixties.
For the first time in my life I am beginning to see a tiny glimmer of it starting to get real.]
JohnH said...
"Mainstream macroeconomics had taken the financial system for granted."
It's actually worse than that. Mainstream macroeconomics willfully ignores the impact of
rising asset prices on inequality, democracy, and power dynamics between the 1% and the rest.
Cui bono from their willful negligence? The powerful and wealthy, of course!
Amateur said...
I'm a fan of Olivier.
The leaders of the IMF were in a unique position to see new insights into our macro problems
because they are largely caused by the globalization of capital flows and labor.
I think he's getting there, but I suspect the old frameworks are still going to be an
impediment to mainstream economic thinking.
I'm glad to hear there are more people that we might be aware of that are rethinking macro in
this context.
Dan Kervick said...
"The plumbing matters."
Yes, that's it. I hope that is the main lesson the economics profession takes away from the
current crisis. It would be nice if we get a new generation of practitioners who think a bit
more like engineers and technicians, and less like mathematical physicists.
Paul Mathis
"Some propositions that would have been considered anathema in the past are being
proposed by "serious" economists: For example, monetary financing of the fiscal deficit."
Wasn't Keynes a "serious" economist? Monetary financing of the fiscal deficit was his idea
80 years ago. Today's economists are just getting the message.
likbez said...
There is no and never has been "economics". Only political economy. That means that
neoliberal "Flat Earth Theories" will be enforced, by force if necessary.
greg said...
Pathetic half measures. No need to question any of the fundamental assumptions underlying
the whole sorry mess, eh? Like what is money, really? Or: How does the production of the
various sectors actually combine to create value in the whole economy?
Matt Young said...
Macroeconomists are not up to speed? How long has this been going on? Ever since the
Kanosian dandy from England. Sick, sick and fraudulent science.
RC AKA Darryl, Ron said in reply to djb...
That is a good start. You just need to get the context switch straight and then you may
find yourself in an epiphany (metaphorically speaking). Likbez up thread touches another live
wire, but lacks faith in democratic alternatives. Shocking!
Larry said...
No mention of the end of the ZLB? Of NGDP targeting? Of the missing trade-off between
inflation and unemployment? Of the abject failures of governments/CBs to respond to the crisis
and restore normal times? Of new levers such as reverse repos, QE and IoER? Maybe the excerpt
was ill-chosen...
Davis X. Machina said in reply to Larry...
"Of the abject failures of governments/CBs to respond to the crisis and restore
normal times?"
"Normal" for whom, and at whose expense?
Squint just right, and this *is* normal.
Paine said...
Blanchard is a pro system guy. A maintainer not a disrupter. When he lauds the thousand
schools cacophony, it's simply to spread caution about government macro engineering
We've recently learned doing the right sorts of interventions but too cautiously.
Works more like " Let the markets correct themselves "
We need to isolate those who try by various means to minimize state intervention
Investors piled into cash-equivalent, money-market funds over the last week, making the asset
class more popular than bond and equity funds for the first time in 25 years, new data shows.
Some $17 billion was pumped into cash funds in the week to Wednesday, while $3.3 billion where
pulled out of stocks through ETFs and mutual funds, according to research from Bank of America
Merrill Lynch and EPFR Global published Friday.
Meanwhile bond funds saw just $400 million in inflows over the same period, meaning cash is
outperforming both asset classes this year for the first time since 1990, the data reveals.
Money market funds invest in very short-term, liquid debt such as U.S. Treasurys and offer
investors low volatility, meaning they are often thought of as a cash-equivalent.
Corporate bonds saw their twelfth straight week of outflows, with safe-haven Treasury bond funds
picking up some of the slack.
Global chief investment officer at UBS Wealth management, Mark Haefele has cut his U.S.
high-yield corporate bond position this month, having been overweight the asset class since the
end of 2011.
... ... ...
As well as sticking to cash, investors pulled $7.4 billion from the State Street's SPDR S&P
500 ETF (NYSE Arca: SPY), the world's largest ETF.
The problem with Paul Craig Roberts thinking is that China and Russia are also neoliberal
economies which exist within global financial system, controlled from Washington. But this not
a typical ZeroHedge "dooms day porn". He manages to make some relevant observations about the
current situation, without he definitely underestimates the resilience of the American financial
empire.
"... Submitted by Paul Craig Roberts, ..."
"... China is America's largest creditor after the Federal
Reserve. If the Chinese government were so inclined, China could cause
Washington many serious economic, financial, and military problems. Yet
China pursues peace while Washington issues threats. ..."
"... he Wolfowitz Doctrine states that
Washington's principal objective is to prevent the rise of countries that
could be sufficiently powerful to resist American hegemony. Thus,
Washington's attack on Russia via Ukraine and Washington's
re-militarization of Japan as an instrument against China, despite the
strong opposition of 80 percent of the Japanese population. ..."
"... neoliberal economics is
blind to reality and serves to justify the destruction of the economic
prospects of the Western World. It remains to be seen if Russia and China
can develop a different economics or whether these rising superpowers
will fall victim to the "junk economics" that has destroyed the West.
..."
"... With so many Chinese and Russian economists educated in the US
[neoliberal] tradition, the prospects of Russia and China might not be
any better than ours. ..."
Washington's IQ
follows the Fed's interest rate - it is negative. Washington is
a black hole into which all sanity is sucked out of government
deliberations.
Washington's failures are everywhere visible. We can
see the failures in Washington's wars and in Washington's approach to
China and Russia.
The visit of Chinese President Xi Jinping, was scheduled for the
week-end following the Pope's visit to Washington. Was this Washington's
way of demoting China's status by having its president play second fiddle
to the Pope? The President of China is here for week-end news coverage?
Why didn't Obama just tell him to go to hell?
Washington's cyber incompetence and inability to maintain cyber
security is being blamed on China. The day before Xi Jinping's arrival in
Washington, the White House press secretary warmed up President Jinping's
visit by announcing that Obama might threaten China with financial
sanctions.
And not to miss an opportunity to threaten or insult the President of
China, the US Secretary of Commerce fired off a warning that the Obama
regime was too unhappy with China's business practices for the Chinese
president to expect a smooth meeting in Washington.
In contrast, when Obama visited China, the Chinese government treated
him with politeness and respect.
China is America's largest creditor after the Federal
Reserve. If the Chinese government were so inclined, China could cause
Washington many serious economic, financial, and military problems. Yet
China pursues peace while Washington issues threats.
Like China, Russia, too, has a foreign policy independent of
Washington's, and it is the independence of their foreign policies that
puts China and Russia on the outs with Washington.
Washington considers countries with independent foreign
policies to be threats. Libya, Iraq, and Syria had independent
foreign policies. Washington has destroyed two of the three and is
working on the third. Iran, Russia, and China have independent foreign
policies. Consequently, Washington sees these countries as threats and
portrays them to the American people as such.
Russia's President Vladimir Putin will meet with Obama next
week at the UN meeting in New York. It is a meeting that seems destined
to go nowhere. Putin wants to offer Obama Russian help in
defeating ISIS, but Obama wants to use ISIS to overthrow Syrian President
Assad, install a puppet government, and throw Russia out of its only
Mediterranean seaport at Tartus, Syria. Obama wants to press Putin to
hand over Russian Crimea and the break-away republics that refuse to
submit to the Russophobic government that Washington has installed in
Kiev.
Despite Washington's hostility, Xi Jinping and Putin continue
to try to work with Washington even at the risk of being humiliated in
the eyes of their peoples. How many slights, accusations, and
names (such as "the new Hitler") can Putin and Xi Jinping accept before
losing face at home? How can they lead if their peoples feel the shame
inflicted on their leaders by Washington?
Xi Jinping and Putin are clearly men of peace. Are they
deluded or are they making every effort to save the world from the final
war?
One has to assume that Putin and Xi Jinping are aware of the
Wolfowitz Doctrine, the basis of US foreign and military policies, but
perhaps they cannot believe that anything so audaciously absurd can be
real. In brief, the Wolfowitz Doctrine states that
Washington's principal objective is to prevent the rise of countries that
could be sufficiently powerful to resist American hegemony. Thus,
Washington's attack on Russia via Ukraine and Washington's
re-militarization of Japan as an instrument against China, despite the
strong opposition of 80 percent of the Japanese population.
"Democracy?" "Washington's hegemony don't need no stinkin' democracy,"
declares Washington's puppet ruler of Japan as he, as Washington's
faithful servant, over-rides the vast majority of the Japanese
population.
Meanwhile, the real basis of US power-its economy-continues to
crumble. Middle class jobs have disappeared by the millions. US
infrastructure is crumbling. Young American women, overwhelmed with
student debts, rent, and transportation costs, and nothing but lowly-paid
part-time jobs, post on Internet sites their pleas to be made mistresses
of men with sufficient means to help them with their bills. This
is the image of a Third World country.
In 2004 I predicted in a nationally televised conference in
Washington, DC, that the US would be a Third World country in 20 years.
Noam Chomsky says we are already there now in 2015. Here is a recent
quote from Chomsky:
"Look around the country. This country is falling apart.
Even when you come back from Argentina to the United States
it looks like a third world country, and when you come back from
Europe even more so. The infrastructure is collapsing. Nothing works.
The transportation system doesn't work. The health system is a total
scandal–twice the per capita cost of other countries and not very good
outcomes. Point by point. The schools are declining . . ."
Another indication of a third world country is large inequality in the
distribution of income and wealth.
https://www.cia.gov/library/publications/the-world-factbook/fields/2172....
">According to the CIA itself, the United States now has one of the worst
distributions of income of all countries in the world. The
distribution of income in the US is worse than in Afghanistan,
Albania, Algeria, Armenia, Australia, Austria, Azerbaijan, Bangladesh,
Belarus, Belgium, Benin, Bosnia/Herzegovina, Burkina Faso, Burundi,
Cambodia, Cameroon, Canada, Cote d'Ivoire, Croatia, Cyprus, Czech
Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Germany,
Ghana, Greece, Guinea, Guyana, Hungary, Iceland, India, Indonesia, Iran,
Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Kenya, South Korea,
Kyrgyzstan, Laos, Latvia, Liberia, Lithuania, Luxembourg, Macedonia,
Malawi, Mali, Malta, Mauritania, Mauritius, Moldova, Mongolia,
Montenegro, Morocco, Nepal, Netherlands, New Zealand, Nicaragua, Niger,
Nigeria, Norway, Pakistan, Philippines, Poland, Portugal, Romania,
Russia, Senegal, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland,
Taiwan, Tajikistan, Tanzania, Timor-Leste, Tunisia, Turkey, Turkmenistan,
Uganda, Ukraine, UK, Uzbekistan, Venezuela, Vietnam, and Yemen.
The concentration of US income and wealth in the hands of the
very rich is a new development in my lifetime. I ascribe it to
two things.
One is the offshoring of American jobs. Offshoring
moved high productivity, high-value-added American jobs to countries
where the excess supply of labor results in wages well below labor's
contribution to the value of output. The lower labor costs abroad
transform what had been higher American wages and salaries and,
thereby, US household incomes, into corporate profits, bonuses for
corporate executives, and capital gains for shareholders, and in the
dismantling of the ladders of upward mobility that had made the US an
"opportunity society."
The other cause of the extreme inequality that now prevails in the
US is what Michael Hudson calls the financialization of the
economy that permits banks to redirect income away from
driving the economy to the payment of interest in service of debt
issued by the banks.
Both of these developments maximize income and wealth for the
One Percent at the expense of the population and economy.
As Michael Hudson and I have discovered, neoliberal economics is
blind to reality and serves to justify the destruction of the economic
prospects of the Western World. It remains to be seen if Russia and China
can develop a different economics or whether these rising superpowers
will fall victim to the "junk economics" that has destroyed the West.
With so many Chinese and Russian economists educated in the US
[neoliberal] tradition, the prospects of Russia and China might not be
any better than ours.
The entire world could go down the tubes together.
Oh regional Indian
PCR is always good at rehashing crappy kabuki story-lines with a dose of "I was once a DC
insider" gravitas...
And while there will be a lot of going down together (seems un-avoidable at this point),
questions is who will rise back up first?
Hint: not nations considered "westerley". so to speak...
UndroppedClanger
'Leader' implies people at the front with some direction. Perhaps a different word would be
more appropriate for this global circlejerk cadre!
ToSoft4Truth
The inverse of 'Leader' is 'follower'
Anytime you hear a person say, "There's no leadership"…. They are telegraphing to you, "I
need someone to follow."
kaiserhoff
So Chomsky would rather live in Argentina?
Who's stopping him?
ebear
"I was once a DC insider"
You don't understand. I coulda had class. I coulda been a contender.
philipat
"You don't understand. I coulda had class. I coulda been a contender."
I do think that there is large dose of spite in PCR's writings, probably as a result of "The
Establishment's" refusal to elect him to the CFR. However, better late than never? The one's
that do get religion always do so after the event, which is, of course, part of the problem
also....
Bach's_bitch
PCR is always good at rehashing crappy kabuki story-lines with a dose of "I was once
a DC insider" gravitas...
"Kabuki story-lines"? Did you make that up yourself or something?
questions is who will rise back up first?
Whoever is least affected, meaning none of the big economies.
Oh regional Indian
I don't think you appreciate the subtle push of an old adage: The bigger they are, the
harder they fall. You can keep nursing dreams of manifest destiny as they turn into mani-festering
realities....
Jeffersonian Liberal
Any nations or ethnicities that have benefitted from parasiting on this failed, corrupt
monetary system will also fall together.
The BRICS are sinking like stones. They tried to parasite off what they saw was an unending
Western economic boom, unrealizing, or perhaps turning a blind eye to the fact that it has all
been a bubble since the central banks took control of the currency.
TheEndIsNear
I doubt that American Generals could be bribed as easily as our government politicians.
Thick Willy
Actually, they are probably much cheaper to bribe. Dimon had to give Eric Holder a
$77,000,000 per year salary to keep bankers out of prison. The generals are easily bribed with
a mid 6 figure salary at some defense contractor. Some for even less.
algol_dog
I Strongly encourage people to read Mish's short blog and then check out the accompanying
video. It will enlighten much more about China than this guys rant.
Kiev professes itself "satisfied" with
the gas price negotiated in the deal, in which the fact that Ukraine's gas supply will be
entirely paid for by Europe is spun as a victory for Naftogaz and Demchysin personally, after
he wrestled Russia into submission and made them drop their prices.
"As customers, we're interested
in a lower price". Dear God, you could laugh until you died. As customers who have to beg our
boss for money because we're broke, we're interested in at least the appearance of being in control
of something. Anything.
Ha, ha, ha!! If you were thinking "Nord
Stream II in Ukrainian Perspective" could be summarized as "Wahhhh!!! I Went Crazy And Now
Russia Won't Talk To Me!" crackpottery, you would be right.
Standout points are (1) Raising transit fees is normal procedure when transit volumes drop,
and (2) Ukraine's transit system will register a net loss if transit drops below 40 BCm a year.
The volume in 2015, while Ukraine is still being used as a transit country, is expected to top
out at 51 BCm.
I would say the writing is on the wall there, and the message does not…ummm…look positive for
Ukraine. You pissed in the pickles one time too often. Notably, however, although some of the
reduced transit volume is due to Europe taking less gas, a stronger limiting factor is more gas
being sent through Nord Stream. You can see why Europe was desperate to stop South Stream, and
why it is now trying out a tough-guy approach as if it can force Russia to continue using Ukraine
as a transit country, to a background of despairing wails from Ukraine.
"... A political society endures when it seeks, as a vocation, to satisfy common needs by stimulating the growth of all its members, especially those in situations of greater vulnerability or risk. ..."
"... All of us are quite aware of, and deeply worried by, the disturbing social and political situation of the world today. Our world is increasingly a place of violent conflict, hatred and brutal atrocities, committed even in the name of God and of religion. ..."
"... We are asked to summon the courage and the intelligence to resolve today's many geopolitical and economic crises. Even in the developed world, the effects of unjust structures and actions are all too apparent. ..."
"... If politics must truly be at the service of the human person, it follows that it cannot be a slave to the economy and finance. ..."
"... At the risk of oversimplifying, we might say that we live in a culture which pressures young people not to start a family, because they lack possibilities for the future. Yet this same culture presents others with so many options that they too are dissuaded from starting a family ..."
Each son or daughter of a given country has a mission, a personal and social responsibility. Your
own responsibility as members of Congress is to enable this country, by your legislative activity,
to grow as a nation. You are the face of its people, their representatives. You are called to defend
and preserve the dignity of your fellow citizens in the tireless and demanding pursuit of the common
good, for this is the chief aim of all politics. A political society endures when it seeks, as
a vocation, to satisfy common needs by stimulating the growth of all its members, especially those
in situations of greater vulnerability or risk. Legislative activity is always based on care
for the people. To this you have been invited, called and convened by those who elected you.
... ... ...
All of us are quite aware of, and deeply worried by, the disturbing social and political situation
of the world today. Our world is increasingly a place of violent conflict, hatred and brutal atrocities,
committed even in the name of God and of religion. We know that no religion is immune from forms
of individual delusion or ideological extremism. This means that we must be especially attentive
to every type of fundamentalism, whether religious or of any other kind. A delicate balance is required
to combat violence perpetrated in the name of a religion, an ideology or an economic system, while
also safeguarding religious freedom, intellectual freedom and individual freedoms. But there is another
temptation which we must especially guard against: the simplistic reductionism which sees only good
or evil; or, if you will, the righteous and sinners. The contemporary world, with its open wounds
which affect so many of our brothers and sisters, demands that we confront every form of polarization
which would divide it into these two camps. We know that in the attempt to be freed of the enemy
without, we can be tempted to feed the enemy within. To imitate the hatred and violence of tyrants
and murderers is the best way to take their place. That is something which you, as a people, reject.
...We are asked to summon the courage and the intelligence to resolve today's many geopolitical
and economic crises. Even in the developed world, the effects of unjust structures and actions are
all too apparent. Our efforts must aim at restoring hope, righting wrongs, maintaining commitments
and thus promoting the well-being of individuals and of peoples. We must move forward together, as
one, in a renewed spirit of fraternity and solidarity, cooperating generously for the common good.
The challenges facing us today call for a renewal of that spirit of cooperation, which has accomplished
so much good throughout the history of the United States. The complexity, the gravity and the urgency
of these challenges demand that we pool our resources and talents, and resolve to support one another,
with respect for our differences and our convictions of conscience.
In this land, the various religious denominations have greatly contributed to building and strengthening
society. It is important that today, as in the past, the voice of faith continue to be heard, for
it is a voice of fraternity and love, which tries to bring out the best in each person and in each
society. Such cooperation is a powerful resource in the battle to eliminate new global forms of slavery,
born of grave injustices which can be overcome only through new policies and new forms of social
consensus.
...If politics must truly be at the service of the human person, it follows that it cannot
be a slave to the economy and finance. Politics is, instead, an expression of our compelling
need to live as one, in order to build as one the greatest common good: that of a community which
sacrifices particular interests in order to share, in justice and peace, its goods, its interests,
its social life. I do not underestimate the difficulty that this involves, but I encourage you in
this effort.
... ... ...
The fight against poverty and hunger must be fought constantly and on many fronts, especially
in its causes. I know that many Americans today, as in the past, are working to deal with this problem.
It goes without saying that part of this great effort is the creation and distribution of wealth.
The right use of natural resources, the proper application of technology and the harnessing of the
spirit of enterprise are essential elements of an economy which seeks to be modern, inclusive and
sustainable. "Business is a noble vocation, directed to producing wealth and improving the world.
It can be a fruitful source of prosperity for the area in which it operates, especially if it sees
the creation of jobs as an essential part of its service to the common good" (Laudato Si', 129).
This common good also includes the earth, a central theme of the encyclical which I recently wrote
in order to "enter into dialogue with all people about our common home" (ibid., 3). "We need a conversation
which includes everyone, since the environmental challenge we are undergoing, and its human roots,
concern and affect us all" (ibid., 14).
In Laudato Si', I call for a courageous and responsible effort to "redirect our steps" (ibid.,
61), and to avert the most serious effects of the environmental deterioration caused by human activity.
I am convinced that we can make a difference and I have no doubt that the United States – and this
Congress – have an important role to play. Now is the time for courageous actions and strategies,
aimed at implementing a "culture of care" (ibid., 231) and "an integrated approach to combating poverty,
restoring dignity to the excluded, and at the same time protecting nature" (ibid., 139). "We have
the freedom needed to limit and direct technology" (ibid., 112); "to devise intelligent ways of .
. . developing and limiting our power" (ibid., 78); and to put technology "at the service of another
type of progress, one which is healthier, more human, more social, more integral" (ibid., 112). In
this regard, I am confident that America's outstanding academic and research institutions can make
a vital contribution in the years ahead.
... ... ...
...At the risk of oversimplifying, we might say that we live in a culture which pressures
young people not to start a family, because they lack possibilities for the future. Yet this same
culture presents others with so many options that they too are dissuaded from starting a family.
"... That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection! ..."
"... The point is we should be trying
to make our regulation more intelligent (making it encourage not discourage innovation - cheaper
and easier to police - less subject to regulatory capture etc.). ..."
Item: The former president of a peanut company has been
sentenced to 28 years in prison for knowingly shipping tainted products that later killed
nine people and sickened 700.
Item: Rights to a drug used to treat parasitic infections were acquired by
Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing
drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750.
...
There are, it turns out, people in the corporate world who will do whatever it takes, including
fraud that kills people, in order to make a buck. And we need effective regulation to police that
kind of bad behavior... But we knew that, right?
Well, we used to know it... But ... an important part of America's political class has declared
war on even the most obviously necessary regulations. ...
A case in point: This week Jeb Bush, who has an uncanny talent for bad timing, chose to publish
an op-ed article in The Wall Street Journal denouncing the Obama administration for issuing
"a flood of creativity-crushing and job-killing rules." Never mind his
misuse of cherry-picked statistics, or the fact that private-sector employment
has grown much faster under President Obama's "job killing" policies than it did under Mr.
Bush's brother's administration. ...
The thing is, Mr. Bush isn't wrong to suggest that there has been a move back toward more regulation
under Mr. Obama, a move that will probably continue if a Democrat wins next year. After all, Hillary
Clinton released a plan to limit drug prices at the same time Mr. Bush was unleashing his anti-regulation
diatribe.
But the regulatory rebound is taking place for a reason. Maybe we had too much regulation in
the 1970s, but we've now spent 35 years trusting business to do the right thing with minimal oversight
- and it hasn't worked.
So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk
opposition to regulation with the judicious use of regulation where there is good reason to believe
that businesses might act in destructive ways. Will we see this effort continue? Next year's election
will tell.
reason
"Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals,
which specializes not in developing new drugs but in buying existing drugs and jacking up their
prices. In this case, the price went from $13.50 a tablet to $750. ..."
That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection!
reason
"So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk
opposition to regulation with the judicious use of regulation where there is good reason to believe
that businesses might act in destructive ways. Will we see this effort continue? Next year's election
will tell."
Personally, I don't think this is really addressing the key point. You can't actually avoid regulation
(the alternative to public regulation - as pushed by say Milton Friedman - ends up being private
regulation - which is just as subject to regulatory capture). The point is we should be trying
to make our regulation more intelligent (making it encourage not discourage innovation - cheaper
and easier to police - less subject to regulatory capture etc.). The policy discussions about
this a difficult enough with good faith - but bad faith politics makes this impossible. We need
to throw the Gingrich revolution in the dustbin as soon as possible.
"... The $3.5 trillion of QE, six years of 0% interest rates for Wall Street (why are credit card
interest rates still 13%?), and $8 trillion of deficit spending by the Federal government have provided
the outward appearance of economic recovery, as the standard of living for most Americans has declined
significantly. ..."
The housing market peaked in 2005 and proceeded to crash over the next five years, with existing
home sales falling 50%, new home sales falling 75%, and national home prices falling 30%. A funny
thing happened after the peak. Wall Street banks accelerated the issuance of subprime mortgages to
hyper-speed. The executives of these banks knew housing had peaked, but insatiable greed consumed
them as they purposely doled out billions in no-doc liar loans as a necessary ingredient in their
CDOs of mass destruction.
The millions in upfront fees, along with their lack of conscience in
bribing Moody's and S&P to get AAA ratings on toxic waste, while selling the derivatives to clients
and shorting them at the same time, in order to enrich executives with multi-million dollar compensation
packages, overrode any thoughts of risk management, consequences, or the impact on homeowners,
investors, or taxpayers. The housing boom began as a natural reaction to the Federal Reserve suppressing
interest rates to, at the time, ridiculously low levels from 2001 through 2004 (child's play compared
to the last six years).
... ... ...
Greenspan created the atmosphere for the greatest mal-investment in world history. As he
raised rates from 2004 through 2006, the titans of finance on Wall Street should have scaled back
their risk taking and prepared for the inevitable bursting of the bubble. Instead, they were blinded
by unadulterated greed, as the legitimate home buyer pool dried up, and they purposely peddled "exotic"
mortgages to dupes who weren't capable of making the first payment. This is what happens at the end
of Fed induced bubbles. Irrationality, insanity, recklessness, delusion, and willful disregard for
reason, common sense, historical data and truth lead to tremendous pain, suffering, and financial
losses.
Once the Wall Street machine runs out of people with the financial means to purchase a home
or buy a new vehicle, they turn their sights on peddling their debt products to financially illiterate
dupes. There is a good reason people with credit scores below 620 are classified as sub-prime.
Scores this low result from missing multiple payments on credit cards and loans, having multiple
collection items or judgments and potentially having a very recent bankruptcy or foreclosure. They
have low paying jobs or no job at all. They do not have the financial means to repay a large loan.
Giving them a loan to purchase a $250,000 home or a $30,000 automobile will not improve their lives.
They are being set up for a fall by the crooked bankers making these loans. Heads they win, tails
the dupe gets kicked out of that nice house onto the street and has those nice wheels repossessed
in the middle of the night.
The subprime debacle that blew up the world in 2008 was created by the Federal Reserve, working
on behalf of their Wall Street owners. When interest rates are set by central planners well below
levels which would be set by the free market, based on risk and return, it creates bubbles, mal-investment,
and ultimately financial system disaster. Did the Fed, Wall Street, politicians, and people learn
their lesson? No. Because we bailed them out with our tax dollars and have silently stood by
while they have issued $10 trillion of additional debt to solve a debt problem. The deformation of
our financial system accelerates by the day.
The $3.5 trillion of QE, six years of 0% interest rates for Wall Street (why are credit card
interest rates still 13%?), and $8 trillion of deficit spending by the Federal government have provided
the outward appearance of economic recovery, as the standard of living for most Americans has declined
significantly.With real median household income still 6.5% BELOW 2007 levels, 7.3% BELOW
2000 levels, and about equal to 1989 levels, the only way the ruling class could manufacture a fake
recovery is by ramping up the printing presses and reigniting a housing bubble and an auto bubble.
They even threw in a student loan bubble for good measure.
... ... ...
The entire engineered "housing recovery" has had a suspicious smell to it all along. The true
bottom occurred in 2009 with an annual rate of 4 million existing home sales. An artificial bottom
of 3.5 million occurred in 2010 after the expiration of the Keynesian first time home buyer credit
that lured more dupes into the market. The current rate of 5.31 million is at 2007 crash levels and
on par with 2001 recession levels. With mortgage rates at record low levels for five years, this
is all we got?
What really smells is the number of actual mortgage originations that have supposedly driven this
35% increase in existing home sales. If existing home sales are at 2007 levels, how could mortgage
purchase applications be 55% below 2007 levels? If existing home sales are up 35% from the 2009/2010
lows, how could mortgage purchase applications be flat since 2010?
New home sales are up 80% from the 2010 lows, but before you get as excited as a CNBC bimbo over
the "surging" new home sales, understand that new home sales are still 60% BELOW the 2005 high and
25% below the 1990 through 2000 average. So, in total, there are 1.5 million more annual home sales
today than at the bottom in 2010. But mortgage originations haven't budged. That's quite a conundrum.
As you can also see, the median price for a new home far exceeds the bubble highs of 2005. A critical
thinking individual might wonder how new home sales could be down 60% from 2005, while home prices
are 15% higher than they were in 2005. Don't the laws of supply and demand work anymore? The identical
trend can be seen in the existing homes sales market. The median price for existing home sales of
$228,700 is an all-time high, exceeding the 2005 bubble levels. Again, sales are down 30% since 2005.
I wonder who is responsible for this warped chain of events?
AlaricBalth
This FRED chart I have posted, which corresponds with the effective Fed Funds Rate chart in
the article, will show exactly what a daunting problem the the US and the Federal Reserve is being
forced to deal with. I have overlaid the Labor Force Participation Rate with M2 Velocity of Money,
each beginning in 1960. M2 velocity refers to how fast money passes from one holder to the next.
The labor force participation rate is a measure of the share of Americans at least 16 years old
who are either employed or actively looking for work. If money demand is high, it could be a sign
of a robust economy, with the usual corresponding inflationary pressure.
As you can see, each peaked around 1997-98 and have been in slow decline ever since. Unless
the Fed has a plan to increase the LFPR, people are not going to be spending money they just do
not have.
Demographically, this is not going to happen. Baby boomers will still be retiring at a rate
of 10,000 per day and manufacturing is never coming back to the US until we are a third world
country with a cheap labor force.
This is not an issue that can be fixed by political promises. So no matter which political
party is in control, this will not be repaired with platitudes. This is a structural macro-economic
phenomenon which is caused by demographics and poor long term fiscal planning.
Elizabeth Warren Video, Late Night with Steven Colbert, 23 Sept 2015.
Defends Dodd-Frank and gave stats to prove the value of CFPB formed, like 650,000 complaints
handled, and many changes forced on corporations.
Edit: Looks like CBS didn't release the segment of Elizabeth Warren only, so you have to go
through whole show or just the 2:00 minute segment that only shows her saying she is not running
for President.
Apparently I don't have the computer configured to play it anyway.
FreedomGuy
I do not think Wall Street and your local bankers or mortgage brokers are the bad guys here.
Frankly, they look at the rules and try to make a living in the mortgage business. They are not
angels but neither are they demons and I do not think they purposely write bad business.
I think the Wizard of Evil behind the curtain is first and last the government including a
GSE like the Fed. They set this stuff up. You know you can load up Freddie and Fannie with smelly
stuff and off-load risk. They hold rates near historic lows so people can buy more.
This drives prices and all the flipping crap and related stuff I hate.
I am in the middle of this. Being an avid reader of ZH I have become a proper pessimist. I
did a cash-out refi and am paying off virtually all other loans...or more properly moving them
to the tax deductible home loan. I was going to rent and move north because of work but after
lots of research, breathtaking price increases and a few other cautions I decided to sit it out.
I am going to see what the economic terrain looks like in 6 months or more.
The thing is you have to play the game as it is, today, not as you think it should be.
marts321
Don't hate the player, hate the game.
TeethVillage88s
Check out the growth of Holding companies.
Financial Business; Credit Market Instruments; Liability, Level 2015:Q1: 14,104.57 Billions of Dollars (+ see more) Quarterly, End of Period, Not Seasonally Adjusted, TCMDODFS,
Holding Companies; Credit Market Instruments; Liability, Level 2015:Q1: 1,380.52 Billions of Dollars (+ see more) Quarterly, End of Period, Not Seasonally Adjusted, CBBHCTCMDODFS, https://research.stlouisfed.org/fred2/series/CBBHCTCMDODFS
U.S.-Chartered Depository Institutions; Credit Market Instruments; Liability, Level 2015:Q1: 669.90 Billions of Dollars (+ see more) Quarterly, End of Period, Not Seasonally Adjusted, CBTCMDODFS,
Now, we know that in 2007 the Biggest Wall Street banks wanted access to Deposits in the USA.
So maybe I don't have the date, could have been planned from Lehman Request date to become a Deposit
Bank while an Investment Bank.
So today we have Holding Companies that are allowed to have Deposits while doing commercial
and investment work and proprietary trading... and now are 30% Bigger after all the Bailouts and
transfer of Taxpayer and Retirement Funds to them.
Holding Companies have Doubled Liability since 3QTR 2007
Wow
TeethVillage88s
Too Bad we don't have Honest Brokers in DOJ, FBI, SEC, FINRA, FTC, GAO, CBO, FED, Treasury,
OCC, FSOC, BCFP, CFTC, FDIC, FHFA, SIPC
I'm not sure how you can isolate or focus your condemnation or fault.
- Private & Public Pensions, Retirement Funds, Deposit Insurance, The Fact that our Wall Street
Banks are Borg connecting to AI Technology,... and Complexity is increasing at an Exponential
Rate meaning Risk is Exponential as well
- Big Concern -- pay outs for Pension Benefit Guaranty Corporation (federal Trust Fund), 1999
= $1.23 Billion, 2000 = $1.35 Billion, 2001 =$1.37 Billion. Okay, but today 2010 = $5.59 B, 2011
= $5.89 B, 2012 = $5.86 B, 2013 = $5.89 B. There is a continual need to supplement Pensions. 2010
PBGC's deficit increased 4.5 percent to $23 billion (Liabilities beyond assets)
- Federal direct student loan program 1999 = $52 Billion, INCREASED to 2013 = $675 Billion.
(Risky)
- 2013 Total FDIC Trust Fund in Treasuries = $36.9 Billion + $18 billion in the DIF (Risky)
- 2013 Total National Credit Union Trust in Treasuries = $11.2 Billion
Edit: This applies, $8.16 Trillion in US Deposits
Total Savings Deposits at all Depository Institutions 2015-09-07: 8,164.3 Billions of Dollars (+ see more) Weekly, Ending Monday, Not Seasonally Adjusted, WSAVNS, https://research.stlouisfed.org/fred2/series/WSAVNS
To all hysterical critics of the FED, what do you suggest they do instead? The rich can do
nothing, sit it out, the poor meanwhile will starve and die (and probably riot before they die).
The poor need jobs. Now almost at any cost, because those jobs are few and far in between as
we are competing with China. So they do ZIRP, NIRP whatever, something, anything to at least marginally
force the rich to spend. For, if people do not spend there will be even less jobs…and less tax
revenue collected for the government to run and distribute around… and it all starts going downhill.
The FED is just trying to keep the system at the higher spending point. It does not seem to
work very well, but the next option is a direct confiscation and redistribution of assets (to
keep those poor jobless souls content). Nobody gives a f* about inequality until it becomes a
riot-provoking problem itself. Ugly as it is there is actually logic in what the FED is doing.
Batman11
The globalists rush to take the profits in the good times but run and hide in the bad.
Where is the profit in sorting out the bad times? In the bad times national institutions, Governments and Central Banks, get left to sort out
the mess loading the costs onto national tax payers.
When things go wrong nationalism rises as each nation is left to fend for itself. We should know how it works by now, this isn't the first time.
1920s/2000s - high inequality, high banker pay, low regulation, low taxes for the wealthy,
robber barons (CEOs), reckless bankers, globalisation phase
1929/2008 - Wall Street crash
1930s/2010s - Global recession, currency wars, rising nationalism and extremism
1940s/? - Global war
We are nearly there with the Middle East on fire and the two nuclear super-powers at each other's
throats.
Maybe next time we will know better, third time lucky.
mianne
Cherry picker, I agree with you : " All our government up here has to do is get out of
NATO, disband our version of the CIA, divorce Homeland Security, duty and tax all imports to
the hilt, keep our water, electricity and natural resources to ourselves and manufacture our
own products... Then you can have all the wars you want in the middle east and we will watch
it on television without worrying about whether to be part of the murder brigade or not."
But as for ourselves, as governed by the totalitarian EU whose representatives are non elected
by people, but were chosen by the international finance tycoons ( our elected presidents
deprived of any power by the supranational non elected entity, US- OTAN driven European
Union), we are just powerless slaves .
However we won the referendum ( 52 % ) against the content of the Maastricht-Lisbon
European Constitution, but they do not take it into account, submitting us to the ignominious
treaty . Democracy ?
"... natural
gas production is also declining. The EIA reports that in October, several of the largest shale gas
regions will post their fourth month in a row of production declines. With a loss of around 208 million
cubic feet per day expected in October, the four-month drop off will be the longest streak of losses
in about eight years. ..."
"... While U.S. shale gas remained resilient through several years of low natural gas prices,
the collapse in oil prices are finally putting an end to the boom. ..."
While everyone is watching the oil bust, there is another bust going on - one for natural gas.
Before there was a boom in oil production in the United States, there was the "shale gas revolution."
That is where we all became familiar with terms like "fracking." And the Marcellus, Haynesville,
and Barnett Shales were famous long before the Bakken or Permian.
The surge in natural gas production crashed prices, fueling a huge increase in activity in petrochemicals
and causing a major switch from coal to natural gas in the electric power industry. Aside from a
few brief moments (such as the winter of 2014), natural gas has mostly traded around $4 per million
Btu (MMBtu) or lower since the financial crisis of 2008.
But unlike oil, the boom in shale gas did not stop with plummeting prices. U.S. natural gas production
continued to climb. For example, production from the prolific Marcellus Shale – which spans Pennsylvania,
West Virginia and Ohio – skyrocketed from less than 2 billion cubic feet per day (bcf/d) in 2009,
to a record-high of over 16.5 bcf/d this year. And the dramatic ramp up in production occurred over
several years when prices were extremely low.
Much of that has to do with the huge innovations in drilling techniques, including fracking and
horizontal drilling, which allowed for production to remain profitable despite the downturn in prices.
But some of the credit also goes to drillers searching for more lucrative natural gas liquids and
crude oil. Dry natural gas is produced in association with oil. With oil prices extremely high, especially
in the period between 2010 and 2014, drillers continued to produce natural gas even if they were
looking for oil.
So only after oil prices busted did natural gas production start to slow down. In fact, while
the markets are eagerly watching for declines in oil production, few are noticing that natural
gas production is also declining. The EIA reports that in October, several of the largest shale gas
regions will post their fourth month in a row of production declines. With a loss of around 208 million
cubic feet per day expected in October, the four-month drop off will be the longest streak of losses
in about eight years.
It is no surprise that the Eagle Ford will represent the largest losses, with a decline of 117
million cubic feet per day expected in October. That is because oil is a much more prized commodity
in South Texas, so the decline is largely attributable to disappearing crude oil rigs.
While U.S. shale gas remained resilient through several years of low natural gas prices,
the collapse in oil prices are finally putting an end to the boom.
" ...As a neoliberal technocrat, Brad DeLong naturally thinks of bankers as rational specimens
of homo oeconomicus. Alas, bankers (like everyone in a real economy) does not act rationally in the
way DeLong expects."
" ...A banker observes that in the last epochal economic crash, the government bailed out all
the biggest banks and refused to prosecute any bankers for fraud. The banker therefore rationally calculates
that fraud represents an excellent business model, since it socializes all the risk of running a bank
and privatizes all the profit. Moreover, since the government refuses to send bankers to prison for
fraud, there's no social risk as well as no economic risk."
Well, I'm just a medical sociologist, so what do I know, but my bank essentially pays zero interest
on deposits and charges 4.5% interest on mortgages. So they seem to be in a perfectly good place
as far as I can tell.
Beat me to it. My savings interest rate is 0.1%. The bank's (actually a credit union) current
30-year mortgage rate is 4.125%, inflation right now is 0.2%. (so in real world terms I'm losing
money daily on my "savings").
By my admittedly non-R-programmed mere fingermath calculations
they're making 412.5- 3=409.5 basis points on those loans, comfortably above their 300 point bar.
They may not be maximizing their profits, but they're making them, and playing safe to boot.
And so long as the 0.01% have a stranglehold on profits and wages, inflation isn't going anywhere,
except, of course, for yachts and Picassos.
Of course so long as the 0.01% have that stranglehold, not much of anything is going anywhere.
To the extent that commercial bankers are able to exploit their very special access to the Federal
Reserve, they are most certainly rentiers. At least if I am understanding that term correctly.
`Brad, I don't think you get that a lot these people are not rational. These are people who think
that as soon as inflation starts up then the entire bill of treasuries that the Fed has will come
due.
They actually do believe in Glenn Beck and the rest of the psychos. A man that I knew who owns
several million ft^2 of timber that got rid of it because he thought inflation was coming. He
liquidated everything he had and I haven't seen him since.
These people are probably not the majority of their clients but they are definitely the LOUDEST.
They certainly are part of the rentier class. They didn't used to be, and they shouldn't be, but
iron and gold they are today.
Banks make their money on fees; the interest rate spreads are
a mere bagatelle. This is a consequence of deregulation more than it's a consequence of electronic
transaction technologies.
It's pretty darn near the power to tax; banks get a cut of the entire economy because they
get at least a couple percent every time money changes hands. (Look at Square's pitch to merchants
-- a consistent two-point-something percent rate for clearing credit card transactions. The bank
version goes up to 10%.)
As long as that's true, the zero lower bound is annoying, but it doesn't really affect profitability.
Profitability is guaranteed by the existence of an economy.
And I note that it purely doesn't matter what the fees are as long as the banks don't significantly
vary among themselves as to what the fees should be.
That is, there isn't a market for commercial
banking services. There's an ostensibly informal cartel.
I'm with you guys. This article makes no sense. What loans (of any kind really) is he seeing banks
make at <3%? Even a 5/1 ARM (with points) is over 3% and most loans are fixed rate anyway.
Well I'm not very sure that commercial banks are intermediaries. Not anymore. They have a far
bigger role in the financial landscape: money creation. There's no intermediation involved here,
just leveraged money creation on the basis of the fractional reserve.
That's a huge role, one that private off-bank lenders cannot do.
"The Federal Open Market Committee (FOMC) judges that inflation at the rate of 2 percent
(as measured by the annual change in the price index for personal consumption expenditures,
or PCE) is most consistent over the longer run with the Federal Reserve's mandate for price
stability and maximum employment. Over time, a higher inflation rate would reduce the public's
ability to make accurate longer-term economic and financial decisions. On the other hand, a
lower inflation rate would be associated with an elevated probability of falling into deflation,
which means prices and perhaps wages, on average, are falling--a phenomenon associated with
very weak economic conditions. Having at least a small level of inflation makes it less likely
that the economy will experience harmful deflation if economic conditions weaken. The FOMC
implements monetary policy to help maintain an inflation rate of 2 percent over the medium
term. "
Here's Stanley Fisher:
"It is important to keep inflation low enough so that people need not pay it any attention. At
2 percent annual inflation, a dollar loses half its value in about 36 years; at 4 percent inflation
it takes about 18 years. When you start getting up to 4 percent inflation you begin to see signs
of indexation coming back and a whole host of the inefficiencies and distortions. A 4 percent
target a mistake."
"And commercial banks really do not want to sock their depositors with unexpected fees"
BWAHAHAHAAHAHA!
Wow Brad that is a good joke there! Of course banks use unexpected fees. Lock in with a bank
is real. do you want to go and change your autopay every month? Banks compete for deposits on
rates and "free" checking and then hit customers after lock in.
Two percent inflation might work if fiscal stimulus would reliably fill the output gap during
steep recessions. Fiscal policy has proved unreliable and prone to making matters worse with austerity
policy.
Current policy seems to be driven by failed models and misinformation.
Should the Fed make policy based on ideal fiscal policy? or the ugly reality of misguided fiscal
policy?
What are the odds of a candidate from the Clown Car stepping into the driver's seat for fiscal
policy?
From Money, Banking and Financial Markets. By Laurence Ball
Inflation and the Savings and Loan
Crisis
In the early 1960s* U.S. inflation rates averaged less than 2 percent per year. This situation
appeared stable, so people expected low inflation to continue in the future. However, inflation
rose rapidly in the lace 1960s and 1970s. Because actual inflation over this period was higher
than expected, ex post real interest rates were lower than ex ante rates. In real terms, lenders
received less from borrowers than they expected to receive when they made the loans.
Losses to lenders were greatest for long-term loans, especially home mortgage. In 1965, the
nominal interest rate on 30-year mortgage was less than 6 percent. This rate was locked in until
1995. Because inflation was expected to be less than 2 percent, the ex ante real interest rate
was positive. However, the inflation rate averaged 7.8 percent over the 1970s, implying negative
ex post rates.
Negative real interest rates on mortgages were a great deal for homeowners. But they caused
large losses for banks that specialized in mortgages, such as savings and loan associations. These
losses were one reason for the so-called S&L crisis of the 1980s, when many savings and loans
went bankrupt.
The preceding case study illustrates a general point: uncertainty about inflation makes it
risky to borrow or lend money. This is true for bank loans, and also when firms borrow by issuing
bonds. In both cases, borrowers and lenders agree on a nominal interest rate but gamble on the
ex post real rate. Borrowers win the gamble if inflation is higher than expected, and lenders
win if inflation is lower than expected.
Can borrowers and lenders avoid this gamble? One tool for reducing risk is inflation-indexed
bonds. This type of bond guarantees a fixed ex post real interest rate. Unlike a traditional bond,
it does not specify a nominal interest rate when it is issued. Instead, the nominal rate adjusts
for inflation over the life of the bond, eliminating uncertainty about the real rate."
After a decade of telling the markets that the interest rate would be 2%, the Fed does not
want to change to a 4% target. ARMs and a move to 15 year largely solved the mortgage problem.
However if the Fed wants tight control of the inflation rate, they can't do much about the unemployment
rate unless fiscal policy cooperates. Fiscal policy has been not only uncooperative but in many
cases in opposition to monetary policy.
If you have assets or non-fixed income, or if you're projecting returns from a capital investment,
a slow and steady rise in the number that expresses the value means people can behave as though
they expect larger numbers in the future. Expecting numbers that will grow, they're more likely
to spend today's money on consumption goods and capital assets like houses, and more likely to
make capital investments because they can project that the number used for today's investment
will breed numbers that grow over whatever period they're planning for. Because people use nominal
figures for almost everything in ordinary life, not real inflation-adjusted values, this tends
to work.
About 15 or so years ago the Guardian had an economic columnist, Will something iirc (Will
Self? don't really remember at this point), who explained this very well. Its prime virtue is
that it works in a modern economy to make people feel better and act in ways that add to measurable
GDP. It's a utilitarian, not a moral, view.
Inflation requires wage inflation meaning both wages and prices go up.
Deflation means downward pressure on sticky wages and sticky prices. Sticky wages mean that wages,
do not deflate, instead, reduction in hours worked and increase in unemployment result. Sticky
occur as businesses cannot sell below cost of production for long: price deflation leads to business
failure. You want your economy managed so that relative wages and prices reset in the non-sticky
direction: upward. This avoids recessions, high unemployment and broad business failure.
Inflation must be high enough that an economic shock can be absorbed by upward relative price
reset. Inflation - deflation is a continuum. All economists agree deflation should be avoided
for obvious reasons. A rate of inflation that is too low is only marginally less bad than deflation.
An economic policy designed to trick the middle class into over spending and under saving (by
confusing nominal and real gains) is a recipe for long run disaster.
To some extent since 2007 we have been reaping the consequences of that policy as carried out
since 1980.
I'm in private business. In my world overall wages and prices are adjustable downward at a rate
of at least two percent a year. High cost employees retire or rotate out to other jobs. Companies
with high cost structures re-organize or go bankrupt and are replaced by companies with lower
cost structures. There is enough natural churn in the market that downward stickiness is at worst
a short term phenomenon. We are 8 years into this downturn. Downward stickiness is not the problem.
To believe that downward sticky wages are so big a problem as to justify inflation you have
to believe that there are a material number of workers who are materially over-paid at the moment
and whose real wages should be cut but who do not have the bargaining power to protect themselves
from inflation.
sorry I should have added: If you believe in downward sticky wages then you should be able to
identify the groups of workers whose real wages should be cut and could effectively be cut through
inflation.
As a neoliberal technocrat, Brad DeLong naturally thinks of bankers as rational specimens
of homo oeconomicus. Alas, bankers (like everyone in a real economy) does not act rationally in
the way DeLong expects.
Bankers act perfectly rationally, but in ways DeLong and Krugman
et al. do not expect. A banker observes that in the last epochal economic crash, the government
bailed out all the biggest banks and refused to prosecute any bankers for fraud. The banker therefore
rationally calculates that fraud represents an excellent business model, since it socializes all
the risk of running a bank and privatizes all the profit. Moreover, since the government refuses
to send bankers to prison for fraud, there's no social risk as well as no economic risk.
Consequently your typical banker finds it much more profitable to engage in control fraud today
rather than the old boring business of making sensible loans at low interest to customers who
are likely to pay the money back. Identifying good credit risks in a depressed economy takes a
lot of work, and the result even if successful is low profits -- a squeezed profit margin of circa
300 basis points or less, as DeLong points out. But why settle for a measley 0.3% or 0.2% or less
profit, when you can make 20% or 30% or 60% profit with no economic risk and no real risk of being
indicted?
The way you make 20% or 30% or 60% as banker in 2015, obviously, is to buy up large numbers
of foreclosed liar-loan houses and apartment buildings and then rent them out. Since most people
can't afford a home today because they're got rotten credit and are burdened down with debt from
the financial crash, rents are inflated in 2015. The bankers then aggregate speculative financial
instruments based on these inflated rents and the inflated valuations of the homes and apartment
buildings they've bought, and issue those speculative financial instruments as investment vehicles
to a gullible public and other financial institutions desperate for decent returns on their investment
capital. These bogus junk-quality financial instruments made up of shares in aggregated foreclosed
properties generate income which is then used to buy more overvalued foreclosed properties which
can be rented out in inflated prices, which then generate more bogus securities which then generate
more income...and so on. In short, you get a vicious cycle and a real estate bubble 2.0, but this
time based on buying and renting out foreclosed properties with money borrowed from investors
based on fraudulent securities. As opposed to real estate bubble 1.0 -- which was based on buying
and selling mortgages for newly-built homes with money borrow from investors based on fraudulent
securities like CDOs etc.
Bankers in 2015 are behaving perfectly rationally and they understand with pellucid clarity
the interests of their class. They simply are doing so in ways that neoliberal technocrats like
Brad DeLong can't fathom, because bankers in 2015 are continuing the very profitable control fraud
of real estate bubble 1.0...but by slightly different means (renting foreclosed properties, rather
then mortgaging newly built properties). The bankers correctly deduce that there is no financial
or criminal penalty for this kind of control fraud, since neither Bush nor Obama showed the slightest
interest in prosecuting bankers for their role in robosigning fraud in real estate bubble 1.0.
And when the whole ponzi scheme goes bust this time, the government will step in and bail the
banks out. In the meantime, the bankers are making bank (all puns intended) on all those fees
and that sweet, sweet income stream generated from all those fake liar-loaned forelosed properties
being rented out.
So why wouldn't a banker choose to make 20% or 40% or 60% by spewing out liar-loan investment
instruments based on foreclosed overvalued properties that are supposedly going to rise in value
limitlessly while the rents increase every year without bound? Why would a banker ever settle
for a mere 300 basis points return?
Brad DeLong, like so many neoliberal economists, is book-smart, but not street-smart when it comes
to these matters.
Graydon: I'm sorry, you're wrong. Banks make their money off of the spread, loans, and markets.
Fees are a negligible amount of income.
Brad:
One: banks are long duration/fixed income assets. Most mortgages are fixed rate mortgages. What
happens to the value of a fixed rate loan when inflation or interest rates move up? What about
mortgage production?
Two: bank executives are rich. There's no reason personally for them to cheer for inflation.
That said, yes, an upward sloping yield curve is a commercial banker's best friend.
In any case, I haven't seen much sentiment about rates one way or the other. Commercial banks,
from what I've see, are fairly subdued about rates. The increase in regulation is another matter.
So, the business world has no problem with deflation because, even though there's a consistent
and ongoing squeeze between what's paid at the front end for something and what can be realized
at sale time later as the secular nominal price level falls, the difference can always be made
up by cutting labor costs?
I'm having trouble understanding what the desired state is: deflation, or neither deflation
nor inflation but neutrality? If neutrality is the target, we know how to dampen inflation-- by
raising interest rates the requisite amount. In times of deflation, how do we move out of that
toward neutrality without mirror-image negative interest rates that make people pay to hold cash?
Isn't there an asymmetry? What happens then?
"... A Glencore spokesperson said: "Regardless of the business environment, Glencore is helping fulfil
global demand by getting the commodities that are needed to the places that need them most." ..."
"This is the best recovery in all recorded history." Lambert
Is GS preparing to Sacrifice the next Lehman (at zh find it yourselves') short list: It goes without saying that courtesy of HFTs and China's hard landing, a 5% drop in commodities could
happen overnight.
So if one is so inclined, and puts on the conspiracy theory hat mentioned at the beginning of
this post, Goldman may have just laid out the strawman for the next mega bailout which goes roughly
as follows:
** Commodity prices drop another 5% ** The rating agencies get a tap on their shoulder and downgrade Glencore to Junk. ** Waterfall cascade of margin and collateral calls promptly liquidates Glencore's trading desk and
depletes the company's cash, leaving trillions of derivative contracts in limbo. Always remember:
the strongest collateral chain is only as strong as its weakest conterparty. If a counterparty liquidates,
net exposure becomes gross, and suddenly everyone starts wondering where all those "physical" commodities
are. ** Contagion spreads as self-reinforcing commodities collapse launches deflationary shock wave around
the globe. ** Fed and global central banks are called in to come up with a "more powerful" form of stimulus ** The money paradrop scenario proposed by Citigroup yesterday, becomes reality
Too far-fetched? Perhaps. But keep an eye out for a Glencore downgrade from Investment Grade.
If that happens, it may be a good time to quietly get out of Dodge for the time being. Just in case. ********************************************** i did a 4th course on Hunger
http://marketwatch666.blogspot.com/2012/11/hunger-4th-course.html
(scroll down to bold red, can't miss the Glen history that we WILL NOW BE BACKSTOPPING) A Glencore spokesperson said: "Regardless of the business environment, Glencore is helping fulfil
global demand by getting the commodities that are needed to the places that need them most."
" If a counterparty liquidates, net exposure becomes gross,"
This is the really, really important concept. Whenever someone mentions our $600 Trillion in global
derivatives, Wall Street pipes up and says that is NOMINAL. It NETS out to ZERO (minus fees).
But yeah if the chain breaks, it is really two halves, $300 Trillion a piece. Which I think someone
recently estimated is 1.5 times the dollar value of the planet. (just the $300T half) Which has me
wondering where the regulators went to accounting school. But I never took accounting, so maybe it's
me that's mixed up.
The only thing I'd point out is our sophisticated financiers always say don't wait for the rating
agency downgrade – because they are always last to make a move.
Other than that, sounds about right.
Other thing I remember in 2008 was Goldman increased broker margin requirements maybe a month
or two before Lehman.
It is under state capitalism that TBTF can't exists. Under neoliberalism they rule the country,
so the question about cutting their political power of dismantling them is simply naive. Nobody give
political power without a fight.
"... Today, with governments which are nothing but literally the junior partners (of Big Business)
in government-by-crime-syndicate, these laws might as well no longer exist, as they are practically
never enforced. Indeed, an entity must be a political/economic pariah, or simply lacking "connections"
if it is unable to sneak some merger or take-over past our totally compliant governments, and their
fast-asleep "regulators". ..."
"... There could never be an economic system, or economic argument where "too big to fail" could
ever be a rational/legitimate policy. Put another way, no level of short-term economic harm or
shock could possibly equal the long-term harm (and insanity) of institutionalized blackmail
– which is all that "too big to fail" ever was/is. You must protect us, no matter what we do,
no matter what the cost. Utter insanity. Utter criminality. ..."
"... An oligopoly is where a small group of companies dominate/control an entire market or sector.
Here it is important to understand that oligopolies are every bit as "evil" as monopolies (in
every way), but the oligopoly puts a happy-face on this evil. Oligopolies represent pretend
competition. ..."
"... But such corporate extortion via oligopolies/monopolies is certainly not confined to the banking
sector. The Oligarchs engage in such extortion (against corrupt governments which require absolutely
no arm-twisting) in virtually every sector of our economies, but generally in not quite as extreme
a form as what is perpetrated by the Big Banks. ..."
"... Read Schumpeter beginning to end. He recognized the evolution of increasingly
larger-scale, boom-and-bust "capitalism" from free-enterprise, entrepreneurial capitalism to
industrial capitalism and eventually to various forms of state-capitalism, corporate-statism,
or quasi-fascism we have today, or what I refer to as militarist-imperialist, rentier-socialist,
or Anglo-American corporate-state. ..."
Today, with governments which are nothing but literally the junior partners (of Big Business)
in government-by-crime-syndicate, these laws might as well no longer exist, as they are practically
never enforced. Indeed, an entity must be a political/economic pariah, or simply lacking "connections"
if it is unable to sneak some merger or take-over past our totally compliant governments, and their
fast-asleep "regulators".
Today we have corporate monoliths which are literally orders of magnitude larger than any
remotely "optimal" size, with the ultimate and most-obvious examples being those hideously bloated
financial behemoths which we now know as "the Big Banks". How ridiculously too-big have the Big Banks
gotten?
Even the most-ardent admirer of the Big Banks in the entire media world, Bloomberg, couldn't stop
itself from openly salivating about how much "profit" could be had, just by beginning to chop-down
the financial fraud-factory which we know as JPMorgan Chase & Co.:
JPMorgan Chase & Co, the biggest U.S. bank by assets, would be worth 30 percent more if broken
into its four business segments, an unlikely scenario, an analyst at Stifel Financial Corp.'s KBW
unit said.
Note that there is not one word in the article indicating that there couldn't be a lot more
profit to be made, by then smashing those pieces into much smaller pieces still. This article
simply pointed to the instant profit of 30% which would be available just by beginning to
chop-down this obscenely large behemoth, and in the simplest manner possible.
Why would "smaller" be much more valuable, in our forward-looking markets, in the case of smashing
JPMorgan down-to-size (or at least beginning that process)? Obviously a major portion of that profit
quotient would have to be derived from greater efficiency. Smaller is better.
However, pointing out that even the greatest admirer/biggest cheerleader of the Big Banks has
observed how we would all be better off if the Big Banks were smaller is only a start. We
then come to the heinous propaganda which the cheerleaders (including Bloomberg) have dubbed "too
big to fail".
This is a very simple subject. "Too big to fail" is a pseudo-concept which is entirely antithetical
to any economic system which even pretends to adhere to the principles of "free markets".
Free markets demand that insolvent entities fail, it is the only way for such free markets to heal,
when weakened by the misallocation of assets (such as in the case of insolvent enterprises). No business,
or group of businesses could ever be "too big to fail".
There could never be an economic system, or economic argument where "too big to fail" could
ever be a rational/legitimate policy. Put another way, no level of short-term economic harm or
shock could possibly equal the long-term harm (and insanity) of institutionalized blackmail
– which is all that "too big to fail" ever was/is. You must protect us, no matter what we do,
no matter what the cost. Utter insanity. Utter criminality.
Understand that our own, corrupt governments embarked upon this criminal insanity long after the
equally criminalized government of Japan already proved that too-big-to-fail was a failed policy.
Not only could there never be an argument in favor of this criminality, our governments knew it
would fail before they ever rubber-stamped this systemic corruption.
But all of these arguments against the insanity of perverting and skewing our economies in favor
of Big Business, and against Small Business pale into insignificance compared to the principal condemnation
of too-Big Business: the economic "cannibals" known as monopolies and oligopolies.
For readers unfamiliar with these terms because the Corporate media and charlatan economists try
to pretend that these words don't exist, a brief refresher is in order. As most readers know, a monopoly
is where a single enterprise effectively controls an entire market or sector. While a "monopoly"
may be desirable when playing a board-game, in the real world these parasitic entities do nothing
but blood-suck, from any/every economy they are able to "corner".
However, the majority of people, even today, are at least partially familiar with the evils of
monopolies, thus the ultra-wealthy Oligarchs rarely attempt to perpetrate their systemic theft via
these corporate fronts. Instead, they perpetrate most of their organized crime via oligopolies.
An oligopoly is where a small group of companies dominate/control an entire market or sector.
Here it is important to understand that oligopolies are every bit as "evil" as monopolies (in
every way), but the oligopoly puts a happy-face on this evil. Oligopolies represent pretend
competition.
These corporate fronts cooperate as closely as possible in systemically plundering economies.
How do monopolies/oligopolies rob from us? The "old-fashioned" way for these blood-suckers to do
so was via simple price-gouging. When you have complete control over a sector/market, you can
charge any price you want.
However, not surprisingly, the Little People tend to notice when the Oligarchs use their corporate
fronts to engage in simple price-gouging. They actually begin to notice the general evil which oligopolies/monopolies
represent, and that is "bad for business" (i.e. crime).
Instead, the Oligarch Thieves of the 21st century engage in their robbery-by-corporation in a
different, more sophisticated/less-visible manner: via corporate welfare. What other crime can monopolies
and oligopolies perpetrate, with overwhelming success? Naked extortion.
As previously explained; "too-big-to-fail" (and now even "too big to jail") is nothing but the
most-obvious and most-despicable form of corporate extortion (or simply economic terrorism): give
us all the money we want, or we'll blow up the financial sector. Small banks could never perpetrate
such a crime (terrorism).
But such corporate extortion via oligopolies/monopolies is certainly not confined to the banking
sector. The Oligarchs engage in such extortion (against corrupt governments which require absolutely
no arm-twisting) in virtually every sector of our economies, but generally in not quite as extreme
a form as what is perpetrated by the Big Banks.
Typically, the extortion which precedes even more Corporate welfare, occurs in this form: give
us everything we want, or we will close our factory/business, and you will (temporarily)
lose those jobs. Here we don't need to imagine this in the hypothetical, as we have a particularly
blatant example of such Corporate extortion/welfare, courtesy of U.S. Steel:
U.S. Steel Canada Inc. is threatening to cease operations in Canada by the end of the year
if an Ontario Superior Court judge rejects its request to stop paying municipal taxes, halt payments into pension funds, and
cut off health care and other benefits to 20,000 retirees
and their dependents. [emphasis mine]
... ... ...
kanoli
Like most of Jeff Nielson's rants, this one is nonsensical. If small business hires more
people to produce the same product or service as a big business, they cannot do so at the same
or lower price unless they are paying a lower wage.
The problem with big business isn't that it is big - it is their tendency to lobby government
for regulations that stifle small business competitors.
If politicians were not for sale, it wouldn't matter whether a business is big or small.
Neither would have undue influence on the law.
The problem is regulatory democracy where all laws are constantly subject to fiddling by an
elected legislature.
Element
In practice a balanced mix of all sized businesses are necessary in a planetary
civilization that trades products globally. Getting the mix 'right' and not having big
business get away with preventing competition, or of govt throttling to skim and micro-control
is most of the deleterious effect on business, and on human beings in general.
Unfortunately humans have been trained to like Logos, and to buy 'wants' accordingly.
iDroned on a bit,
2c
newnormaleconomics
Read Schumpeter beginning to end. He recognized the evolution of increasingly
larger-scale, boom-and-bust "capitalism" from free-enterprise, entrepreneurial capitalism to
industrial capitalism and eventually to various forms of state-capitalism, corporate-statism,
or quasi-fascism we have today, or what I refer to as militarist-imperialist, rentier-socialist,
or Anglo-American corporate-state.
The current state of the evolution of "capitalism" is its advanced, late-stage,
financialized, globalized phase.
With Peak Oil, population overshoot, unprecedented debt to wages and GDP, Limits to Growth,
climate change, a record low for labor share, decelerating productivity, OBSCENE wealth and
income inequality, and increasing geopolitical tensions, growth of real GDP per capita is
done, which means that growth of profits, investment, and capital formation/accumulation is
done, which in turn means "capitalism" is done.
"...If prices throughout the budget
development season … are consistent with the current 2016 forward price of around $50/b for WTI,
capital spending could be down 25%-30% for the large-cap producers" in North America"
•Capital spending for 2016 will be lower than in 2015 - which itself has been 35%-40% below
last year and could actually come in steeper in relative cuts than that, given that some
operators have further slashed 2015 outlays and may still do so.
... .,. ...
Said Barclays in a report on conference takeaways: "If prices throughout the budget
development season … are consistent with the current 2016 forward price of around $50/b for WTI,
capital spending could be down 25%-30% for the large-cap producers" in North America.
The point is we should be trying to make our regulation more intelligent (making it encourage
not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.
"... So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk
opposition to regulation with the judicious use of regulation where there is good reason to believe
that businesses might act in destructive ways. Will we see this effort continue? Next year's election
will tell. ..."
"... That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection! ..."
"... The point is we should be trying
to make our regulation more intelligent (making it encourage not discourage innovation - cheaper
and easier to police - less subject to regulatory capture etc.). ..."
"... The reality is that, in the absence of
effective regulation with substantial penalties, all of the incentives are to lie, cheat, and
steal. In consequence, it really is the norm, if only in more minor ways than the ones that
make the headlines. Wage theft, fraud, knowingly selling defective merchandise, and many other
abuses are clearly rampant. This is exactly why markets cannot exist in the absence of
effective government regulation to provide trust. ..."
"... Economic idealists have popularized the notion that the world can work without much
regulations because their models tell them so. Unless they are behavioral economists, they
often fail to include fraud, scams & information asymmetry into their models. This produces
garbage like efficient markets that only exist in an idealistic dream world. The real world
markets are filled with fraud, scams and disreputable agents. Failure to account for bad
behavior is the bane of many a model. ..."
"... But I love Obama because he has created a wonderland of money for lawyers and consultants,
a river of chocolate and honey to make Willy Wonka jealous. Go Barry go! ..."
Item: The former president of a peanut company has been
sentenced to 28 years in prison for knowingly shipping tainted products that later killed
nine people and sickened 700.
Item: Rights to a drug used to treat parasitic infections were acquired by
Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing
drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750.
...
There are, it turns out, people in the corporate world who will do whatever it takes, including
fraud that kills people, in order to make a buck. And we need effective regulation to police that
kind of bad behavior... But we knew that, right?
Well, we used to know it... But ... an important part of America's political class has declared
war on even the most obviously necessary regulations. ...
A case in point: This week Jeb Bush, who has an uncanny talent for bad timing, chose to publish
an op-ed article in The Wall Street Journal denouncing the Obama administration for issuing
"a flood of creativity-crushing and job-killing rules." Never mind his
misuse of cherry-picked statistics, or the fact that private-sector employment
has grown much faster under President Obama's "job killing" policies than it did under Mr.
Bush's brother's administration. ...
The thing is, Mr. Bush isn't wrong to suggest that there has been a move back toward more regulation
under Mr. Obama, a move that will probably continue if a Democrat wins next year. After all, Hillary
Clinton released a plan to limit drug prices at the same time Mr. Bush was unleashing his anti-regulation
diatribe.
But the regulatory rebound is taking place for a reason. Maybe we had too much regulation in
the 1970s, but we've now spent 35 years trusting business to do the right thing with minimal oversight
- and it hasn't worked.
So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk
opposition to regulation with the judicious use of regulation where there is good reason to believe
that businesses might act in destructive ways. Will we see this effort continue? Next year's election
will tell.
reason
"Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals,
which specializes not in developing new drugs but in buying existing drugs and jacking up their
prices. In this case, the price went from $13.50 a tablet to $750. ..."
That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection!
reason
"So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk
opposition to regulation with the judicious use of regulation where there is good reason to believe
that businesses might act in destructive ways. Will we see this effort continue? Next year's election
will tell."
Personally, I don't think this is really addressing the key point. You can't actually avoid regulation
(the alternative to public regulation - as pushed by say Milton Friedman - ends up being private
regulation - which is just as subject to regulatory capture). The point is we should be trying
to make our regulation more intelligent (making it encourage not discourage innovation - cheaper
and easier to police - less subject to regulatory capture etc.). The policy discussions about
this a difficult enough with good faith - but bad faith politics makes this impossible. We need
to throw the Gingrich revolution in the dustbin as soon as possible.
RC AKA Darryl, Ron said in reply to reason...
YEP!
What politicians can get away with is an artifact of the limited toolset that the electorate
has to express its informed will. We need a well educated democracy and the democratic part of
that requires Constitutional electoral reforms (e.g., gerrymandering, campaign finance). A bit
of the educational aspect of a voting actually democratic republic would naturally work itself
out with a more engaged and empowered electorate participating ACTIVELY.
With the system as it is then it takes a shock wave through the electorate for them to throw
the bums out, but there is no follow through. There is a failsafe reaction function, but no
more than that except on specific social issues that get overwhelming support where
politicians can move with the electoral majority at zero cost while reactionary politicians
can triangulate and pander some votes from the minority opinion of those too old or set in
their ways to participate in the social sea change.
ilsm said in reply to RC AKA Darryl, Ron...
The threat is "faith voters", dogma developed by billionaires' propaganda to plunder the
world.
DrDick said in reply to reason...
Krugman is far too kind to the businessmen. The reality is that, in the absence of
effective regulation with substantial penalties, all of the incentives are to lie, cheat, and
steal. In consequence, it really is the norm, if only in more minor ways than the ones that
make the headlines. Wage theft, fraud, knowingly selling defective merchandise, and many other
abuses are clearly rampant. This is exactly why markets cannot exist in the absence of
effective government regulation to provide trust.
DeDude said in reply to reason...
Exactly; what we need is a detailed debate on each specific regulation. What it intends to
accomplish, whether that could be accomplished in a less burdensome way, and whether the
accomplishment is sufficient to justify the burden. However, that is not something that can
happen in the 15 second soundbite that appears to be the attention span of the average voter.
Lee A. Arnold said in reply to Second Best...
Second Best: "Markets work if allowed to self regulate."
No. Never happened, except in local instances. For self-regulation you need proper prices,
and for proper prices you need proper supply and demand.
For proper supply you need perfect competition, so there must be numerous competitors entering
the same market, and this requires, among other things, almost no intellectual protection.
For proper demand, you need perfectly informed consumers, and this is not only impossible, but
it is getting far far worse, because the complexity of the world is increasing.
The problem with state regulation is that it also falls prey to the same objections, although
at a slower rate. We use votes not prices, but the same imperfection of information and lack
of flexibility causes problems with the voting system.
When you combine this problem with the increase in inequality (which was masked temporarily by
World War II and the subsequent spurt of blue-collar jobs productivity), we are headed into an
accelerated amelioration of the market system by greater public ownership.
RC AKA Darryl, Ron said in reply to Lee A. Arnold...
"Peanut butter does not kill people, people kill people."
[If you can read a opening sentence like that and not recognize it as satirical parody, then
you might want to look around to find the sense of humor that you lost. When the will of the
people is no more than a euphemism for dollar democracy then parody, satire, sarcasm, and a
healthy dose of cynicism are called for.]
JF said in reply to RC AKA Darryl, Ron..
Lee A Arnold - Think Jonathan Swift and his piece about the way to reduce subsidies for the
orphaned poor infants, it is to reduce their number so we feel good about the fact that we
help the few poor infants left alive.
I reacted a few times to Second Best's comments before I recognized the satire.
But I also have used his comments as a way to bring out the more logical, real-world of facts
and rationality - so commentary helps either way. I suppose that serves 2nd Best's interests
too.
JF said in reply to JF...
I believe the Jonathan Swift recommendations are the preferred republican-party approach to
Social Security too. Really need fewer claimants, that will solve the accounting problems.
RC AKA Darryl, Ron said in reply to Second Best...
"Peanut butter does not kill people, people kill people. Car emissions do not kill people
... high drug prices do not kill people ... people do."
[This is an economics blog. You cannot be that "subtle (???)" and expect people to recognize
your satire. Maybe there is a humorous math equation that economists can understand. I guess
economics graduate school is so boring that most people lose all sense of humor. I am glad
that Krugman has kept his.]
Richard H. Serlin said...
"Then there's for-profit education, an industry wracked by fraud - because it's very hard
for students to assess what they're getting - that leaves all too many young Americans with
heavy debt burdens and no real prospect of better jobs. But Mr. Bush denounces attempts at a
cleanup."
And worse, wasting their incredibly valuable and rare young years, quite possibly their only
chance before age and children make it extremely hard, not getting an education. Such a big
thing. You don't do it when you're young, with the power and freedom and lack of dependents of
youth, the opportunity may easily be gone forever. Such a brutal cost these predators and
their Republican allies extract.
RC AKA Darryl, Ron said in reply to Richard H. Serlin...
One cause of increased tuition is the reduction of state and federal appropriations to state
colleges, causing the institutions to shift the cost over to students in the form of higher
tuition. State support for public colleges and universities has fallen by about 26 percent per
full-time student since the early 1990s.[10] In 2011, for the first time, American public
universities took in more revenue from tuition than state funding.[9][11] Critics say the
shift from state support to tuition represents an effective privatization of public higher
education.[11][12] About 80 percent of American college students attend public institutions...
bakho said...
Economics Professors of the "free market" bent for years have indoctrinated youth with the
misguided notion that "regulations are bad" and market methods, no matter how RubeGoldberg,
are always better. " You don't need to regulate pollution, just put a tax on it," as an
example. Even cap and trade would not work without stiff emissions regulations.
Economic idealists have popularized the notion that the world can work without much
regulations because their models tell them so. Unless they are behavioral economists, they
often fail to include fraud, scams & information asymmetry into their models. This produces
garbage like efficient markets that only exist in an idealistic dream world. The real world
markets are filled with fraud, scams and disreputable agents. Failure to account for bad
behavior is the bane of many a model.
ilsm said in reply to bakho...
Sanctity of the "market"......
I got a jar of this snake oil here too!
The market they sell is the one that runs in Honduras
Tom aka Rusty said...
A couple of random observations:
Last time I looked about 150 Dodd-Frank regs had not been written yet, some of the key ACA
regs are three years late.
Obama-ites have written some of the most complex, convoluted regs of the past 40 years, the
health EMR regs have practically guaranteed a windfall for IT companies and a failure for EMR/EHR.
No mention of the Obama-Holder "too big to prosecute doctrine."
The new overtime regs will likely be in the "driving thumb tacks with a sledge hammer" mode.
But I love Obama because he has created a wonderland of money for lawyers and consultants,
a river of chocolate and honey to make Willy Wonka jealous. Go Barry go!
pgl said in reply to kthomas...
Rusty wants us to believe he is the only one who understands health care so he is a
persistent critic of ObamaCare. But now he wants to pretend he's the expert on financial
markets too? Seriously? Dodd-Frank is complicated only because the Jamie Dimons of the world
milk every opportunity to game financial markets. If Rusty thinks letting Jamie Dimon evade
any financial market regulation is a good idea - he is the most clue person ever.
DrDick said in reply to pgl...
He was just trying to do us a favor and demonstrate exactly what is meant by "knee-jerk
opposition to regulation ."
JF said in reply to Tom aka Rusty...
Have you ever looked at the multi-party derived hedging instruments in play now - they can
hardly get more complex, and indeed most didn't understand them when they were made, and these
are still complex now.
So I have to say, that the 'marketplace' makes Krugman's point about complexity. It comes from
humans cunningly doing stuff that serves their interests at the time as they see it. Not
always wisdom at work here.
But it is complex, and so regulation of such complexity, if the generally applicable rules
seek some fairness (classes of people are usually affected differently) and stands a test of
due process too - the regulations will also need to be complex. The complexity came first, the
regulations come afterwards (after society learns of the stupidity the hard way).
Railing about this is a form of misleading sophistry, a rhetorical device to reverse the
causality.
We can think with more foresight and regulate before the stupid complexity arises, but it does
take a rational policy making environment for this exploration, discussion and policy-making
to occur with good foresight - I am waiting for the new Congress in 2017.
If the Warren-Sanders people have any influence then, we may see a whole lot less complex
financial system (it's a riot when you think how the Efficient Market Hypothesis, a
theoretical justification for the marketplace's range of instruments in fact led to more
complexity, less real efficiency and effectiveness, and ossification of the system when it
needed to be resilient but stable as a well-behaved system can be).
We will probably be better off after the 2017 debates. After all, this community of actors are
only intermediaries on behalf of real productive outcomes truly needed by society - right,
they are just intermediaries? How much inter-mediation does the economy need?
david s said...
The Obama Administration has been friendlier to corporate America than W's was.
While it was Ronald Reagan and his Republican Party that called for deregulation not much
was done until Alan Greenspan, then Chairman of the Federal Reserve, gave federal deregulation
his blessing in speeches from NY to Aspen to California in which he said "the market" will
reign in excesses and regulate itself b/c of competition acting egregiously would create.
Oopsie, Old Alan got it ALL WRONG again!
I thought a little history would help in this thread.
likbez said...
My impression is that regulation always reflects the needs of who is in power today. One
the key ingredients of political power is the ability to push the laws that benefit particular
constituent. And to block laws that don't.
If we assume that financial oligarchy is in power today, then it is clear that there can be no
effective regulation of financial services and by extension regulation of derivatives. And if
on the wave of public indignation such regulation is adopted, it will be gradually watered
down and then eliminated down the road.
And you can always hire people who will justify your point of view.
In this sense neither Milton Friedman nor Greenspan were independent players. They sold
themselves for money and were promoted into positions they have for specific purpose. I am not
sure the either of them believed the crap they speak or wrote.
"... 1.TiSA would "lock in" the privatization of services – even in cases where private service delivery has failed – meaning governments can never return water, energy, health, education or other services to public hands. ..."
"... 2.TiSA would restrict signatory governments' right to regulate stronger standards in the public's interest. For example, it will affect environmental regulations, licensing of health facilities and laboratories, waste disposal centres, power plants, school and university accreditation and broadcast licenses. ..."
"... 3.TiSA would limit the ability of governments to regulate the financial services industry, at a time when the global economy is still struggling to recover from a crisis caused primarily by financial deregulation. More specifically, if signed the trade agreement would: ..."
"... 4. TiSA would ban any restrictions on cross-border information flows and localization requirements for ICT service providers. A provision proposed by US negotiators would rule out any conditions for the transfer of personal data to third countries that are currently in place in EU data protection law. In other words, multinational corporations will have carte blanche to pry into just about every facet of the working and personal lives of the inhabitants of roughly a quarter of the world's 200-or-so nations. ..."
"... 5. Finally, TiSA, together with its sister treaties TPP and TTIP, would establish a new global enclosure system, one that seeks to impose on all 52 signatory governments a rigid framework of international corporate law designed to exclusively protect the interests of corporations, relieving them of financial risk and social and environmental responsibility. In short, it would hammer the final nail in the already bedraggled coffin of national sovereignty. ..."
"... So, not to be snarky or anything but when does the invasion of Uruguay begin. ..."
"... In the US, corporations largely have replaced government since WWII or so, or at least pretend to offer the services that a government might provide. ..."
"... Neoliberalism that we have now as a dominant social system is a flavor of corporatism. If so, it is corporations which now represent the most politically powerful actors. They literally rule the country. And it is they who select the president, most congressmen and Senators. Try to ask yourself a question: to what political force Barak "change we can believe in" Obama serves. ..."
"... "And the banks - hard to believe in a time when we're facing a banking crisis that many of the banks created - are still the most powerful lobby on Capitol Hill. And they frankly own the place" ..."
"... This is such a huge, huge, vital issue. Privatisation of public assets has to rank as one of the highest crimes at the government level. It is treason, perhaps the only crime for which i wouldn't object capital punishment. ..."
"... What's more, we now have some 40 years of data showing that privatisation doesn't work. surely, we can organise and successfully argue that privatisation has never worked for any country any time. There needs to be an intellectual assault on privatisation discrediting it forever. ..."
Often referred to as the Switzerland of South America, Uruguay is long accustomed to doing things
its own way. It was the first nation in Latin America to establish a welfare state. It also has an
unusually large middle class for the region and unlike its giant neighbors to the north and west,
Brazil and Argentina, is largely free of serious income inequality.
Two years ago, during José Mujica's presidency, Uruguay became the first nation to legalize marijuana
in Latin America, a continent that is being ripped apart by drug trafficking and its associated violence
and corruption of state institutions.
Now Uruguay has done something that no other semi-aligned nation on this planet has dared to do:
it has rejected the advances of the global corporatocracy.
The Treaty That Must Not Be Named
Earlier this month Uruguay's government decided to end its participation in the secret negotiations
of the Trade in Services Agreement (TISA). After months of intense pressure led by unions and other
grassroots movements that culminated in a national general strike on the issue – the first of its
kind around the globe – the Uruguayan President Tabare Vazquez bowed to public opinion and left the
US-led trade agreement.
Despite – or more likely because of – its symbolic importance, Uruguay's historic decision has
been met by a wall of silence. Beyond the country's borders, mainstream media has refused to cover
the story.
This is hardly a surprise given that the global public is not supposed to even know about TiSA's
existence, despite – or again because of – the fact that it's arguably the most important of the
new generation of global trade agreements. According to WikiLeaks, it "is the largest component of
the United States' strategic 'trade' treaty triumvirate," which also includes the Trans Pacific Partnership
(TPP) and the TransAtlantic Trade and Investment Pact (TTIP).
TiSA involves more countries than TTIP and TPP combined: The United States and all 28 members
of the European Union, Australia, Canada, Chile, Colombia, Costa Rica, Hong Kong, Iceland, Israel,
Japan, Liechtenstein, Mexico, New Zealand, Norway, Pakistan, Panama, Paraguay, Peru, South Korea,
Switzerland, Taiwan and Turkey.
Together, these 52 nations form the charmingly named "Really Good Friends of Services" group,
which represents almost 70% of all trade in services worldwide. Until its government's recent u-turn
Uruguay was supposed to be the 53rd Good Friend of Services.
TiSA Trailer
TiSA has spent the last two years taking shape behind the hermetically sealed doors of highly
secure locations around the world. According to the agreement's provisional text, the document is
supposed to remain confidential and concealed from public view for at least five years after being
signed. Even the World Trade Organization has been sidelined from negotiations.
But thanks to whistle blowing sites like WikiLeaks, the Associated Whistleblowing Press and Filtrala,
crucial details have seeped to the surface. Here's a brief outline of what is known to date (for
more specifics click
here,
here and
here):
1.TiSA would "lock in" the privatization of services – even in cases where private service
delivery has failed – meaning governments can never return water, energy, health, education or other
services to public hands.
2.TiSA would restrict signatory governments' right to regulate stronger standards in the public's
interest. For example, it will affect environmental regulations, licensing of health facilities and
laboratories, waste disposal centres, power plants, school and university accreditation and broadcast
licenses.
3.TiSA would limit the ability of governments to regulate the financial services industry,
at a time when the global economy is still struggling to recover from a crisis caused primarily by
financial deregulation. More specifically, if signed the trade agreement would:
Restrict the ability of governments to place limits on the trading of derivative contracts
- the largely unregulated weapons of mass financial destruction that helped trigger the 2007-08
Global Financial Crisis.
Bar new financial regulations that do not conform to deregulatory rules. Signatory governments
will essentially agree not to apply new financial policy measures which in any way contradict
the agreement's emphasis on deregulatory measures.
Prohibit national governments from using capital controls to prevent or mitigate financial
crises. The leaked texts prohibit restrictions on financial inflows – used to prevent rapid currency
appreciation, asset bubbles and other macroeconomic problems – and financial outflows, used to
prevent sudden capital flight in times of crisis.
Require acceptance of financial products not yet invented. Despite the pivotal role that new,
complex financial products played in the Financial Crisis, TISA would require governments to allow
all new financial products and services, including ones not yet invented, to be sold within their
territories.
4. TiSA would ban any restrictions on cross-border information flows and localization requirements
for ICT service providers. A provision proposed by US negotiators would rule out any conditions for
the transfer of personal data to third countries that are currently in place in EU data protection
law. In other words, multinational corporations will have carte blanche to pry into just about every
facet of the working and personal lives of the inhabitants of roughly a quarter of the world's 200-or-so
nations.
As I wrote in
LEAKED: Secret Negotiations to Let Big Brother Go Global, if TiSA is signed in its current form
– and we will not know exactly what that form is until at least five years down the line – our personal
data will be freely bought and sold on the open market place without our knowledge; companies and
governments will be able to store it for as long as they desire and use it for just about any purpose.
5. Finally, TiSA, together with its sister treaties TPP and TTIP, would establish a new global
enclosure system, one that seeks to impose on all 52 signatory governments a rigid framework of international
corporate law designed to exclusively protect the interests of corporations, relieving them of financial
risk and social and environmental responsibility. In short, it would hammer the final nail in the
already bedraggled coffin of national sovereignty.
A Dangerous Precedent
Given its small size (population: 3.4 million) and limited geopolitical or geo-economic clout,
Uruguay's withdrawal from TiSA is unlikely to upset the treaty's advancement. The governments of
the major trading nations will continue their talks behind closed doors and away from the prying
eyes of the people they are supposed to represent. The U.S. Congress has already agreed to grant
the Obama administration fast-track approval on trade agreements like TiSA while the European Commission
can be expected to do whatever the corporatocracy demands.
However, as the technology writer Glyn Moody
notes, Uruguay's defection – like the people of Iceland's refusal to assume all the debts of
its rogue banks – possesses a tremendous symbolic importance:
It says that, yes, it is possible to withdraw from global negotiations, and that the apparently
irreversible trade deal ratchet can actually be turned back. It sets an important precedent that
other nations with growing doubts about TISA – or perhaps TPP – can look to and maybe even follow.
Naturally, the representatives of Uruguay's largest corporations would agree to disagree. The
government's move was one of its biggest mistakes of recent years,
according to Gabriel Oddone, an analyst with the financial consultancy firm CPA Ferrere. It was
based on a "superficial discussion of the treaty's implications."
What Oddone conveniently fails to mention is that Uruguay is the only nation on the planet that
has had any kind of public discussion, superficial or not, about TiSA and its potentially game-changing
implications. Perhaps it's time that changed.
So, not to be snarky or anything but when does the invasion of Uruguay begin. Wondering:
don't they want to pay $750.00 per pill for what cost $13.85 the day before? Aren't they interested
in predatory capitalism? What is going on down there?
Jim Haygood, September 23, 2015 at 12:17 pm
Most symbolic is that the eighth round of multilateral trade negotiations under GATT (now WTO)
kicked off in Punta del Este, Uruguay in Sep. 1986.
It went into effect in 1995, and is still known as the Uruguay Round.
susan the other, September 23, 2015 at 1:21 pm
And will international corporations issue their own fiat; pass their own laws; and prosecute
their own genocide? Contrary to their group hallucinations, corporations cannot replace government.
And clearly, somebody forgot to tell them that capitalism, corporatism, cannot survive without
growth. The only growth they will achieve is raiding other corporations. They are more powerless
and vulnerable than they ever want to admit.
hunkerdown, September 23, 2015 at 8:13 pm
And will international corporations issue their own fiat; pass their own laws; and
prosecute their own genocide?
Sure. There's prior art. Company scrip, substance "abuse" policies, and Bhopal (for a bit
different definition of "prosecute").
In the US, corporations largely have replaced government since WWII or so, or at least
pretend to offer the services that a government might provide.
likbez, September 24, 2015 at 10:54 pm
They are more powerless and vulnerable than they ever want to admit.
You are dreaming. Neoliberalism that we have now as a dominant social system is a flavor
of corporatism. If so, it is corporations which now represent the most politically powerful
actors. They literally rule the country. And it is they who select the president, most congressmen
and Senators. Try to ask yourself a question: to what political force Barak "change we can
believe in" Obama serves.
As Sen. Dick Durbin (D-Ill.) aptly noted:
"And the banks - hard to believe in a time when we're facing a banking crisis that
many of the banks created - are still the most powerful lobby on Capitol Hill. And they
frankly own the place"
gordon, September 23, 2015 at 9:03 pm
The TISA has a history. It's really just a continuation of the MAI treaty which the OECD failed
to conclude back in the 1990s.
What I don't get is why all those countries want to sign up to these agreements. I can see
what is in it for the US elites, but how does it help these smaller countries?
likbez, September 24, 2015 at 10:43 pm
Elites of those small countries are now transnational. So in a way they represent the fifth
column of globalization. That explains their position: own profit stands before interests of
the country.
vidimi, September 24, 2015 at 4:19 am
This is such a huge, huge, vital issue. Privatisation of public assets has to rank as one
of the highest crimes at the government level. It is treason, perhaps the only crime for which
i wouldn't object capital punishment.
What's more, we now have some 40 years of data showing that privatisation doesn't work.
surely, we can organise and successfully argue that privatisation has never worked for any country
any time. There needs to be an intellectual assault on privatisation discrediting it forever.
"... A complex web of revolving doors between the
military-industrial-complex, Wall Street, and Silicon Valley consolidates the interests of
defense contracts, banksters, military actions, and both foreign and domestic surveillance intelligence. ..."
"... While most citizens are at least passively aware of the surveillance state and collusion between
the government and the corporate heads of Wall Street, few people are aware of how much the intelligence
functions of the government have been outsourced to privatized groups that are not subject to oversight
or accountability. According to Lofgren,
70%
of our intelligence budget goes to contractors. ..."
"... the deep
state has, since 9/11, built the equivalent of three Pentagons, a bloated state apparatus that keeps
defense contractors, intelligence contractors, and privatized non-accountable citizens marching in
stride. ..."
"... Groupthink - an unconscious assimilation of the views of your superiors and peers - also works
to keep Silicon Valley funneling technology and information into the federal surveillance state.
Lofgren believes the NSA and CIA could not do what they do without Silicon Valley. It has developed
a de facto partnership with NSA surveillance activities, as facilitated by a
FISA court order. ..."
For decades, extreme ideologies on both the left and the right have clashed over the conspiratorial
concept of a shadowy secret government pulling the strings on the world's heads of state and captains
of industry.
The phrase New World Order is largely derided as a sophomoric conspiracy theory entertained by
minds that lack the sophistication necessary to understand the nuances of geopolitics. But it
turns out the core idea - one of deep and overarching collusion between Wall Street and government
with a globalist agenda - is operational in what a number of insiders call the "Deep State."
In the past couple of years, the term has gained traction across a wide swath of ideologies. Former
Republican congressional aide Mike Lofgren says it is the nexus of Wall Street and the national security
state - a relationship where elected and unelected figures join forces to consolidate power and serve
vested interests. Calling it "the big story of our time," Lofgren says the deep state represents
the failure of our visible constitutional government and the cross-fertilization of corporatism with
the globalist war on terror.
"It is a hybrid of national security and law enforcement agencies: the Department of Defense,
the Department of State, the Department of Homeland Security, the Central Intelligence Agency and
the Justice Department. I also include the Department of the Treasury because of its jurisdiction
over financial flows, its enforcement of international sanctions and its organic symbiosis with Wall
Street," he explained.
Even parts of the judiciary, namely the Foreign Intelligence Surveillance Court, belong to the
deep state.
How does the deep state operate?
A complex web of revolving doors between the
military-industrial-complex, Wall Street, and Silicon Valley consolidates the interests of
defense contracts, banksters, military actions, and both foreign and domestic surveillance intelligence.
According to Mike Lofgren and many other insiders, this is not a conspiracy theory. The deep state
hides in plain sight and goes far beyond the military-industrial complex
President Dwight D. Eisenhower warned about in his farewell speech over fifty years ago.
While most citizens are at least passively aware of the surveillance state and collusion between
the government and the corporate heads of Wall Street, few people are aware of how much the intelligence
functions of the government have been outsourced to privatized groups that are not subject to oversight
or accountability. According to Lofgren,
70%
of our intelligence budget goes to contractors.
Moreover, while Wall Street and the federal government suck money out of the economy, relegating
tens of millions of people to food stamps and incarcerating
more people than China - a totalitarian state with four times more people than us - the deep
state has, since 9/11, built the equivalent of three Pentagons, a bloated state apparatus that keeps
defense contractors, intelligence contractors, and privatized non-accountable citizens marching in
stride.
After years of serving in Congress, Lofgren's moment of truth regarding this matter came in
2001. He observed the government appropriating an enormous amount of money that was ostensibly
meant to go to Afghanistan but instead went to the Persian Gulf region. This, he says, "disenchanted"
him from the
groupthink,
which, he says, keeps all of Washington's minions in lockstep.
Groupthink - an unconscious assimilation of the views of your superiors and peers - also works
to keep Silicon Valley funneling technology and information into the federal surveillance state.
Lofgren believes the NSA and CIA could not do what they do without Silicon Valley. It has developed
a de facto partnership with NSA surveillance activities, as facilitated by a
FISA court order.
Now, Lofgren notes, these CEOs want to complain about foreign market share and the damage this
collusion has wrought on both the domestic and international reputation of their brands. Under the
pretense of pseudo-libertarianism, they helmed a commercial tech sector that is every bit as intrusive
as the NSA. Meanwhile, rigging of the DMCA intellectual property laws - so that the government can
imprison and fine citizens who jailbreak devices - behooves Wall Street. It's no surprise that the
government has upheld the draconian legislation for the 15 years.
It is also unsurprising that the growth of the corporatocracy aids the deep state. The
revolving door between government and Wall Street money allows top firms to offer premium jobs to
senior government officials and military yes-men. This, says Philip Giraldi, a former counter-terrorism
specialist and military intelligence officer for the CIA, explains how the Clintons left the White
House nearly broke but soon amassed $100 million. It also explains how
former
general and CIA Director David Petraeus, who has no experience in finance, became a partner at
the KKR private equity firm, and how former Acting CIA Director Michael Morell became Senior Counselor
at Beacon Global Strategies.
Wall Street is the ultimate foundation for the deep state because the incredible amount of
money it generates can provide these cushy jobs to those in the government after they retire.
Nepotism reigns supreme as the
revolving
door between Wall Street and government facilitates a great deal of our domestic strife:
"Bank bailouts, tax breaks, and resistance to legislation that would regulate Wall Street,
political donors, and lobbyists. The senior government officials, ex-generals, and high level
intelligence operatives who participate find themselves with multi-million dollar homes in which
to spend their retirement years, cushioned by a tidy pile of investments," said Giraldi.
How did the deep state come to be?
Some say it is the evolutionary hybrid offspring of the
military-industrial complex while others say it came into being with the
Federal
Reserve Act, even before the First World War. At this time, Woodrow Wilson remarked,
"We have come to be one of the worst ruled, one of the most completely controlled and dominated
governments in the civilized world, no longer a government by conviction and the vote of the majority,
but a government by the opinion and duress of a small group of dominant men."
This quasi-secret cabal pulling the strings in Washington and much of America's foreign policy
is maintained by a corporatist ideology that thrives on deregulation, outsourcing, deindustrialization,
and financialization. American exceptionalism, or the great "Washington
Consensus," yields perpetual war and economic imperialism abroad while consolidating the interests
of the oligarchy here at home.
Mike Lofgren says this government within a government operates off tax dollars but is not constrained
by the constitution, nor are its machinations derailed by political shifts in the White House. In
this world - where the deep state functions with impunity - it doesn't matter who is president so
long as he or she perpetuates the war on terror, which serves this interconnected web of corporate
special interests and disingenuous geopolitical objectives.
"As long as appropriations bills get passed on time, promotion lists get confirmed, black (i.e.,
secret) budgets get rubber stamped, special tax subsidies for certain corporations are approved
without controversy, as long as too many awkward questions are not asked, the gears of the hybrid
state will mesh noiselessly,"
according to Mike Lofgren in an interview with Bill Moyers.
Interestingly, according to Philip Giraldi, the ever-militaristic Turkey has its own deep state,
which uses overt criminality to keep the money flowing. By comparison, the U.S. deep state relies
on a symbiotic relationship between banksters, lobbyists, and defense contractors, a mutant hybrid
that also owns the Fourth Estate and Washington think tanks.
Is there hope for the future?
Perhaps. At present, discord and unrest continues to build. Various groups, establishments, organizations,
and portions of the populace from all corners of the political spectrum, including Silicon Valley,
Occupy, the Tea Party, Anonymous, WikiLeaks, anarchists and libertarians from both the left and right,
the Electronic Frontier Foundation, and whistleblowers like Edward Snowden and others are beginning
to vigorously question and reject the labyrinth of power wielded by the deep state.
Can these groups - can we, the people - overcome the divide and conquer tactics used to quell
dissent? The future of freedom may depend on it.
The EIA also had US domestic oil production up by 19,000 b/d last week to 9.14 million and
output in the lower 48 states flat at 8.65 million b/d. Analysts are not sure what these numbers
mean. Some say they could indicate that the decline in production is slowing from what the EIA
has been forecasting. However, some note that if there is any indication of production actually
increasing, we would quickly see oil prices down in the $30s.
... ... ...
The financial press continues to highlight the woes of the global oil industry as it tries to
contend with falling oil prices. Waterford International, one of the world's largest drilling
contractors, failed in an attempt to borrow $1 billion from Wall Street because of its sagging
stock price. ConocoPhillips is trying to sell off its Canadian assets. Total SA sold a 10 percent
share in a $15 billion oil sands mine for $234 million and Wood Mackenzie says the world's oil
companies have now cut $220 billion in planned investments. Wood Mackenzie also says that if oil
prices stay below $50 a barrel, some $1.5 trillion worth of investments will be curtailed over
the next few years. If these predictions come to pass it is difficult to foresee how world oil
production can stay anywhere near current levels.
... ... ...
In the Middle East, the Libyan peace talks look like they are going to collapse. The Russian
military buildup in Syria continues with more tanks, attack helicopters and aircraft arriving
daily. While Moscow says it is in Syria to fight ISIL, the insurgents threatening Assad's power
base in northwest Syria are made up of groups backed by Turkey, the US and the Gulf Arabs, with
most of ISIL's forces hunkered down in the northeast to avoid the continuing US arterial
bombardment.
Another cholera epidemic has broken out in Iraq where the sanitation and water systems
continue to deteriorate. Temperatures in Iraq reached 122o F. in July and August which did not
help the situation. The flow of middle class Iraqis to Europe is increasing. It becomes
increasingly difficult to see how Iraq can continue to increase or even maintain its oil
production given the numerous problems it is facing.
Drilling Deeper reviews the twelve shale plays that account for 82% of the tight oil
production and 88% of the shale gas production in the U.S. Department of Energy's Energy
Information Administration (EIA) reference case forecasts through 2040. It utilizes all available
production data for the plays analyzed, and assesses historical production, well- and
field-decline rates, available drilling locations, and well-quality trends for each play, as well
as counties within plays. Projections of future production rates are then made based on forecast
drilling rates (and, by implication, capital expenditures). Tight oil (shale oil) and shale gas
production is found to be unsustainable in the medium- and longer-term at the rates forecast by
the EIA, which are extremely optimistic.
This report finds that tight oil production from major plays will peak before 2020. Barring major
new discoveries on the scale of the Bakken or Eagle Ford, production will be far below the EIA's
forecast by 2040. Tight oil production from the two top plays, the Bakken and Eagle Ford, will
underperform the EIA's reference case oil recovery by 28% from 2013 to 2040, and more of this
production will be front-loaded than the EIA estimates. By 2040, production rates from the Bakken
and Eagle Ford will be less than a tenth of that projected by the EIA. Tight oil production
forecast by the EIA from plays other than the Bakken and Eagle Ford is in most cases highly
optimistic and unlikely to be realized at the medium- and long-term rates projected.
I was fascinated that Bear Stearns was the first to go
as Bear was the only large company that failed to respond
to the Fed's calls when LTCM almost brough down the house
in 1998.
the greatest control fraud in history, the 2008 seizure of the u.s. government's financial/regulatory
apparatus by wall street's banks and trading houses to recapitalize themselves and avoid prosecution
for their enormous crimes, is tremendously evil. it will never be prosecuted or its errors
corrected until the psychopaths at the head of our society are neutralized.
only 9-11 can do this. it is the crime that is clear-cut, unambiguously wrong, provable,
without a statute of limitations (treason/murder/kidnapping), sufficiently inflammatory (very
important) and really comprehensive in its list of perps, especially after the fact (the editors
of the new york times don't actually have to go to jail; just most people have to think they should).
"If a counterparty liquidates, net exposure becomes gross [emphasis added
by me], and suddenly everyone starts wondering where all those "physical" commodities are."
For those who may not quite grasp this, it means all your "hedging" against falling prices
is null and void and you are left with full-in-the-face long exposure PLUS entities dealing in
the physical commodity can suddenly be looking down a long tunnel of "failure to timely deliver"
on contracts they've signed.
But, then again, 2016 is the last year for a lame duck president... traditionally a very good
year to "clean house" and get the government to bail you out.
This week, Eric has an in depth conversation with economist Michael Hudson, author of the new
book
Killing
the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy. Eric and Prof.
Hudson discuss the evolution of finance capital from its humble parasitical beginnings to the comprehensive
global network of economic tapeworms and barnacles that it is today. They examine neoliberal terrorism,
how debt is used as a weapon, and the disastrous effects of the financialization of the real economy.
Hudson outlines the relationship between the parasites and their bloodsucking policies of austerity,
providing insight using the example of Latvia, where he witnessed first hand the smash-and-grab nature
of such prescriptions. Plus, Eric and Michael touch on Obama as Wall Street errand boy, the importance
of left economic organizing, and much much more.
Musical interlude from the exciting new band
GospelbeacH, and intro
and outtro from David Vest.
The ongoing oligarch theft labeled an "economic recovery" by pundits, politicians and mainstream
media alike, is one of the largest frauds I've witnessed in my life. The reality of the situation
is finally starting to hit home, and the proof is now undeniable.
Families' savings not where they should be: That's one part of the problem. But Mills sees
something else in the recovery that's more disturbing. The number of households tapping alternative
financial services are on the rise, meaning that Americans are turning to non-bank lenders for
credit: payday loans, refund-anticipation loans, pawnshops, and rent-to-own services.
According to the Urban Institute report, the number of households that used alternative
credit products increased 7 percent between 2011 and 2013. And the kind of household seeking alternative
financing is changing, too.
It's not the case that every one of these middle- and upper-class households turned to pawnshops
and payday lenders because they got whomped by an unexpected bill from a mechanic or a dentist.
"People who are in these [non-bank] situations are not using these forms of credit to simply overcome
an emergency, but are using them for basic living experiences," Mills says.
Of course, it's not just "alternative financial services." Increasingly desperate American citizens
are also tapping whatever retirement savings they may have, including taking the 10% tax penalty
for the privilege of doing so. In fact, 30 million Americans have done just that in the past year
alone, in the midst of what is supposed to be a "recovery."
With the effects of the financial crisis still lingering, 30 million Americans in the last
12 months tapped retirement savings to pay for an unexpected expense, new research shows.
This undercuts financial security and underscores the need for every household to maintain an
emergency fund.
Boomers were most likely to take a premature withdrawal as well as incur a
tax
penalty, according to a
survey from Bankrate.com. Some 26% of those ages 50-64 say their financial situation has
deteriorated, and 17% used their 401(k) plan and other retirement savings to pay for an emergency
expense.
Two-thirds of Americans agree that the effects of the financial crisis are still being felt
in the way they live, work, save and spend, according to a
report from Allianz Life Insurance Co. One in five can be called a post-crash skeptic-a person
that experienced at least six different kinds of financial setback during the recession, like
a job loss or loss of home value, and feel their financial future is in peril.
So now we know what has kept meager spending afloat during this pitiful "recovery." A combination
of "alternative loans" and a bleeding of retirement accounts. The transformation of the public
into a horde of broke debt serfs is almost complete.
Don't forget to send your thank you card to you know who:
Paul Marshall, chairman of London-based hedge fund Marshall Wace, in the FT:
Central banks have made the rich richer: Labour's new shadow chancellor has got at least one
thing right. ... Quantitative easing ... has bailed out bonus-happy banks and made the rich richer.
...
It is no surprise that the left is angry about this, nor that they are looking for other
versions of QE that do not so directly benefit bankers and the rich. Instead of increasing the
money supply by buying sovereign bonds from banks, central banks could spread the love evenly
by depositing extra money in every person's bank account..., it might have been fairer.
Mr McDonnell and Jeremy Corbyn, the new Labour leader, advocate a second approach: targeting
QE at infrastructure projects. The central bank would buy bonds direct from the Treasury on the
understanding that the funds would be used to improve housing and transport infrastructure. ...
QE had clear wealth effects, which could have been offset by fiscal measures. All political
parties should acknowledge this. So should those of us who want free markets to retain their legitimacy.
"...
The EIAs 2015 Annual Energy Outlook is even more optimistic about tight oil than the AEO2014,
which we showed in Drilling Deeper suffered from a great deal of questionable optimism. ..."
"... The
recent drop in oil prices has already hit tight oil production growth hard. The steep decline
rates of wells and the fact that the best wells are typically drilled off first means that it
will become increasingly difficult for these production forecasts to be met, especially at relatively
low prices. ..."
"... As it has acknowledged, the EIAs track record in estimating resources and projecting
future production and prices has historically been poor. ..."
"... How can overall tight oil production increase by 15% in AEO2015 compared to AEO2014 while
assuming oil prices are $20/barrel lower over the 2015-2030 period? ..."
"... Americas energy future is largely determined by the assumptions and expectations we have
today. And because energy plays such a critical role in the health of our economy, environment, and
people, the importance of getting it right on energy cant be overstated. Its for this reason that
we encourage everyone-citizens, policymakers, and the media-to not take the EIAs rosy projections
at face value but rather to drill deeper. ..."
In Drilling
Deeper, PCI Fellow
David Hughes took
a hard look at the EIA's AEO2014 and found that its projections for future production and prices
suffered from a worrisome level of optimism.
Recently, the EIA released its
Annual Energy Outlook 2015
and so we asked David Hughes to see how the EIA's projections and assumptions have changed over the
last year, and to assess the AEO2015 against both Drilling Deeper and up-to-date production
data from key shale gas and tight oil plays.
Key Conclusions
The EIA's 2015 Annual Energy Outlook is even more optimistic about tight oil than the AEO2014,
which we showed in Drilling Deeper suffered from a great deal of questionable optimism. The AEO2015
reference case projection of total tight oil production through 2040 has increased by 6.5 billion
barrels, or 15%, compared to AEO2014.
The EIA assumes West Texas Intermediate (WTI) oil prices will remain low and not exceed $100/barrel
until 2031.
At the same time, the EIA assumes that overall U.S. oil production will experience a very
gradual decline following a peak in 2020.
These assumptions-low prices, continued growth through this decade, and a gradual decline
in production thereafter - are belied by the geological and economic realities of shale plays.
The
recent drop in oil prices has already hit tight oil production growth hard. The steep decline
rates of wells and the fact that the best wells are typically drilled off first means that it
will become increasingly difficult for these production forecasts to be met, especially at relatively
low prices.
Perhaps the most striking change from AEO2014 to AEO2015 is the EIA's optimism about the Bakken,
the projected recovery of which was raised by a whopping 85%.
As it has acknowledged, the EIA's track record in estimating resources and projecting
future production and prices has historically been poor. Admittedly, forecasting such things
is very challenging, especially as it relates to shifting economic and technological realities.
But the below ground fundamentals- the geology of these plays and how well they are understood-don't
change wildly from year to year. And yet the AEO2015 and AEO2014 reference cases have major differences
between them. As Figure 13 shows, with the exception of the Eagle Ford, the EIA's projections
for the major tight oil plays have shifted up or down significantly.
After closely reviewing the Annual Energy Outlook 2015, David Hughes raises some important,
substantive questions:
Why is there so much difference at the play level between AEO2014 and AEO2015?
Why does Bakken production rise 40% from current levels, recover more than twice as much oil
by 2040 as the latest USGS mean estimate of technically recoverable resources, and exit 2040 at
production levels considerably above current levels?
How can the Niobrara recover twice as much oil in AEO2015 as was assumed just a year ago in
AEO 2014?
What was the thinking behind the wildly optimistic forecast for the Austin Chalk in AEO2014
that required a 78% reduction in estimated cumulative recovery in AEO2015?
How can overall tight oil production increase by 15% in AEO2015 compared to AEO2014 while
assuming oil prices are $20/barrel lower over the 2015-2030 period?
America's energy future is largely determined by the assumptions and expectations we have
today. And because energy plays such a critical role in the health of our economy, environment, and
people, the importance of getting it right on energy can't be overstated. It's for this reason that
we encourage everyone-citizens, policymakers, and the media-to not take the EIA's rosy projections
at face value but rather to drill deeper.
"... The German chancellor Merkel tried to gain some points with her neoliberal friends and with
big companies and donors by suddenly opening the border for "refugees" of all kinds, even for those
who come from safe countries. These migrants would help to further depress German wages which, after
years of zero growth, slowly started to increase again. ..."
"... While Merkel was lauded by
all
kinds of Anglo-american neoliberal outlets, from the
Economist over FT and
Newsweek to the
Washington Post the backlash in Germany was brewing. ..."
"... Despite a major campaign of pro-migrant propaganda in Merkel friendly media the German population
in general is furious with her stunt. ..."
"... So the brave new world is coming to you also? The brave new world of depressed wages and benefits
for the working classes. ..."
"... Poor Mr. Schäuble must give "earth and water" to the German oligarchs. He must organize a new
Treuhand for the whole Europe to sell-off public property, he must completely dissolve labor rights,
bring down pensions and wages, destroy the social state. ..."
"... These refugees mean workers and jobs. Or how do you think their houses will be built,
or where will the doctors come from to treat them and the teachers to teach them, the shops that will
feed them. ..."
"... Would be the planed PR con of ' aren't we nice to the most needy refugees', that being used
as a duel use purpose with that appeal to her real constituency in the elite and corporates with refugees
as wage slaves depressing wages. ..."
"... And when times are bad enough. the far-right actually gains and keeps power till they run a
bloody muck. Nazis and Fascism is what these freaks are risking again. ..."
"... Of course, this is all made possible because the US isn't a country anymore, it is now a corporation.
The same is true for the EU. The EU isn't a union of nations anymore, it is now a collection of corporations.
..."
"... Yes, The brave new CORPORATE world is coming to us all. Humanity be damned, profits uber alles.
Workers of the globe, lube up, and bend over. ..."
"... This migrants crisis should be seen as a fantastic opportunity to all corporatists and neolibs.
Companies need cheap labor. This is an open bar to them! ..."
"... This is really another unmasking of the EU. It is run by Germany. ..."
"... I think German industry is angry at the Russia sanctions and has been pressuring for 'new workers',
in the sense of being able to set conditions, choose candidates from a larger pool, and almost certainly,
pay less, have more control over workers. ..."
"... The makers of Western policy and the media are one and the same. Mass media now so consolidated,
it's a corporate/state entity. ..."
"... The origin of totalitarianism : Part two, Imperialism : Chapter 9, Decline of the nation-state;
end of the rights of man, p. 269 ..."
"... Nazi Conspiracy and Aggression ..."
"... I have real sympathy for the Syrian refugees coming from the concentration camps in Turkey.
These are mostly younger, middle-class, educated Syrians with small children who either lost their homes
or couldn't tolerate the risk of violence to them and their families. ..."
"... it's better lavrov speaks openly on what everyone with half a brain is thinking here..
that isis is a mercenary group paid to be where it is ought to come as no surprise.. that the usa hopes
to use them to overthrow assad - they have openly stated this. ..."
"... When refugees still managed to get into Europe in large numbers heading for Germany where they
had relatives and knew that there were jobs there was not much German politicians could legally do except
stop Schengen that makes it easy to go anywhere once you have crossed the European borders - which is
happening now getting refugees stranded in the fields. ..."
"... with the influx of probably millions of cheap labour, the big cats may bring back the industries
from china , yes now the western Europe may be able to compete with them. ..."
The German chancellor Merkel tried to gain some points with her neoliberal friends and with
big companies and donors by suddenly opening the border for "refugees" of all kinds, even for those
who come from safe countries. These migrants would help to further depress German wages which, after
years of zero growth, slowly started to increase again.
But neither she nor her allies ever prepared the German public for a sudden influx of several
hundred thousand foreigners. Changes in immigration policy were
sneaked in without any public discussion. Suddenly 800,000 foreign people are expected to arrive
this years and many more over the next years. People who neither speak German nor readily fit into
the national cultural and social-economic environment. Most of these do not come out of immediate
dangers but from safe countries.
There will be over time a huge backlash against European politicians who, like
Merkel, practically invite more migrants. Wages are stagnant or falling in Europe and unemployment
is still much too high. The last thing people in Europe want right now is more competition in
the labor market. Parties on the extreme right will profit from this while the center right will
lose support.
Despite a major campaign of pro-migrant propaganda in Merkel friendly media the German population
in general is furious with her stunt. The backlash comes
from all sides but
especially from her own conservative party. Additionally many European leaders point out that
Merkel, who insistent on sticking to the letter of law in the case of Greece, is now openly breaking
European laws and agreements.
... ... ...
ben | Sep 13, 2015 12:39:05 PM | 3
So the brave new world is coming to you also? The brave new world of depressed wages and
benefits for the working classes. Corporate Germany is drooling at the prospect of that happening.
Good luck b.
nmb | Sep 13, 2015 12:57:08 PM | 4
... poor Mr. Schäuble, who recently surpassed Mrs. Merkel in popularity in Germany, is under
extreme pressure, mostly by the German capital, to "restructure" the eurozone through the Greek
experiment. The German oligarchy is now in a cruel competition mostly with the US companies to
hyper-automate production. It sends continuous signals that human labor will be unnecessary for
its big companies and presses the German leadership to finish the experiment in Greece.
Poor Mr. Schäuble must give "earth and water" to the German oligarchs. He must organize
a new Treuhand for the whole Europe to sell-off public property, he must completely dissolve labor
rights, bring down pensions and wages, destroy the social state. He must end quickly with
Greece and pass all the "Greek achievements" to the whole eurozone.
I live in Germany in a village near the Austria border. Our village is broke: too much debt.
The people in Germany are taxed to death with over a 50 percent tax rate. In addition, the Euro
took a lot of buying power away from us. And Germans are fleeing many areas to get away from the
Ghettos of migrants that have come before.
The propaganda machine in running 24/7 about how great these migrants are for Germany. Unfortunately
in this case, the propaganda is not working. For example, my son's school teacher tried to set
an example by being nice to a local black migrant by saying a few kind words only to be told –
F*ck you lady. In any case, if you have eyes you can see migrants are a burden.
It is a fact that Migrants get everything for free. They are not allowed to work for the first
year and are given free health care, dental, accommodations, etc. In addition, the police do not
like to bother them, so unless it is really bad, they just get away with it.
So, how do you expect to pay for all of this? Where is the money going to come from? And did
I mention that no one in our village supports the idea of have more migrants. In my opinion, this
is a case of going too far. The politicians have now lost the population and they are back-tracking.
b. you are an economic analphabet. These refugees mean workers and jobs. Or
how do you think their houses will be built, or where will the doctors come from to treat them
and the teachers to teach them, the shops that will feed them. And how do you think German
industry will survive with a shrinking aging work force, or old age pensioners homes and hospitals
keep functioning.
It happened before. Germany had some 2.6 million "guest workers" in the 1950's and 60's. Most
of them aren't counted as immigration nowadays as they have become European - Greek, Spanish,
Portuguese and Italian. But recruitment was done in Turkey and North Africa, too.
RE: Peter B. | Sep 13, 2015 4:12:54 PM | 11
You have to be very rich to pay 50 per cent tax. I cannot say I sympathize. German countryside
is quite empty, lots of room for refugees. They don't seem to want to go there though but to the
cities. Like Germans, really.
Bavaria has experience with refugees since World War II. To quote a Bavarian from one of the
- formerly incestuous - valleys: We did not like them but they were good for us.
But yes, it is beginning to feel like the end of Shengen and the end of Europe as we knew it.
And yes, stupid German politicians seem to be surprised by the global effect of twitter and facebook.
I thought the back up plan by Merkel and her despicable likes like mentioned by b and above;
Would be the planed PR con of ' aren't we nice to the most needy refugees', that being
used as a duel use purpose with that appeal to her real constituency in the elite and corporates
with refugees as wage slaves depressing wages. Then with the final back up plan would be
targeting those refugees she invited in - for hate speech against, demonisation and scape-goating
those innocent refugees, for economic problems caused by her and the right-wingers in their economic
class war.
like b mentioned; that runs the risk of the far-right racists gaining more popularity and power.
But haven't we seen that before. Political centrists planning to scapegoat innocence, but then
being out hate-mongered by the far-right.
And when times are bad enough. the far-right actually gains and keeps power till they run
a bloody muck. Nazis and Fascism is what these freaks are risking again. Or does Merkel think
she will fit in nicely with the possible future for Germany ?
The migrant crisis would be worrisome if it did not benefit corporate elites in the Western
countries. It is exactly the same reason as why the same countries are outsourcing all work to
the third-world countries: short term gain for a long term pain. The pain from the migrant crisis
is felt by ordinary people and the state in the long term.
This is why racism is rising in Western countries – those who lose jobs or have to compete
for a home with a 12-member immigrant family hate immigrants the most. The elites, corporate or
otherwise, are quite comfortable with immigration, they never go to the economically challenged
and immigrant areas anyway, such crime does not reach them. Also, most Western countries have
many a lawyer working on behalf of the illegal immigrants and against the society because it is
so lucrative.
The flip side is, of course, that it is often the policies of the Western governments and pillaging
by Western companies which causes disasters in the places where illegal immigrants come from.
How high the anti-immigration Wall needs to be when you push a country such as Libya or Syria
into a 30-year civil war?
Of course, this is all made possible because the US isn't a country anymore, it is now
a corporation. The same is true for the EU. The EU isn't a union of nations anymore, it is now
a collection of corporations.
ben | Sep 13, 2015 8:10:01 PM | 21
Cynthia @ 17: "Of course, this is all made possible because the US isn't a country anymore,
it is now a corporation. The same is true for the EU. The EU isn't a union of nations anymore,
it is now a collection of corporations."
Yes, The brave new CORPORATE world is coming to us all. Humanity be damned, profits uber
alles. Workers of the globe, lube up, and bend over.
This migrants crisis should be seen as a fantastic opportunity to all corporatists and
neolibs. Companies need cheap labor. This is an open bar to them! What a great way to force
Europe into the New World Order? Putting people in front of the fait accompli has always been
the best recipe to success. Who cares about culture and civilization? We are consumers before
anything, aren't we?
This is really another unmasking of the EU. It is run by Germany. Merkel on her own
bat decides the Dublin accords don't apply. Just like that! Then a week or more later Juncker
stands in front of the EU Parliament and makes some proposal about quotas or what not and nobody
says anything (except I suppose Farage and those who don't want the migrants.) Schengen is by-passed
or overridden or transformed on her say so. (The part that seems to be holding is that non-signatories
can't be forced to participate.) I strongly disaproved of both those accords (and the whole mismanagement
of the migrant issue from day one) but just having Merkel run amok like that is utterly scandalous,
and very disquieting. The whole media-hype (pro and soon contra) with the usual doctored pictures
and crowd scenes etc. was totally disgusting. This is not going to end well. Incompetence, extend
and pretend, shove the problem away leading to a 'crisis' which is handled with appeals to emotion
and so on…bad news.
I don't believe this was some US or Anglo-Zionist or whatever plot to harm Europe. (Unintended
/ uncared about consequences perhaps.) This is a purely internal EU affair. I think German
industry is angry at the Russia sanctions and has been pressuring for 'new workers', in the sense
of being able to set conditions, choose candidates from a larger pool, and almost certainly, pay
less, have more control over workers. That may happen in part. But that is just one angle.
(see tom above and somebody as well.)
I hate to even go here but there's a lot of public money to be made by contractors in this
refugee crisis. With the media blitz, countries, corps and individuals will be pouring money into
refugee funds. Look at these two articles w/ US coming onto refugee scene just as Europe shuts
the gates:
MoonofA calls Merkel's actions a "stunt" above. I sadly agree. In the headlines here in the
US, I noticed the alliteration "Generous Germany" in more than a handful of articles. Google confirms
it has been used thousands of times. It conveniently counters the immense damage to Germany and
Merkel's image that occurred after they fricasseed Greece on the world stage which while it may
have made some northern Europeans happy, the rest of the world felt a very different emotion,
despite the propaganda.
The migrant crisis is part of the amateurism of the international community in collaboration
with a scoop and drama oriented media.
The migrants move out of Turkey was long predictable. If anyone had read the Turkish law on
'refugees', they would know that Turkey does not recognize people coming from a middle eastern
country as a "refugee". Therefore these people DO NOT get a UNHCR refugee card. Countries that
welcome refugees request that card. Therefore people stuck in Turkey have no other way than to
move to a country where they will be recognized as a valid 'refugee'.
So it was obvious that after realizing the war in Syria was endless, masses of wannabe refugees
rushed out of Turkey to Europe.
It was obvious right from the start that Syria was no Libya, no Tunisia and no Egypt. Yet the
amateur Western politicians rushed in prediction and the media went wild with youtubes, analysis,
dramas..
4 years later, both the western politicians and the media turned out to be wrong. Yet, they
are so arrogant that they would never admit and continue and obsolete discourse to perpetuate
their stupid predictions.
The media have become the drivers of the Western policy. They are not elected, have no legitimacy,
no accountability and yet they leade for the good and the bad.
"It may appear to be the interest of the rulers, and the rich of a state, to force population
[ed. note: force = rapidly increase, as via an excessive rate of immigration], and thereby lower
the price of labour, and consequently the expense of fleets and armies, and the cost of manufactures
for foreign sale; but every attempt of the kind should be carefully watched and strenuously resisted
by the friends of the poor, particularly when it comes under the deceitful guise of benevolence…"
T.R. Malthus, "An Essay on the Principle of Population", 1798
... There are forces that want to estrange people from their homeland, and to dissolve national
identities altogether. Obama and other criminals are trying to make Syrians a people without
a nation. A people without a nation suffer the worst humiliation. Look at what happened to
the Palestinian people. One day, it could happen to you. ...
Hannah Arendt :
The origin of totalitarianism : Part two, Imperialism : Chapter 9, Decline of the nation-state;
end of the rights of man, p. 269
With the emergence of the minorities in Eastern and Southern Europe and with the stateless
people driven into Central and Western Europe, a completely new element of disintegration was
introduced into postwar Europe. Denationalization became a powerful weapon of totalitarian
politics, and the constitutional inability of European nation-states to guarantee human rights
to those who had lost nationally guaranteed rights, made it possible for the persecuting governments
to impose their standard of values even upon their opponents. Those whom the persecutor had
singled out as scum of the earth - Jews, Trotskyites, etc. - actually were received as scum
of the earth everywhere; those whom persecution had called undesirable became the indésirables
of Europe. The official SS newspaper, the Schwarze Korps, stated explicitly in 1938 that if
the world was not yet convinced that the Jews were the scum of the earth, it soon would be
when unidentifiable beggars, without nationality, without money, and without passports crossed
their frontiers.[2] And it is true that this kind of factual propaganda worked better than
Goebbels' rhetoric, not only because it established the Jews as scum of the earth, but also
because the incredible plight of an ever-growing group of innocent people was like a practical
demonstration of the totalitarian movements' cynical claims that no such thing as inalienable
human rights existed and that the affirmations of the democracies to the contrary were mere
prejudice, hypocrisy, and cowardice in the face of the cruel majesty of a new world. The very
phrase "human rights" became for all concerned - victims, persecutors, and onlookers alike
- the evidence of hopeless idealism or fumbling feeble-minded hypocrisy.
[2] The early persecution
of German Jews by the Nazis must be considered as an attempt to spread antisemitism among
"those peoples who are friendlily disposed to Jews, above all the Western democracies"
rather than as an effort to get rid of the Jews. A circular letter from the Ministry of Foreign
Affairs to all German authorities abroad shortly after the November pogroms of 1938, stated:
"The emigration movement of only about 100,000 Jews has already sufficed to awaken the interest
of many countries in the Jewish danger ... Germany is very interested in maintaining the
dispersal of Jewry ... the influx of Jews in all parts of the world invokes the opposition
of the native population and thereby forms the best propaganda for the German Jewish policy
... The poorer and therefore more burdensome the immigrating Jew is to the country absorbing
him, the stronger the country will react."
See Nazi Conspiracy and Aggression, Washington, 1946, published by the U. S. Government,
VI, 87 ff.
Plus ça change, plus c'est la męme chose ... This time it's Obama's handlers copying the NAZIs,
last time it was the NAZIs copying the US' genocide of North American indigenes.
I have real sympathy for the Syrian refugees coming from the concentration camps in Turkey.
These are mostly younger, middle-class, educated Syrians with small children who either lost their
homes or couldn't tolerate the risk of violence to them and their families.
That image stands in stark contrast to some of the odd footage coming out of Hungary about
refugees refusing food and water, trashing camps and threatening Hungarian aid workers. These
were obviously refugees and presumably muslim, but didn't seem like the Syrians leaving Turkish
camps. Who were these people?
Fort Russ just published an article entitled,
Afghan-Kosovo Mafia Migrant Smuggling Ring and More Refugee Chaos in Macedonia. A highly recommended
read for anyone like me confused about the supposed 'Syrian Refugee' problem. It's much more complex
than it appears and explains Europeans reports of the general demeanor of some of the refugee
groups. This will not end well for anybody.
It seems that the refugee 'crisis' in the EU is playing right into Putin's hands. (It is not
a US plot!). The Putin coalition is gingerly taking shape. On Syria.
Germany is ready to ally with Putin. Russia Insider.
Hollande has changed his mind. (From a newspaper yest.) Now he is sugggesting that he won't
bomb there will only be reconnaissance flights. Or some such. After being seemingly keen to bomb
Syria to smithereens.
Cameron announced before Corbyn was elected that he would then (when it happened) be cautious
or 'withholding' (I forget the precise words and posted the link before) about bombing Syria (Corbyn
is against.) But see here, RT:
In fact Cameron's communicated position is not clear. It is imprecise.
Lavrov has come right out and said that the US knows ISIS positions but refuses to bomb. Which
is extremely pointed of him. For a man who carefully measures his words. Fort Russ.
Noirette @ # 67 Yes I was a bit Swift intake of breath when I read that on Fort
Russ. No, it's definitely not like him to be so, well, blunt is it? With this, we also have the
arguments in the Iraqi Parliament about US & UK planes dropping arms & supplies to ISIS as in
landing and unloading,(Totally separate from the parachute drops to the Kurds or Shite Militias
or Iraqi Army that seem to end up in ISIS hands most of the time), Israel treating wounded militants
and being al Qaeda's Air Force, with all this there should be enough now for a big exposee of
it in the MSM. . . . . . . . and waiting . . . . . . . still waiting ( ͝° ͜ʖ͡°)
@74 noirette.. as always, thanks for your input and reasoned thoughts on these topics.. thanks
for the data @66 as well..
it's better lavrov speaks openly on what everyone with half a brain is thinking here..
that isis is a mercenary group paid to be where it is ought to come as no surprise.. that the
usa hopes to use them to overthrow assad - they have openly stated this.. the only thing
the usa hasn't done is said they're contributing to the funding of isis, or turning a blind eye
when there cohorts saudi arabia and etc. are... it's just another mercenary group called isis
getting approval to help along the western agenda here - much like blackwater, but they could
state that openly with iraq - not so here..
if anyone thinks isis are the one's the usa or their western buddies are going after here -
if you believe that - make as well make a constant diet of wow posts then...
It has got nothing to do with German guilt. Nowadays you can't be seen letting children drown
in the Mediterranean or getting starved in Hungary without people disliking you.
So European politicians first tried to throw up their hands with tears in their eyes whilst making
sure the ships in the Mediterranean are military and not humanitarian.
When refugees still managed to get into Europe in large numbers heading for Germany where
they had relatives and knew that there were jobs there was not much German politicians could legally
do except stop Schengen that makes it easy to go anywhere once you have crossed the European borders
- which is happening now getting refugees stranded in the fields. They cannot legally send
the refugees back to Syria, Iraq or Afghanistan. Neither can they send refugees back to Turkey.
They might be able to do that after a lengthy legal process, but not now. In this situation European
politicians have no choice - they cannot revert to racism as their populations are pretty mixed
already, it would tear the whole European fabric apart, and, in the case of export driven Germany,
it would destroy their global brand.
The truth is that Turkey has a land bridge to Europe and there is a perfectly safe ferry from
Turkey to the Greek islands which is closed for refugees. The other truth is that Germany has
been pressuring countries on the periphery to close their borders and keep the refugees who still
made it. There is no reason for countries on the periphery to agree to something as disadvantageous
to them as the Dublin
regulation but that their negotiation position was very week.
It could be that Germany overdid the pressure and forgot about the reciprocity. As I understand
the situation now German politicians threaten more or less openly to "stop paying" for Europe
which is hilarious as the "paying" is based on an export surplus other European countries pay
for with a deficit.
duth | Sep 18, 2015 2:14:53 PM | 89
yes indeed very soon, with the influx of probably millions of cheap labour, the big
cats may bring back the industries from china , yes now the western Europe may be able to compete
with them. I think this must all be part of their big plan and i think it wont work though
due to the people demanding higher standards of living.
"... Gosar is a cafeteria catholic, who ignores the thing about "loving thy
neighbor", and "tossing the first stone". ..."
"... Carbon pricing is not "market based"; it is a regulatory intervention to correct "market
distortions," which originate from... wait for it... HOW MARKETS FUNCTION! Nordhaus appears to
mistake an imaginary image of an "ideal" competitive market in which all externalities are
internalized for actual markets in which the ideal could never, never materialize. In fact,
externalities are NOT "market failures"; they are cost-shifting successes. ..."
"... MARKETS 'R' US! ..."
"...In fact, externalities are NOT "market failures"; they are cost-shifting successes..."
"... The SUV and Saudi Arabia are not worth the pain of American soldiers suffered defending
the past 70 years. ..."
Gosar was educated by the "Jesuits" (they are a minority of Jesuits today) who brought you
the Inquisition. Gosar is a cafeteria catholic, who ignores the thing about "loving thy
neighbor", and "tossing the first stone".
Religious freedom is not the practice of bigotry and intolerance.
Gosar would be best served listening to the Pope. He needs the truth.
... ... ...
Sandwichman said...
"...market-based environmental policies such as carbon pricing..."
"...the fact that environmental problems are caused by market distortions rather than by
markets per se..."
Who will teach the economists?
Carbon pricing is not "market based"; it is a regulatory intervention to correct "market
distortions," which originate from... wait for it... HOW MARKETS FUNCTION! Nordhaus appears to
mistake an imaginary image of an "ideal" competitive market in which all externalities are
internalized for actual markets in which the ideal could never, never materialize. In fact,
externalities are NOT "market failures"; they are cost-shifting successes.
And this is not Catholic theology -- it is economics as practiced by some of the most
perceptive economists of the 20th century who must be ignored because... MARKETS 'R' US!
Too bad, because I get the sense that Nordhaus's heart is in the right place even if his
economic theory is in the wrong century.
Sandwichman...
"...In fact, externalities are NOT "market failures"; they are cost-shifting
successes..."
[Priceless!]
Sandwichman -> RC AKA Darryl, Ron...
Credit to Joan Martinez-Alier, paraphrasing Karl William Kapp, "Externalities are not so
much market failures as cost-shifting 'successes'."
Kapp, Karl William (1971) Social costs, neo-classical economics and environmental planning.
The Social Costs of Business Enterprise, 3rd edition. K. W. Kapp. Nottingham, Spokesman:
305-318
Sandwichman -> Sandwichman...
K.W. Kapp:
"Environmental problems are being forced today into the conceptual box of externalities first
developed by Alfred Marshall. In my estimation this concept was not designed for and is not
adequate to deal with the full range and pervasive character of the environmental and social
repercussions set in motion by economic activities of producers or the goods produced and sold
by them to consumers. I agree with those who have criticized the use of the concept of
externalities as empty and incompatible with the logical structure of the static equilibrium
theory."
Sandwichman -> Sandwichman...
From "Social Costs of Business Enterprise" by K. W. Kapp. pp. 69-70:
How the principles of business enterprise favor the emergence of the social costs of air
pollution
"The initial concentration of industrial production in a few centers, as indeed the location
of industries in general under conditions of unlimited competition, will take place in
accordance with private cost-benefit calculations. Once established, the industry widens the
market for a host of other industries; it offers employment and income opportunities to labor
and capital; it provides a broader tax base for the emerging urban communities and the
necessary public services. The locality becomes generally more attractive for additional
investments, enterprise and labor and urban settlement. It is this expansionary momentum which
serves to 'polarize' industrial development in certain 'nodal' centers, which soon gives rise
to secondary and tertiary spread effects in the form of increasing outlets for agricultural
products and consumers' industries in general. In the light of traditional economic theory the
process seems to proceed in harmony with the principle of social efficiency. For, after all,
internal economies combine with external economies (in the narrow Marshallian sense) to make
it appear rational to concentrate production in centers which are already established and
offer some guarantee that the necessary social overhead investments (in roads, schools,
communication) can be shared by a larger community. What is overlooked is that the
concentration of industrial production may give rise to social costs which may call for
entirely new and disproportionate overhead outlays for which nobody may be prepared to pay.
Thus by concentrating on the analysis of internal and external economies, and by stopping
short of the introduction of the concept of social costs of unrestrained industrial
concentration, traditional theory lends tacit support to the overall rationality of cumulative
growth processes, no matter what their socially harmful effects may be. After all, what could
be more 'rational' than to exploit to the fullest extent the availability of internal and
external economies? As long as social costs remain unrecognized and as long as we concentrate
on costs that are internal to the firm or to the industry we shall fail to arrive at socially
relevant criteria.
"It may be argued that, while the neglect of social costs may contribute to the cumulative
growth process it still would not explain the incomplete and inefficient process of combustion
which gives rise to the emanation of pollutants into the atmosphere. For obviously, if air
pollution is a sign of inefficient and incomplete combustion of coal or oil the question
arises why would business enterprise permit such waste to continue? The answer is simply that
what may be technologically wasteful might still be economical considering the fact that not
only social costs can be shifted with impunity but, above all, that discounted private returns
(or savings) obtainable from the prevention of the technological inefficiency and social costs
may not be high enough to compensate for the private costs of the necessary abatement
measures. The fact that the resulting pollution of the atmosphere may cause social costs far
in excess of the costs of their abatement is not, and indeed cannot, be normally expected to
be considered in the traditional cost-benefit calculations of private enterprise."
Sandwichman -> Sandwichman...
More K. W. Kapp:
"My central thesis was and has remained that the maximization of net income by micro-economic
units is likely to reduce the income (or utility) of other economic units and of society at
large and that the conventional measurements of the performance of the economy are
unsatisfactory and indeed misleading. To my mind, traditional theoretical inquiry was neither
guided nor supported by empirical observations and available data. I tried to show that
micro-economic analysis ignored important relationships between the economy (wrongly viewed as
a closed system) and the physical and social environment and that these intrinsic
relationships gave rise to negative consequences of the economic process. It was and is my
contention that the nature and scope of economic theory is too narrow. This restriction has
affected economic theory at its foundation: i.e., at the stage of concept formation (e.g.,
costs and returns), in the choice of criteria of valuation and aggregation (in terms of money
and exchange values) and hence in the delimitation of the scope of the inquiry. Not only the
dynamic interconnection of the economy with the physical and social environment and the impact
which the disruption of the environment has upon the producer (worker) and consumer but also
the relationship between human wants and needs and their actual satisfaction have remained
outside the scope and preoccupation of economic theory. Human wants and preferences (all
subjective concepts), are treated as "given" and the analytical apparatus is designed to
develop an instrumental logic of choice and allocation under these given conditions within a
closed system.
"This traditional restriction of economic analysis is not only contrary to the empirical facts
of the interdependence of the economy with the environment but also protects the analysis and
its conclusions against its critics who present evidence of the negative impact of economic
activities on human health and human development. In fact, the whole procedure "alienates"
economic analysis from what I consider to be one of its most important objectives, namely the
appraisal of the substantive rationality (Max Weber) of the use of society's scarce resources.
Critics of the traditional approach from Marx and Veblen to Myrdal and more recently H. Albert
and W.A. Weisskopf have pointed out that the restriction of the analysis is the result of
specific analytical preconceptions as well as hidden value premises. In short, the critics
have argued that the restriction of economic analysis reflects a subtle dogmatism on the part
of its practitioners."
GeorgeK -> Sandwichman...
WSJ
Updated April 19, 2013 6:27 p.m. ET
"One of the great policy bubbles of our times has been cap and trade for carbon emissions, and
on Tuesday it may have popped for good. The European Parliament refused to save the EU's
failing program, which is the true-believer equivalent of the pope renouncing celibacy.
The Parliament in Strasbourg voted 334-315 (with 63 abstentions) against propping up the price
of carbon credits in the EU Emissions Trading System. The failed proposal would have delayed
the scheduled sale of 900 million ETS permits over the next seven years, thereby suppressing
supply. After carbon traders realized they weren't getting more artificial scarcity, they
drove the price of emissions permits down by 40% at one point on Tuesday."....
Maybe Mr Nordhaus miss this little gem when he was "researching" his article
Cap and Trade Collapses
Even the European Parliament rejects carbon price-fixing
ilsm -> Sandwichman...
The author does not think greed and failed distribution are market distortions.
Sandwichman -> ilsm...
No. Nordhaus appears to believe that general equilibrium describes a tendency of economies
rather than a feature of abstract mathematical models. After all, didn't Arrow and Debreau
"prove" its existence (given certain implausible assumptions)?
The mathiness fetish began long before Lucas and his bogus "critique." Only a profession that
was desperately eager to "pay no attention to the man behind the curtain" could have fallen
for such a blatant display of OzWizardry.
Sandwichman -> Sandwichman...
I repeat:
"Human wants and preferences (all subjective concepts), are treated as "given" and the
analytical apparatus is designed to develop an instrumental logic of choice and allocation
under these given conditions within a closed system.
"This traditional restriction of economic analysis is not only contrary to the empirical facts
of the interdependence of the economy with the environment but also protects the analysis and
its conclusions against its critics who present evidence of the negative impact of economic
activities on human health and human development."
david -> Sandwichman...
I always find it very hard to get over this fundamental objection. And wonder why I think I
should.
DrDick -> ilsm...
Why would he? They are the very heart and soul of capitalist markets.
Pope Francis' fact-free flamboyance
By George F. Will - Washington Post
Pope Francis embodies sanctity but comes trailing clouds of sanctimony. With a convert's
indiscriminate zeal, he embraces ideas impeccably fashionable, demonstrably false and deeply
reactionary. They would devastate the poor on whose behalf he purports to speak - if his
policy prescriptions were not as implausible as his social diagnoses are shrill.
Supporters of Francis have bought newspaper and broadcast advertisements to disseminate some
of his woolly sentiments that have the intellectual tone of fortune cookies. One example:
"People occasionally forgive, but nature never does." The Vatican's majesty does not disguise
the vacuity of this. Is Francis intimating that environmental damage is irreversible?
[ A wildly offensive essay from a typically offensive writer, but so much so as to be
deserving of reading at least for the idea that environmental damage, damage to life as such,
is inevitably and necessarily reversible. ]
Sandwichman -> anne...
Yuck. There is a reason I don't read George Will. He is a political pornographer whose
intended audience is composed of post-adolescent crypto-fascists.
Sandwichman -> Sandwichman...
"[William F.] Buckley is survived by his hip satirical novelist son Christopher, his pale
imitation of its former self magazine, and George Will's wardrobe and middle initial."
But in reference to your first comment in this post, there is a market for his writing, so
...
DrDick -> cm...
There is a market for underage prostitutes as well. That does not mean that we should
encourage it.
Sandwichman -> Sandwichman...
Wikipedia: "A shill, also called a plant or a stooge, is a person who publicly helps a
person or organization without disclosing that they have a close relationship with the person
or organization."
Ben Groves said...
Follow the actual policy and reject the dialect. There has been almost no move against what
is called "Climate Change". The "deniers" try to mutter dialectical nonsense there has been
this great move, but they are lying. Look at the Rockefeller fortune split. While Jay has
moved David's fortune to supporting moves to combat climate change, the Rockefeller Foundation
has consistently financed denier bullshit globally and they own most of the money. Thus, the
climate denier is a globalist. Why? Because global capitalism can't run without oil and
specifically, cheap oil in the developed world for them to make profit.
If you want to enmass a battle against "climate change" (a word the deniers existed), you must
use fear and nationalism. This is the weakness in the current response. When you don't use
fear and nationalism, it creates a emasculated response and people don't drift to Beta's.
Alpha response in politics cannot be underestimated. It is how the neocons suck in the fools
and what they learned watching 100 years of anti-capitalism in action (especially the Cuban
revolution, with mega alpha males Fidel and Che).
ilsm said...
From the start the carbon cabal has created immense externalities which governments have
responded with coddling them with subsidies and defending their foreign "assets".
From wars (US since WW II), to support of corrupt royals and ruthless dictators, to cadmium
in the livers of ungulates, to blighted cities and to massive degradation of the public
health.
While the right wing is defending the soccer Mom's SUV!
The SUV and Saudi Arabia are not worth the pain of American soldiers suffered defending
the past 70 years.
"... The EIA released a report pointing out the impact the massive debt service US oil producers have
accumulated in recent years is having on their cash flow. Last week Samson Resources joined a list
of oil producers filing for bankruptcy in an effort to get out from under $4 billion it owes to 10,000
creditors. ..."
"... According to Bloomberg, more than half the companies on its list of oil producers have debts
totaling 40 percent or more of their value. Bloomberg also says that 400,000 b/d of oil produced
by companies in financial trouble is in risk of being shut down. ..."
"... US natural gas production
has started to fall. Some of this is due to the drop in natural gas production that comes along with
falling oil production, but some is due to the the extremely low price of natural gas ..."
"... the Iranians are looking forward to increasing their oil production next year
and regaining their former share of the international oil market. ..."
"... The Saudis still have about $660 billion
in foreign assets, enough to get them through five years of low oil prices. ..."
"... In
the first half, the Saudis exported an average of 4.4 million b/d to seven Asian nations, about the
same as they did before the price slump. ..."
"... the government is studying an increased oil extraction
tax that could increase the tax burden on oil producers by $9 billion. Given the shape of the Russian
economy, there is little left to tax other than oil production ..."
The EIA released a report pointing out the impact the massive debt service US oil producers have
accumulated in recent years is having on their cash flow. Last week Samson Resources joined a list
of oil producers filing for bankruptcy in an effort to get out from under $4 billion it owes to 10,000
creditors. Only four years ago KKR & Co. and a group of other investors spent $7.2 billion in buying
Samson. According to Bloomberg, more than half the companies on its list of oil producers have debts
totaling 40 percent or more of their value. Bloomberg also says that 400,000 b/d of oil produced
by companies in financial trouble is in risk of being shut down.
Moody's and Goldman's were out
last week with pessimistic forecasts about the outlook for the oil industry over the next two years.
Moody's says that earnings from the global oil and gas industry will decline by 20 percent this year
and only recover modestly in 2016. Goldman's says the the current crude surplus may keep prices low
for the next 15 years and reiterated that it could take prices as low as $20 a barrel to clear the
oil glut which is threatening to overrun storage capacity.
The US Secretary of Commerce noted last week that interest in acquiring new drilling rights in
the Gulf of Mexico is dropping due to low oil prices. This year the auction of drilling rights in
the Western Gulf of Mexico yielded only $22.7 million as compared with $110 million last year. High-cost
off shore drilling is in a lot of trouble with participants scrambling to mothball drilling rigs
and fleets of support ships and to defer new equipment that was ordered during the boom years.
... ... ...
Lost in all the furor over oil prices and declining production is that US natural gas production
has started to fall. Some of this is due to the drop in natural gas production that comes along with
falling oil production, but some is due to the the extremely low price of natural gas which fell
on Friday to $2.60 per million BTU's in NY. These prices have led to an increase in demand for gas
by the power companies and the ongoing construction of several export terminals for LNG.
... ... ...
In the meantime, the Iranians are looking forward to increasing their oil production next year
and regaining their former share of the international oil market. Tehran has announced that new types
of oil contracts aimed at attracting foreign investment to the country's oil industry will be announced
soon. Trade delegations from France and the UK are scheduled to visit Tehran soon.
... ... ...
Down in Iraq, the government is trying to cope with lower oil prices by increasing exports. The
latest plan calls for shipments of Basra crude to increase by 26 percent next month. In the meantime,
Baghdad has warned the foreign oil companies working in the country that it will not have much money
to pay them for their drilling efforts in the coming year so they should cut back on capital expenditures.
... ... ...
There is unlikely to be much change in the oil situation unless there is some type of foreign
intervention to contain the Islamic State or stop the refugee flow into the Mediterranean.
... ... ...
The Saudis are starting to feel the impact of lower oil prices as the kingdom faces the biggest
financial deficit in decades. Steps to cut spending are underway and the privatization of state-owned
companies and elimination of fuel subsidies are likely. The Saudis still have about $660 billion
in foreign assets, enough to get them through five years of low oil prices.
Recent data shows that the Saudis are holding their own in efforts to maintain market share.
In
the first half, the Saudis exported an average of 4.4 million b/d to seven Asian nations, about the
same as they did before the price slump.
... ... ...
Russia's economy continues to deteriorate. Moscow's labor minister said that real incomes in Russia
are expected to contract by 5 percent this year. Efforts to ramp up domestic substitutes for food
and goods previously imported from the West are going slowly and it may be years before they are
implemented. To offset growing budget deficits, the government is studying an increased oil extraction
tax that could increase the tax burden on oil producers by $9 billion. Given the shape of the Russian
economy, there is little left to tax other than oil production which is still doing well thanks to
the greatly devalued ruble and large export sales which have combined to leave oil export revenues
largely unchanged when measured in rubles.
Work on the "Turkish Stream" pipeline which Moscow is planning to build to move natural gas to
the EU while bypassing Ukraine has not begun. Delays have moved completion of the project into 2017.
... ... ...
China's diesel exports may surge to a record in the coming months as refinery output increases
while domestic demand growth for the fuel slows. The nation's diesel shipments might have risen to
a record last month, topping the previous high in June of 670,000 tons, and may climb to 1 million
tons a month in the fourth quarter. (9/14)
... ... ...
Uganda/Kenya: Low crude prices have thrown the future of East African oil projects into
doubt. With oil prices languishing below $50 a barrel, there's little incentive for companies such
as Tullow Oil Plc, Africa Oil Corp., China's CNOOC Ltd. and France's Total SA to keep investing.
(9/16)
... ... ...
Gasoline consumption: U.S. motor gasoline use has been rising after reaching an 11-year
low in 2012. Although lower gasoline prices have been an important factor in the increase in gasoline
use so far in 2015, changes in the labor market and in the vehicle sales mix over the past few years
also have contributed to the rise in gasoline use. (9/16)
Then the Federal Reserve announced its decision to keep its benchmark interest rate at
rock-bottom levels, citing concerns about the health of the global economy. Those worries
promptly sent oil prices sliding, with WTI trading near $45 per barrel.
More ups and downs are assured. But we look for WTI to trade between $40 and $45 per barrel
by December. Any sort of sustained price rally looks unlikely until global supply is dialed
back from its current high level. Even though U.S. production is slipping a bit, output remains
strong in the Middle East and Russia.
"... hedge funds have cut
their gross short position by almost a third in recent weeks to 111 million barrels. This is down
from a peak of 163 million in mid-August, but still almost double the 56 million barrels seen in
mid-June: ..."
The crude complex is ripping higher after
Friday's lambasting, encouraged higher by signs of a tightening market and further closing of
short positions in the latest CFTC data. As the below chart illustrates, hedge funds have cut
their gross short position by almost a third in recent weeks to 111 million barrels. This is down
from a peak of 163 million in mid-August, but still almost double the 56 million barrels seen in
mid-June:
"... Around the world, an estimated
$1.5 trillion worth of oil and gas investment may not be viable, at least at today's prices,
according to a new report from Wood Mackenzie. The report concludes that $220 billion worth of investment
has already been scrapped, and another $20 billion could be cancelled as well. The number of new
oil and gas projects to be approved in 2016 could be around one-fifth of the annual average. ..."
"... The low oil prices are taking their toll, the main shale oil producing
regions in particular likely to suffer lasting damage ..."
Global oil demand also continues to rise. The IEA again revised its demand projection for 2015 upwards,
with consumption expected to
grow by 1.7 mb/d, a
five-year high. "The market's not as oversupplied as we think it is," David Pursell, managing director
at Tudor Pickering Holt & Co., told Bloomberg in an interview.
The long-term picture shows even
stronger signs of bullishness. For example, it is unlikely that Iraq will be able to reach its
ambitious production targets for the future, and because energy forecasters like the IEA are
counting on Iraq to make up a large share of global production growth in the coming decades, the
failure to reach those targets could leave the world short of supply. The same can be said for Brazil.
In June, Petrobras acknowledged it will be
unable to meet its production goals as well. The several million barrels per day lost between
just these two countries alone mean that the long-term supply picture looks a lot tighter than we
once thought.
But it goes beyond Iraq and Brazil. Around the world, an estimated
$1.5 trillion worth of oil and gas investment may not be viable, at least at today's prices,
according to a new report from Wood Mackenzie. The report concludes that $220 billion worth of investment
has already been scrapped, and another $20 billion could be cancelled as well. The number of new
oil and gas projects to be approved in 2016 could be around one-fifth of the annual average.
Other market watchers concur. "The low oil prices are taking their toll, the main shale oil producing
regions in particular likely to suffer lasting damage," Commerzbank concluded in
another report. Lower production over the longer-term could send oil prices up.
However, it is short-term market conditions that dictate the huge gyrations in crude oil prices.
And for now, based on the positions of oil speculators, prices may have bottomed out.
"... markets are less and less
supportive of deja vu innovation. ..."
"... However, a HUGE part of the problem is we have a (mostly) energy illiterate general
public, AND a scientific community that often does not speak in a language that the general
public can comprehend; there is A HUGE disconnect here. ..."
"... US electricity consumption per capita is at the levels of the late 1990s to early 2000s.
Efficiency, demographics reducing the growth of household formations, and a halving of the
growth of real GDP per capita since 2000 and a further deceleration to near 0% since 2007-08
are the primary factors reducing consumption per capita. ..."
"... It ..."
"... would be nice if our only problem were with oil. We have a problem with electricity too,
and with keeping the roads paved. Electric cars don't solve those problems. ..."
@CalifornuiaLiving you are right about the California economy booming. Record tourism, agriculture,
fossil fuels, high tech, etc. all have been strong. Problem is drought , wild fires, and climate
change have significant impact on the future. Also wage stagnation in non-elite worker sector is
a deepening problem. And high tech sector is starting to feel the pinch as markets are less and less
supportive of deja vu innovation.
The reality of ocean acidification, coastal marine life die off due to heat caused algae bloom
and potential sea rise from Arctic ice melting are no longer deniable. This is is not doom and gloom
– this is as you I am sure can recognize required input for planning how to adjust oir at the east
manage the risk.
What I appreciate from Gail is her careful analytical models that provide data points to monitor
as part of the risk assessment and adjustments that any pragmatist must consider.
Massive EV rollout is only good in tandem with a MASSIVE increase in installed renewable
energy systems technologies. It will take decades to do this based on today's generation mix.
And based on the escalation of the 'undesirables' and 'indifference' of Mother Nature, I'm
predicting there will be A LOT more pain in the near future.
Better if the leadership trains and educates the populous to conserve, leave these bad habits
of hyper-consumption in the past, and to PREPARE. to RESPOND. and ADAPT., because Mother
Nature is not going to wait.
BTW: I'm a renewable energy engineer.
kimgerly, September 14, 2015 at 7:16 pm
The way I see it is hyper-consumerism will be the bane of (wo)mans' and other species'
existence.
However, a HUGE part of the problem is we have a (mostly) energy illiterate general
public, AND a scientific community that often does not speak in a language that the general
public can comprehend; there is A HUGE disconnect here. And so, why would those of us in
the scientific/engineering realm expect the lay person to get onboard when we, although I try
my best not to, spew in language that goes over most peoples' heads. More storytelling is
needed…
On top of the fact that we have leaders who don't understand thermodynamics, so they make BAD
policy. Right, I blame a great deal on leadership who is failing to plan and not the sheeple.
But it's happened before and it is quite likely happening again. And so it goes…
CL, September 15, 2015 at 1:14 pm
@Kimgerly
I agree with you that "illiterate general public" is a major problem in setting the world on a
correct course and Gail with this blog is part of that problem. There is one simple proven way
to get the public to learn what is needed to point them in the right direction. It is though
the tax code. The government needs to taxes the public on the actions that are damaging our
environment and give credits to behavior that improves our environment. The one thing the
public understands is money. I'm sure the fools will come after me. When they read this post.
Telling me I'm obstructing their freedom that is destroying mother earth.
I also don't buy your statement that " leaders who don't understand". There is one party that
gets it and another that refuses to at knowledge the situation protecting it's special
interest ( oil companies for one ). This site lead by Gail is part of that special interest
infrastructure. I have yet to see since she fell out of favor at TheOilDrum. A solution to
anything. It's always Fear, Collapse, Fear and more Collapse.
Please Gail, let us know the last time you offered a solution ? You've been calling for
collapse for five years and it hasn't happened. When do you admit your wrong ?
PleaseExplain, September 15, 2015 at 2:56 pm
I'm sick of reading your negative doomsday scenario and disinformation that this site
pushes on the public for special interest. That's who I am.
US electricity consumption per capita is at the levels of the late 1990s to early 2000s.
Efficiency, demographics reducing the growth of household formations, and a halving of the
growth of real GDP per capita since 2000 and a further deceleration to near 0% since 2007-08
are the primary factors reducing consumption per capita.
EV sales are plunging with the crash in the price of gasoline and coincident with a global
recession that likely began in late 2014 to earlier this year.
Growth of wind and solar energy production overall and as a share of total energy production
has likely peaked for the cycle and will decelerate to 0% or negative in the years ahead, as
occurred in the 1990s.
Gail Tverberg, September 15, 2015 at 6:54 am
Yes, we do have a population problem.
Gail Tverberg, September 15, 2015 at 6:45 am
It would be nice if our only problem were with oil. We have a problem with electricity too,
and with keeping the roads paved. Electric cars don't solve those problems.
"... A Real Politik assessment that only can come from someone who covers the global oil producing
nations as a whole industry. ..."
"... The breakup of the Soviet Union was not just the fall of a single nation, but
the fall of one of 2 Post WWII Global Hegemons. ..."
"... Unfortunately, the overwhelming jargon of business from the last 4 decades of unrelenting Neo-liberalism
likes to refer to ¨deals¨ and Western values, as if we clip money saving coupons to be redeemed
at the bargaining table with Iran. ..."
"... The US still owes the Iranians much more than "regret" for overthrowing the first true and democratically
elected SECULAR government ever in the ME (Mossedegh). ..."
"... They
COULD have been a true, natural ally of the West (except for the "privatize everything" schtick the
West has been stuck in for the last 30 years). Such a waste. All we've left behind us is chaos, jihadis,
instability, death. ..."
This has led to a new emerging relationship between the Saudis and Russia, where
negotiations between Russia and OPEC emerged over the possibility of coordination of oil production
levels. OPEC hinted that it was open to coordinated production cuts with non-OPEC members in its
latest bulletin report, saying that "if there is a willingness to face the oil industry's challenges
together" then the future would "be a lot better." Russian officials held meetings with their counterparts
from OPEC, fueling speculation of some sort of accommodation.
Despite positive language from the
negotiators, the talks so far have not amounted to much. Rosneft's Igor Sechin seemed to rule out
such a scenario on September 7 in
comments to the press, in which he said that Rosneft can't operate the way OPEC can. It would
be difficult for Russia to cut back on its production, even if that meant some chance of higher prices.
Russia's economy is hurting, and it needs to sell every barrel that it can.
Although there won't be a deal on oil output, Saudi Arabia and Russia made more progress on discussions
regarding the purchase of Russian
nuclear
power plants and military equipment, a likely wake-up call to the U.S. and UK, the Saudis' longtime
military suppliers. Still to be determined is whether this is a new alliance or merely a show of
Saudi independence.
... ... ...
The EIA reports that in the last five years, the U.S. 'shale oil revolution' has
enabled the U.S. to more
than halve its oil imports, making it far less dependent on imports from OPEC, and significantly
changing the terms of the relationship.
There is a lively ongoing argument in the world press about the possibility of the nuke deal leading
to an entente between the U.S. and Iran, or even the possibility of an actual alliance.
Hardcore opponents of the deal claim that Iran is already in a quasi-alliance with the U.S. in
the fight against ISIS in Iraq. And, although both countries hotly deny any intent to form an alliance,
there are many in the region who believe that perhaps 'the ladies doth protest too much'.
... ... ...
As reported by Nick Cunningham,
on these pages, the recently announced agreement with European oil companies to extend Gazprom's
Nordstream gas pipeline into Germany was a clear sign that the EU is willing to do business with
Russia again; this despite the Ukraine crisis, which in the face of Middle Eastern conflicts, seems
to be fading into the background.
Selected Skeptical Comments
Vince in MN, September 21, 2015 at 6:39 am
39 paragraphs of cliche ridden breathless rumor mongering. The heart veritably races waiting
for the next shoe dropping.
EoinW, September 21, 2015 at 8:58 am
In my lifetime, the Middle East has had two problems: Wahabbism and Zionism. We've been on
the wrong side of both. One can count on western leaders to always be on the wrong side.
If Putin appears the voice of reason, what does that make Obama? He often seems like a housewife
reacting to the dramatic conclusion of his favourite soap opera…with a new episode to follow tomorrow.
Almost want to write – same Bat time, same Bat channel – it's so cartoonish.
The refugee crisis has made Merkle seem almost like a compassionate human being. But we know
she only cares about keeping the EU going on her watch and she can see what a threat the refugee
crisis is to EU unity. How worse will that threat be when Ukrainian refugees start coming? Better
make nice with Russia!
"Saudis offer to Israel to allow flyovers of Saudi territory in case an attack on Iran" This
has been reported on and off for several years.
The "sudden military alliance between Israel and Saudi Arabia" seems overblown. There have
been very scattered reports of intelligence cooperation in the past but that is it.
Of course FARS reports stuff like this:
"20 Israeli officers and 63 Saudi military men and officials were killed"
likbez September 21, 2015 at 11:22 am
"39 paragraphs of cliche ridden breathless rumor mongering. The heart veritably races
waiting for the next shoe dropping."
I would agree. It is clear for me that the quality of reporting about Russia is on the level
of presstitutes from WashPost.
Also it is unclear that is the USA game plan as for Iran and what this article tries to communicate
does not look plausible. It might well be that the USA wants to spread their bets by including
Iran into the cycle of vassals (the USA does not need allies, only vassal states) but I think
Iran elite still remembers years of crippling sanctions pretty well to jump into Uncle Sam embraces.
The deal is needed mainly to put additional pressure on oil prices and if it achieves its goals
and Russia crumbles, Iran will be thrown under the bus by US neocons very soon and without any
hesitation.
It also looks like SA leadership wants some kind of rebalancing of relations with Russia as
after Egypt to rely on US neocons is simply stupid. They proved to be pretty treacherous folks
and promises given are not worth the paper they were printed on.
But if we assume that neocons dominate the USA foreign policy in foreseeable future, then the
key policy in Middle East will be usual "divide and conquer" policy like we saw in Iraq, Libya
and Syria. And bloodshed financed from usual sources (is not ISIS the USA and friends creation
?) will continue.
What is interesting is that SA never managed considerably increase their oil exports as their
internal consumption grows more rapidly then extraction. They just refused to drop the volume
of their exports. Probably with tacit approval of the USA. So it looks like drastic oil price
drop is mainly financial markets play (derivative and futures games) - and that means that one
plausible scenario is that this is another attempt to hurt Russia and depose Putin, even by taking
a hit for own shale industry and decimating Canadian oil sands. Lifting sanctions from Iran is
just the second step of the same plan.
EoinW -> likbez, September 21, 2015 at 12:32 pm
If Vietnam can forget over 2 million murdered by Americans and cozy up to Washington then it must
be possible to find elites in any society(even Iran) who will sell out for the right price.
A Real Politik assessment that only can come from someone who covers the global oil producing
nations as a whole industry. Not completely unsurprising, but unusual in that the only constant
in the social order is change and the people making sense out of the change have to look ahead
to consequences real and unintended from political decisions that impact global energy production,
particularly oil. The breakup of the Soviet Union was not just the fall of a single nation, but
the fall of one of 2 Post WWII Global Hegemons.
The failure of the Project for A New American Century as a bid for a unipolar, unilateral Militaristic
American Hegemony has resulted in a shift back to the International as opposed to Global relations.
The institutions of the Post WWII world, The United Nations, the IMF and the World Bank, with
the emphasis on diplomacy as opposed to nation to nation warfare is being resurrected in the Iranian
Nuclear Non-Proliferation Treaty. What has been nearly completely absent is the naming of the
UN Security Councils permanent members, the victors of WWII were united in staring down Iran until
they produced the desired results, namely, giving up on pushing its way into the nuclear power
club. The re-establishment of normal diplomatic relations with Cuba is a corroborating development.
Russia has worked with the US in Syria to eliminate the chemical warfare stockpiles of Syria as
well as patiently worked to conclude a successful Iran re-approachment.
Unfortunately, the overwhelming jargon of business from the last 4 decades of unrelenting Neo-liberalism
likes to refer to ¨deals¨ and Western values, as if we clip money saving coupons to be redeemed
at the bargaining table with Iran. And the war party demanded that a better deal could be had,
what, they could get it for us WHOLESALE! Nuclear Non Proliferation was what was at stake and
the UN Permanent Security Council Members were all present to negotiate the re-integration of
Iran into the United Nations.
Presidents Obama and Putin are more allied than not and the structure of an inclusive international
social order are being worked out without the lies of the Bush family´s war party plans. The USA
is not falling apart at the seams because other nations are finally enriching themselves, thus
putting them beyond the simple command and control of Neo-con warlords. The USA is relatively
weaker not due to being hood winked or conquered but because other nations have risen in their
own capacity to direct self determination. Iran is welcomed to do so, just not with nuclear weapons.
That is a good thing, in the eyes of the Iranians and the rest of world.
I DO so hope it leads to a completely new alignment in the ME. I am sick to
death of "Iran the great evil" bullcrap.
It has always struck me as purely a childish
temper tantrum on the part of the USA because the Iranian people had the GALL to
toss out OUR murderous dictator and actually run their own country for their own
people. Who do they think they are?
How DARE they use THEIR oil for THEIR country
rather than to serve Western oil company bottom lines and provide the US with oil
that, by rights, belongs to it. Because America! That and the fact that the Iranians
held some US neocolonials/neoliberals hostage for a year-ish. That's unacceptable!
Americans can do anything they want to whomever they want, damnit!
The US still owes the Iranians much more than "regret" for overthrowing the first true and democratically
elected SECULAR government ever in the ME (Mossedegh). Imagine what Iran and even the ME could have
been by now if Mossedegh had been allowed to stay in rightful power? Iran would be a true beacon
of liberty and freedom and modernity in the heart of the ME. Israel doesn't even come close. They
COULD have been a true, natural ally of the West (except for the "privatize everything" schtick the
West has been stuck in for the last 30 years). Such a waste. All we've left behind us is chaos, jihadis,
instability, death.
For the last 20 years, realistic US inflation rate was probably higher then
official figures considerably. Some estimate it between 4% to 5% a year. Medical
expenses rose probably 200%. Cost of higher education skyrocketed. We can say that
rent alone from 1995 to 1996 rose probably 60% (assuming 3% a year official figure).
Food prices are highly correlated with oil and they rose more (but they do not represent
major expense item in most budgets).
"... Absolute shit one bedroom apartments rent for $800 a month. A decent two
bedroom apartment goes for $1600. A FUCKING APARTMENT. Not in the city of Boston
or suburbs like Cambridge, but 40 miles west. A "three" bedroom 1100 sq ft house
in a crap city like Fitchburg can rent for $1400. ..."
... by now everyone knows that the artificially suppressed, "hedonically-modified"
and seasonally-adjusted inflationary readings is what has permitted the
Fed to not only grow its balance sheet to $4.5 trillion but to keep rates
at 0% for 8 years. Because "how will the economy recover if there is no
broad inflation", the Keynesian brains in the ivory tower scream, demanding
more, more, more easing just to push inflation higher.
There is only one problem with this: it is all a lie - just ask
any average American whose cost of living has soared in the past decade.
Still, with reality diverging so massively from the government's official
data, reality just had to be wrong somehow.
Turns out reality was right all along, as revealed by the latest
"State
of the Nation's Housing" report released by the Center for Housing Studies
at Harvard, which showed that while inflation among most products and services
may indeed be roughly as the Fed and BLS represent it, when it comes to
rent - that most fundamental of staple costs - things have never been worse.
According to the report, for American renters 2013 marked another
year with a record-high number of cost burdened households - those paying
more than 30 percent of income for housing. In the United States, 20.7
million renter households (49.0 percent) were cost burdened in 2013.
It gets worse: a whopping 11.2 million, or more than a quarter of
all renter households, had "severe cost burdens, paying more than half of
income for housing." The median US renter household earned $32,700 in
2013 and spent $900 per month on housing costs. Renter housing costs are
gross rents, which include contract rents and utilities.
... ... ...
And since there is an unprecedented demand for rental units across the US
(as the "owning" alternative has become inaccessible), the median asking rent
not only soared at an annual rate of over 6%, it has never been higher, with
the Census Department recently reporting that the Median US asking just hit
an all time high $803.
... ... ...
What is odd is that according to the BLS, rent inflation is far less: at
just 3% in the most recent print. One wonders what seasonal adjustments American
renters should use to make their monthly paycheck smaller, the way the BLS perceives
it. Still, at 3.6% this is the highest annual rent inflation since 2008.
And herein lies the rub: because it is not so much what the real, honest
inflation growth rate of rent is, it is what the offsetting income growth. Unfortunately,
while the BLS can seasonally adjust rent payments to make them as low as a bunch
of bureaucrats want, the bigger problem is that US household income is not only
not keeping up with rent inflation, it is far below it. In fact, as reported
last week, real income is now back at 1989 levels!
And here is the punchline:
"in the years following 2000, gains in typical monthly rental costs exceeded
the overall inflation rate, while median income among renters fell further
and further behind (Figure 3). As a result, the share of renter households
facing severe cost burdens grew dramatically, reaching a new record high
of 28 percent in 2011 before edging down to 26.5 percent in 2013. Adding
in those with moderate burdens, just under half of all renters were cost
burdened in 2013. These rates are substantially higher than a decade ago
and roughly twice what they were in 1960."
... ... ...
Furthermore, rent inflation isn't going anywhere - in fact, it will only
get worse: "as of 2013, the median rent of a newly constructed unit
of $1,290 was equal to about half the median renter's monthly household income,
underscoring the urgent need for policy makers to consider enhanced levels of
support for rental housing particularly for lowest income households but across
a range of income levels."
Hype Alert
Housing and healthcare are severely under reported on inflation. How
healthcare can triple and not set off flashing red lights on inflation is
unreal.
Never One Roach
I don't know how seniors who relied on SS benefits to survive are living
when their COLA has been 0.01% the past several years despite soaring food,
health costs, utinilites, etc.
AGuy
"I don't know how seniors who relied on SS benefits to survive are
living when their COLA has been 0.01% "
Simple: many still work while collecting SS. Some have part-time jobs (aka
Wallmart) others maintained their full time jobs. If you look at the employment
chart, Employment for those 55 and older has risen considerably. I believe
employment for the 70+ group has also increased.
However, many 65+ have a lower cost of living. (ie no mortgage payments,
no college loans, lower healthcare -on Medicare, etc). They can afford to
take on one part time job to meet ends since they have SS.
Consuelo
"The reason for this is a simple, if dramatic one: the U.S. transformation
from a homeownership society, to one of renters."
All well & good in the context of officialdom's lies and deceit, but
there's just a ~tiny~ bit of clarification needed here...
Home 'ownership' is a misnomer, and just a plain bald-faced Falsehood
in reality. You don't 'own' ~anything~ until that last mortgage payment
is made - assuming you're not a $cash buyer. And even then, try skipping
a property tax payment... And didn't we just find out a few years back,
the real meaning of 'home ownership' to the ball & chain tied schlub paying
(or not) his mortgage...?
WTF_247
Wage growth has lagged most other costs for at least a decade or more.
Inflation and other cost increases are compound functions. The correction
will take care of itself. Healthcare and rent are taking more and more of
peoples $$ You can only stretch it so far - at some point there is no more
money.
Either incomes will rocket up OR housing, including rent, will crash
huge. You cannot get renters to pay for something they have no money for.
No one is going to rent and choose not to eat or to eat ramen noodles permanently.
You cant even get rid of health insurance now or the IRS comes after you
- no matter how much it increases each year (estimated 15-20% increase next
year). You can get 1 roommate, then 2. But most cities limit the number
of renters based upon the number of bedrooms - this only goes so far.
The solution is to stop working or only work a bare minimum - get benefits.
Section 8 housing. EBT. Free healthcare. Welfare benefits.
Something is wrong in the US when a working mother making 29k has a better
standard of living that someone making 69k per year. If anyone thinks this
is not lost on the population as a whole, they would be mistaken. As costs
keep going up it is more lucrative to NOT fight anymore. Let the govt pay
for it.
novictim
Tyler! "Missing Inflation" is not a mistake or a misunderstanding or
an accounting glitch.
Inflation really is low. People have insufficient money.
Do not confuse asset inflation with real inflation. Stock overvaluations
and real estate over-evaluations do not create real inflation because prices
drop when people sell. Assets are self correcting and non-inflationary.
adr
I shouldn't have to worry about affording somewhere to live with the
job I have, yet because of where the job is I have to.
The entire Northeast is fucking insane.
Absolute shit one bedroom apartments rent for $800 a month. A decent
two bedroom apartment goes for $1600. A FUCKING APARTMENT. Not in the city
of Boston or suburbs like Cambridge, but 40 miles west. A "three" bedroom
1100 sq ft house in a crap city like Fitchburg can rent for $1400.
I posted a three bedroom ranch that was renting for $3200 a month a little
while ago. What do millionaires rent shitty 1950s ranch homes in a hick
town?
Then you have property taxes. Up 100% in five years in almost every town
even though assessments are actually down. I saw a home listed with a 2009
value of $364k and property taxes of $2800 a year. The current assessed
value is $289k but taxes are $5200.
"...Of course I know that the United States of America is not Turkey. But there are lessons to
be learned from its example of how a democracy can be subverted by particular interests hiding behind
the mask of patriotism."
It has frequently been alleged that the modern Turkish Republic operates on two levels. It has a
parliamentary democracy complete with a constitution and regular elections, but there also
exists a secret government that has been referred to as the
"deep state," in Turkish "Derin Devlet."
The concept of "deep state" has recently
become fashionable to a certain
extent, particularly to explain the persistence of traditional political alignments when confronted
by the recent revolutions in parts of the Middle East and Eastern Europe. For those who
believe in the existence of the deep state, there are a number of institutional as well as extralegal
relationships that might suggest its presence.
Some believe that this deep state arose out of a secret NATO operation called "Gladio,"
which created an infrastructure for so-called "stay behind operations" if Western Europe were to
be overrun by the Soviet Union and its allies. There is a certain logic to that assumption,
as a deep state has to be organized around a center of official and publicly accepted power, which
means it normally includes senior officials of the police and intelligence services as well as the
military. For the police and intelligence agencies, the propensity to operate in secret is a sine
qua non for the deep state, as it provides cover for the maintenance of relationships that under
other circumstances would be considered suspect or even illegal.
In Turkey, the notion that there has to be an outside force restraining dissent from political
norms was, until recently, even given a legal fig leaf through the
Constitution of
1982, which granted to the military's National Security Council authority to intervene in developing
political situations to "protect" the state. There have, in fact, been four military coups
in Turkey. But deep state goes far beyond those overt interventions. It has been claimed that deep
state activities in Turkey are frequently conducted through connivance with politicians who provide
cover for the activity, with corporate interests and with criminal groups who can operate across
borders and help in the mundane tasks of political corruption, including drug trafficking and money
laundering.
A number of senior Turkish politicians have spoken openly of the existence of the deep
state. Prime Minister Bulent Ecevit tried to learn more about the organization and, for
his pains, endured an assassination attempt in 1977. Tansu Ciller
eulogized "those who died for the state and
those who killed for the state," referring to the assassinations of communists and Kurds. There have
been several significant exposures of Turkish deep state activities, most notably an automobile accident
in 1996 in Susurluk that killed the Deputy Chief of the Istanbul Police and the leader of the
Grey Wolves extreme right
wing nationalist group. A member of parliament was also in the car and a fake passport was discovered,
tying together a criminal group that had operated death squads with a senior security official and
an elected member of the legislature. A subsequent investigation determined that the police had been
using the criminals to support their operations against leftist groups and other dissidents. Deep
state operatives have also been linked to assassinations of a judge, Kurds, leftists, potential state
witnesses, and an Armenian journalist. They have also bombed a Kurdish bookstore and the offices
of a leading newspaper.
As all governments-sometimes for good reasons-engage in concealment of their more questionable
activities, or even resort to out and out deception, one must ask how the deep state differs.
While an elected government might sometimes engage in activity that is legally questionable,
there is normally some plausible pretext employed to cover up or explain the act.
But for players in the deep state, there is no accountability and no legal limit. Everything
is based on self-interest, justified through an assertion of patriotism and the national interest.
In Turkey, there is a belief amongst senior officials who consider themselves to be parts of the
status in statu that they are guardians of the constitution and the true interests of the nation.
In their own minds, they are thereby not bound by the normal rules. Engagement in criminal activity
is fine as long as it is done to protect the Turkish people and to covertly address errors made by
the citizenry, which can easily be led astray by political fads and charismatic leaders. When things
go too far in a certain direction, the deep state steps in to correct course.
And deep state players are to be rewarded for their patriotism. They
benefit materially from the criminal activity that they engage in, including protecting
Turkey's role as a conduit for drugs heading to Europe from Central Asia, but more recently involving
the movement of weapons and people to and from Syria. This has meant collaborating with groups
like ISIS, enabling
militants to ignore borders and sell their stolen archeological artifacts while also negotiating
deals for the oil from the fields in the areas that they occupy. All the transactions include a large
cut for the deep state.
If all this sounds familiar to an American reader, it should, and given some local idiosyncrasies,
it invites the question whether the United States of America has its own deep state.
First of all, one should note that for the deep state to be effective, it must be intimately
associated with the development or pre-existence of a national security state. There must
also be a perception that the nation is in peril, justifying extraordinary measures undertaken by
brave patriots to preserve life and property of the citizenry. Those measures are generically conservative
in nature, intended to protect the status quo with the implication that change is dangerous.
Those requirements certainly prevail in post 9/11 America, and also feed the other essential component
of the deep state: that the intervening should work secretly or at least under the radar. Consider
for a moment how Washington operates. There is gridlock in Congress and the legislature opposes
nearly everything that the White House supports. Nevertheless, certain things happen seemingly without
any discussion: Banks are bailed out and corporate interests are protected by law. Huge
multi-year defense contracts are approved. Citizens are assassinated by drones, the public is routinely
surveilled, people are imprisoned without be charged, military action against "rogue" regimes is
authorized, and whistleblowers are punished with prison. The war crimes committed by U.S. troops
and contractors on far-flung battlefields, as well as torture and rendition, are rarely investigated
and punishment of any kind is rare. America, the warlike predatory capitalist, might be considered
a virtual definition of deep state.
One critic describes
deep state as driven by the "Washington Consensus," a subset of the "American exceptionalism" meme.
It is plausible to consider it a post-World War II creation, the end result of the "military industrial
complex" that Dwight Eisenhower warned about, but some believe its infrastructure was actually put
in place through the passage of the Federal Reserve Act prior to the First World War. Several years
after signing the bill, Woodrow Wilson reportedly
lamented,
"We have come to be one of the worst ruled, one of the most completely controlled and dominated governments
in the civilized world, no longer a government by conviction and the vote of the majority, but a
government by the opinion and duress of a small group of dominant men."
In truth America's deep state is, not unlike Turkey's, a hybrid creature that operates
along a New York to Washington axis. Where the Turks engage in criminal activity to fund
themselves, the Washington elite instead turns to banksters, lobbyists, and defense contractors,
operating much more in the open and, ostensibly, legally. U.S.-style deep state includes all the
obvious parties, both public and private, who benefit from the status quo: including key players
in the police and intelligence agencies, the military, the treasury and justice departments, and
the judiciary. It is structured to materially reward those who play along with the charade, and the
glue to accomplish that ultimately comes from Wall Street. "Financial services" might well be considered
the epicenter of the entire process. Even though government is needed to implement desired policies,
the banksters comprise the truly essential element, capable of providing genuine rewards for compliance.
As corporate interests increasingly own the media, little dissent comes from the Fourth Estate as
the process plays out, while many of the proliferating Washington think tanks that provide deep state
"intellectual" credibility are similarly funded by defense contractors.
The cross fertilization that is essential to making the system work takes place through
the famous revolving door whereby senior government officials enter the private sector at a high
level. In some cases the door revolves a number of times, with officials leaving government
before returning to an even more elevated position. Along the way, those select individuals are protected,
promoted, and groomed for bigger things. And bigger things do occur that justify the considerable
costs, to include bank bailouts, tax breaks, and resistance to legislation that would regulate Wall
Street, political donors, and lobbyists. The senior government officials, ex-generals, and high level
intelligence operatives who participate find themselves with multi-million dollar homes in which
to spend their retirement years, cushioned by a tidy pile of investments.
America's deep state is completely corrupt: it exists to sell out the public interest,
and includes both major political parties as well as government officials. Politicians like
the Clintons who leave the White House "broke" and accumulate $100 million in a few years exemplify
how it rewards. A bloated Pentagon churns out hundreds of unneeded flag officers who receive munificent
pensions and benefits for the rest of their lives. And no one is punished, ever. Disgraced former
general and CIA Director David Petraeus is now a partner at the KKR private equity firm, even though
he knows nothing about financial services. More recently, former Acting CIA Director Michael Morell
has become a Senior Counselor at Beacon Global Strategies. Both are being rewarded for their loyalty
to the system and for providing current access to their replacements in government.
What makes the deep state so successful? It wins no matter who is in power, by
creating bipartisan-supported money pits within the system. Monetizing the completely unnecessary
and hideously expensive global war on terror benefits the senior government officials, beltway industries,
and financial services that feed off it. Because it is essential to keep the money flowing, the deep
state persists in promoting policies that make no sense, to include the unwinnable wars currently
enjoying marquee status in Iraq/Syria and Afghanistan. The deep state knows that a fearful public
will buy its product and does not even have to make much of an effort to sell it.
Of course I know that the United States of America is not Turkey. But there are
lessons to be learned from its example of how a democracy can be subverted by particular interests
hiding behind the mask of patriotism. Ordinary Americans frequently ask why politicians and
government officials appear to be so obtuse, rarely recognizing what is actually occurring in the
country. That is partly due to the fact that the political class lives in a bubble of its own creation,
but it might also be because many of America's leaders actually accept that there is an unelected,
unappointed, and unaccountable presence within the system that actually manages what is taking place
behind the scenes. That would be the American deep state.
rehypothecator
"It is difficult to get a man to understand something, when his salary depends on his not understanding
it." - Upton Sinclair
Martian Moon
https://www.youtube.com/watch?v=n3xgjxJwedA
Latest on 911 by James Corbett
Educate yourself
All Risk No Reward
This is all you need to know to prove, beyond all doubt, that the official pile driving narrative
is false.
The reality is that anyone can OBSERVE that the top of the building DID NOT DO WHAT A CUE BALL
DOES EVERY SINGLE TIME IT HITS ANOTHER BILLIARD BALL - the top of the building did not decelerate.
It did not decelerate because IT DID NOT HIT THE LOWER SECTION OF THE BUILDING. For if it had
hit the lower section of the building, IT WOULD HAVE DECELERATED.
The official story never addressed this point. They wisely stopped their investigation at the
initiation of collapse. That was no accident.
AitT - Sir Isaac Newton Weighs in on the World Trade Center North Tower Collapse Official Narrative
Now, some people will attack either me or this factual, observable, and repeatable information
based on their programmed "crimestop" response...
crimestop - Orwell's definition: "The faculty of stopping short, as though by instinct, at the
threshold of any dangerous thought. It includes the power of not grasping analogies, of failing
to perceive logical errors, of misunderstanding the simplest arguments if they are inimical to
Ingsoc, and of being bored or repelled by any train of thought which is capable of leading in
a heretical direction. In short....protective stupidity."
But what nobody will do - because they can't do it - is to explain a physics based scenario
where the top of the building hit a structurally solid lower section of the building WITHOUT DECELERATING.
There are NO CONTRADICTIONS in reality. One leading blogger claimed he had done lots of research
that showed the official story was correct.
But what he didn't do before he stopped the conversation (smart subconsciousness!) was to explain
how the top of the building could have hit a structurally sound lower section of the building
without experiencing marginal deceleration.
This is the video that needs to replace all the complex theories that are too easily dismissed
by the masses.
No, make the masses exclaim the physics equivalent of 2+2=5 in order to continue believing in
the Debt-Money Monopolist false narratives engineered to damage ordinary people across the globe.
NeoLuddite
Elections are just advance auctions of stolen goods.
junction
"Deep State" operatives killed Michael Hastings and Philip Marshall. Whether Paul Walker was
also killed by the "Murder, Inc." - type agents of the "Deep State," to make flaming car crashes
look normal, is an open question. When Tennessee Department of Motor Vehicles (DMV)employee Katherine
Smith died in a flaming car crash in 2002, her death was called a murder (still unsolved) because
a Tennessee state trooper driving behind her saw her car explode into flames before going off
the road.
Smith was the DMV employee who sold driver's licenses to Arabs, licenses they used to identify
themselves when they did work on the sprinkler systems at the World Trade Center before 9/11.
Sprinkler systems which all did not work on 9/11, even though they were ruggedized after the
1993 WTC truck bombing.
And who can forget the California policeman, on a 100% disability pension, who turned up in
Orlando, Florida as the FBI agent who murdered a martial arts associate of Boston Bomber Tamerlan
Tsarnaev. The guy murdered had just undergone knee surgery and could only walk with a cane, yet
he supposedly lunged at this crooked FBI agent, illegally collecting a disabilty pension tax free
of some $60,000 a year.
The initial report from the agent said this guy had a sword cane but that report was false.
doctor10
Politics is merely the entertainment wing of the MIC/Anglo-American Central Banking junta.
Has been since November 23rd 1963. Reagan required a 22 cal message to that effect after he thought
he'd been elected President.
kliguy38
Of course I know that the United States of America is not Turkey. But there are lessons
to be learned from its example of how a democracy can be subverted by particular interests
hiding behind the mask of patriotism.
no of course its not Turkey......its a hundred times worse
Ms No
Turkey's deep state is our deep state with some local players. This is going global, I thought
everybody knew that. Turkey has been a vassal for the Ziocons as long as anyone can remember and
they are one of many. Most of our presidents seem to prefer the term The New World Order. It's
funny how people snicker about that term but I didn't catch a grin off of any of our presidents
going back to Bush I snickering about it when they mention it in their State of the Union addresses
and this current clown is not an exception.
It's quite real and not at all funny. People need to take a look around they have even spelled
it out for you. What do these guys have to do send us our own eulogies? Lets just hope that while
everybody else is trying to figure this out that we don't end up getting too familiar with our
torture state.
Majestic12
"America is in deep shit as are all governments run by central banks neo-Keynesian fascist
economic policy."
I got you on the "deep shit" and "run by central banks", but lost you on "Keynesian Fascist economic
policy".
ZH is full of half truths and obfuscation.
I do not agree with much of Keynes, but most here support Von Mises (the Rockefeller Foundation
product) and the London School of Economics.
These "institutions" are profoundly contradictory, corrupt and were born of the 00001%.
At least Keynes decried relying soley on monetary policy and "supply side" economics.
Most here have only known "supply side" (Reagan and after), so they have nothing to compare it
to.
Listen to boomers talk of the 60s and 70s...there were always jobs, it didn't take 2 earners,
it didn't take a degree, everyone took vacation, and the "information" deluge ended at 11:00pm
until the next morning.
And, you really didn't have to lock your doors, unless you lived in urban Chicago, NY, LA any
other huge metropolis.
So, it was all "Keynes"'s fault?
Keynes, who promoted "demand-side" and "fiscal policy"...really? Fascist?
Remember, there are 94 Million people out of the work force...but the poulation is 100 million
more than in 1977, and the dollar was worth 70% more.
Why the Clintons & Obama are both CIA No-doubt-about-it.
2nd Big Question: why was the CIA rushed into existence (bill signed in an airplane at end of
National Airport by Truman) 45 days after the crash at Roswell?
Freddie
David Rockefeller as a young man was an OSS officer in WW2. Mi6 is the Red Shield.
They are just instruments of terror used by the elites,
Majestic12
"2nd Big Question: why was the CIA rushed into existence 45 days after the crash at Roswell?"
I am glad you asked.....the CIA's involvement was temporary.
The NSA (who now administers the black space program) began as the Armed Forces Security Agency,
just 2 years later in 1949.
... ... ...
unitwar
Bill Moyers? I wonder why he doesn't report on those Bilderberg meetings he attends? He reports
what he is told to report. Everything he does is a limited hangout.
Usurious
the french called the guillotine the national razor.........just sayin...
The Deep State runs everything in America since at least Nov 22, 1963. Kennedy promised
to shatter the CIA into a thousand pieces and scatter it to the winds. Instead, the CIA
shattered his brains into a thousand pieces.
The NSA spies on the Supreme Court, Congress and the White House and you.
The most extraordinary passage in the memo requires that the Israeli spooks "destroy upon
recognition" any communication provided by the NSA "that is either to or from an official of the
US government." It goes on to spell out that this includes "officials of the Executive Branch
(including the White House, Cabinet Departments, and independent agencies); the US House of Representatives
and Senate (members and staff); and the US Federal Court System (including, but not limited to,
the Supreme Court)."
The stunning implication of this passage is that NSA spying targets not only ordinary
American citizens, but also Supreme Court justices, members of Congress and the White House itself.
One could hardly ask for a more naked exposure of a police state.
There is the visible government situated around the Mall in Washington, and then there
is another, more shadowy, more indefinable government that is not explained in Civics 101 or observable
to tourists at the White House or the Capitol. The former is traditional Washington partisan politics:
the tip of the iceberg that a public watching C-SPAN sees daily and which is theoretically controllable
via elections. The subsurface part of the iceberg I shall call the Deep State, which operates
according to its own compass heading regardless of who is formally in power.
The secret collaboration of the military, the intelligence and national security agencies,
and gigantic corporations in the systematic and illegal surveillance of the American people reveals
the true wielders of power in the United States. Telecommunications giants such as AT&T, Verizon
and Sprint, and Internet companies such as Google, Microsoft, Facebook and Twitter, provide the
military and the FBI and CIA with access to data on hundreds of millions of people that these
state agencies have no legal right to possess.
Congress and both of the major political parties serve as rubber stamps for the
confluence of the military, the intelligence apparatus and Wall Street that really runs the country.
The so-called "Fourth Estate"-the mass media-functions shamelessly as an arm of this ruling troika.
Go to Rulers of Evil, pg. 170. Start reading from Adam
Weishaupt. Now you know the purpose of the creation of the
United States of America ..
Ms No
I think Hitler was right about one thing, most people cannot see the big lie, it just seems
to complex to them and thus ludicrous. Just look at a small portion of a military you have
cores, divisions, brigades, betallions, generals, colonals, companies, Air Force, Navy,
Special Forces, intelligence, espionage, propaganda depts, indoctrination depts, etc, all
under one umbrella of centralized control.
Is it really that hard to believe that a organized self serving entity who has had plenty of
time and very little opposition can grow to a gargantuan empire that nearly global in scale?
Two good reads among at least a hunderd that prove otherwise Sibel Edmonds and Tales of an
Economic Hit Man.
tumblemore
"most people cannot see the big lie, it just seems to complex to them"
I think it's more to do with not being sociopaths.
People tend to think other people are like them so say the average person can only tell
level 6/10 lies before they feel ashamed then they have a hard time believing other people can
tell level 10/10 lies. They couldn't do it themselves so it's hard for them to imagine other
people being that shameless - hence the bigger and more shameless the lie the more likely it
is to be believed.
Only part-sociopaths can see it.
Ms No
There maybe an element of that occuring because a psychopath can identify another path
immediately which would lead one to believe they may be able to identify their activities as
well but over all there is something else going on.
There most certainly is something different about people who can go against the grain and
challenge common propaganda but it isn't a lack of empathy. Some people are more resistant to
indoctrination and we really don't know why. We do know that there has been a large amount of
research on and use of subliminal technology and trauma disassociation. I would hazard a guess
that there has been a ton of research on this subject that we will probably never see.
tumblemore
The thing about the deep state idea is generally they exist to keep the members in power
*and* keep the state in question strong in the long-term so that power is worth something.
What's odd about the US deep state is it doesn't seem to care about the long term at all
and seems only really interested in selling America piece by piece.
For example from their behavior it's pretty blatant now that lobbyists have bought the
GOP's foreign policy position but the dark side of that is it probably means every other
aspect of policy is for sale also.
It's like the US deep state is living off the capital rather than the interest.
"On 9/11/2001, America received its new
Pearl Harbor"…to strike fear into the hearts of Americans and
pave the way for the perpetrators' profitable and
soul-destroying global "war on terror"... Enough is enough!
"There are at least 8.5 trillion reasons to investigate the
money trail of 9/11" and to end the perversion of law that has
bolstered the power of those who hold the reins in Washington,
DC, and use the law, perverted, as a weapon for every kind of
global control and personal greed!
"Forget for one moment everything you've been told
about September 11, 2001. 9/11 was a crime. And as with
any crime, there is one overriding imperative that detectives
must follow to identify the perpetrators: follow the money. This
is an investigation of the 9/11 money trail."
Engagement in criminal activity is fine as long as it is done to protect the Turkish
people...
I call bullshit on this one. More like engagement in criminal activity is fine as long as
it is done to preserve/enhance the Turkish government's power.
ddsoffice
Ja, diese ist eine gutte fragge. Aber, es ist wie die 'Jetzt Neue Deutschland' uber alles
vielleicht seit WWI! (Yes, this is a good topic. But, it is like the 'New Germany Now' perhaps
since WWI!)
(laughing now that I still remember some of my high school German lessons over 25 years ago.)
Eine Gutte Fragge. (A good topic)
Sehr Gut. (Very good)
Jetz Deuschtland ober alles. (Now Germany over all)
krage_man
There are various terms for this - deep state, elite, etc.
But ultimately, current political system so-called democracy is far from original definition
of democracy. And I dont mean that original "greek" democracy is the better one.
This is a feature of modern democracy to pretend to be old-fashioned peoples democracy. This
is to make sure people do feel their power to elect (ans they have it to a degree)
This is a feature of modern democracy to have 2-3 alternative parties. Each is more attractive
to a certain human personality category. This way each can find something to associate with
and be associated against. This means satisfaction of citizens with having a choice even
though the choice is created for them based on 2-3 major types of their personalities.
All 2-3 parties are really backed by this deep state or elite institution which manages all
things behand the curtain. For instance, foreign policy basixally ghe same no matter which
party has power.
Political elected officcials do not really manage the affairs, they commmunicate but the final
decisions are not theirs but come deep from the state departments which are receiving
instructions from deep state.
Elected president is supervised by a vise president with direct access to deep state. He would
take state affairs in his hands if the president is not cooperaring or incapacited ( could be
related)
Deep state controls 95% of mass media via proxy corporations. A special mass-media department
of the deep state issues directives to the editors of mainstream TV/news media. This
department coordinates with other depaetments like one managing foreign affairs linked or even
located in official state department. One may notice a delay when a certain major events take
place and mass media delays reporting by 24-48 hours while waiting for the right spin of the
reporting to the nation.
Latitude25
Interesting that Turkey is mentioned. When I was in college my room mate was a Turkish guy
who was definitely from the .001%, second richest family in Turkey. He said that turkey has
100s of years of experience keeping the masses occupied with one war or another and that the
economy could not run without it. He also liked chasing the most beautiful blondes he could
find and with his money he sure found them.
Burticus
"The few who understand the system will either be so interested in its profits or be so
dependent upon its favours that there will be no opposition from that class, while on the
other hand, the great body of people, mentally incapable of comprehending the tremendous
advantage that capital derives from the system, will bear its burdens without complaint, and
perhaps without even suspecting that the system is inimical to their interests." - Rothschild
Brothers of London
withglee
Ordinary Americans frequently ask why politicians and government officials appear to be so
obtuse, rarely recognizing what is actually occurring in the country.
Ordinary Americans are clueless ... witness less than 8% know anything about WTC7.
That notwithstanding, government officials "appear" to be obtuse to what is going on in the
country because they "are" obtuse. At the Federal level, at best, a representative speaks for
500,000 people. He can't know those people and they can't know him.
Our system is a "fake" representative democracy. What we get is what we should expect from
such a charade.
ISEEIT
"Deep State America"?
FRAUD is the singular truth. Deception, corruption.
"Rational actor" absent philosophically (and with increasing clarity, empirically via what
little remains of classical scientific method)..a once socially respected 'norm' of ethics.
Morality has become hostage to maniacal narcissism. World "leaders" are simply apparatchiks of
the now fully globalized machinations of failing souls.
History is repeating itself.
All indications are that death is just fine. Inevitable...
It's just the dying part that causes pain.
NuYawkFrankie
re In truth America's deep state (...) operates along a New York to Washington axis.
In an even bigger truth America's deep state (...) operates along a New York to Washington
to TEL AVIV axis
- FIXED
Atomizer
Time to go to bed Zero Hedge family. Mrs. Atomizer is getting cranky for me to shut off the
computer. I wanted to leave you with a Friday night boost of laughter. turn up the volume. See
you bitchez in the morning!
"... A troika of the military, Wall Street and spooks run the land of the free. ..."
"... The secret collaboration of the military, the intelligence and national security agencies,
and gigantic corporations in the systematic and illegal surveillance of the American people reveals
the true wielders of power in the United States. Telecommunications giants such as AT&T, Verizon
and Sprint, and Internet companies such as Google, Microsoft, Facebook and Twitter, provide the
military and the FBI and CIA with access to data on hundreds of millions of people that these
state agencies have no legal right to possess. ..."
"... Congress and both of the major political parties serve as rubber stamps for the confluence
of the military, the intelligence apparatus and Wall Street that really runs the country. The
so-called "Fourth Estate"-the mass media-functions shamelessly as an arm of this ruling troika. ..."
"... it has always been about saving the banks at the expense of the people. the people are the
real lenders of last resort only the money is usually taken and not to be paid back ..."
"... So it seems the Fed finds itself in a self-imposed conundrum here: make a policy error
and raise into a slowdown, don't raise and openly recognize growth is slowing. Which brings me
back to my previous point: since 2008, no new market highs have been achieved without central
bank stimulus. ..."
"... "The Federal Reserve is not currently forecasting a recession." – Ben Bernanke (January 2008)
..."
That is nothing new. That has been the official policy for a few decades.
A troika of the military, Wall Street and spooks run the land of the free.
Who cares about Main Street except pandering politicians before elections?
Who rules America?
The secret collaboration of the military, the intelligence and national security agencies,
and gigantic corporations in the systematic and illegal surveillance of the American people reveals
the true wielders of power in the United States. Telecommunications giants such as AT&T, Verizon
and Sprint, and Internet companies such as Google, Microsoft, Facebook and Twitter, provide the
military and the FBI and CIA with access to data on hundreds of millions of people that these
state agencies have no legal right to possess.
Congress and both of the major political parties serve as rubber stamps for the confluence
of the military, the intelligence apparatus and Wall Street that really runs the country. The
so-called "Fourth Estate"-the mass media-functions shamelessly as an arm of this ruling troika.
This guy is fucking clueless. Anybody who thinks higher rates will help main street is delusional.
I'm sure that higher rates will help the Fed meet its 2% inflation target. Right. I think there
was a Fed Chairman who proved what higher rates do to inflation and economic activity. Yes, I
believe his name was Paul Volcker.
As for the 5.1% UE rate. Anybody who believes that is the real UE is clueless and has never even
heard of the LFPR. We have an LFPR that was last seen in the 1970s but we are supposed to believe
clowns like St. Cyr when he says the UE is really 5.1%
Yup, higher rates will have the average consumer stampeding through bank doors to borrow money
to buy homes, cars, appliances, everythng they couldn't afford to buy with rates at zero. Yeah,
right.
besnook
it has always been about saving the banks at the expense of the people. the people are the
real lenders of last resort only the money is usually taken and not to be paid back.
austerity economics is a great euphemism for depression.
Try making up for a past mistake and make another? That's playing from behind, if you
will, and it's not out of the question if you know the Fed's history:
Not a single post-war recession has been predicted by the Fed a year in advance,
according to former U.S. Treasury Secretary Lawrence Summers; and
Neither of the last three recessions were recognized until they were already under
way.
Incompetent or ulterior motives for policy?
Regardless, here we are with expectations ramped up for a rate hike, as the rest of the world
is easing.
What's notable for investors is that since the 2008 crash, we have not been able to
achieve new market highs without central bank stimulus. Full stop.
But it's only a quarter point…
According to a study released by McKinsey Global Institute in February of this year,
global debt has increased by $57 trillion USD since 2008. With such an enormous amount liquidity
in the system (M1 money supply near lifetime highs) financial markets are increasingly becoming
nothing more than a currency game; and the currency game is a relative one. I print, you print,
they print, but who's printing more and where is capital flowing in and out of? Within this context,
a quarter-point rate hike would be much more than simply symbolic.
As we have seen since late 2012, the rise in the U.S. dollar has had major implications
on global markets, whether it be currencies, commodities or interest rates. A rate hike would
equate to further USD strength and will accelerate the deflationary spiral we have witnessed over
the past few years. Raising rates into a slowdown could also place the U.S. firmly on a path to
recession in 2016.
Conversely, no rate increase does not meet the expectations set by the Fed and will
re-inflate commodities in the immediate term. Arguably, it pulls forward the possibility of QE4
as well.
So it seems the Fed finds itself in a self-imposed conundrum here: make a policy error
and raise into a slowdown, don't raise and openly recognize growth is slowing. Which brings me
back to my previous point: since 2008, no new market highs have been achieved without central
bank stimulus.
As always, government remains the No. 1 risk to financial markets, and I will change
my views as the facts change.
"The Federal Reserve is not currently forecasting a recession." – Ben Bernanke (January 2008)
"...Many of the
conditions under which free trade between nations is guaranteed to be desirable are unlikely to
hold in practice." . "...All conservative economics is faith based (along with everything else they believe). Delusional
is another good descriptor." . "...Fair trade might actually be a good thing, but that is not what "Free trade" generally means.
Mostly it means freedom for capital, chains for labor, and devastation for the environment."
Dani Rodrik:
Trade within versus between nations: ...economics does not offer unconditional policy prescriptions.
Every graduate student learns that depending on the background specifications, any policy
x can be good or bad. A minimum wage can lower or raise employment (depending on whether
employers have monopsony power); a natural resource discovery can raise or lower growth (depending
on the likelihood of the Dutch disease); fiscal consolidation can expand or contract output (depending
on the respective strengths of expectational versus Keynesian effects). And yes, the dictum that
free trade benefits a nation depends on a
long list of qualifying conditions.
So the proper response to the question "is free trade good?" is, as always, "it depends." When
an economist says "I support free trade" s/he must mean that s/he judges the circumstances under
which free trade would not be desirable to be very rare or unlikely to obtain in the context at
hand.
Many of the
conditions under which free trade between nations is guaranteed to be desirable are unlikely
to hold in practice. Market imperfections, returns to scale, macro imbalances, absence of
first-best policy instruments are ubiquitous in the real world, particularly in the developing
world on which I spend most of my time. This does not guarantee that import restrictions will
be necessarily desirable. There are many ways in which governments can screw up, even when they
mean well. But it does mean that a knee-jerk free trader response is faith-based rather than science-based.
...
[He goes on to answer a question about differential support for trade within nations versus trade
between nations.]
"economics does not offer unconditional policy prescriptions. Every graduate student learns
that depending on the background specifications, any policy x can be good or bad."
Thank you Dani! This statement holds in general but in particular on the issue of free trade.
I've loved his old post where he admitted he had to endure a class taught by William Kristol and
Kristol gave this brilliant man only a C.
DrDick
All conservative economics is faith based (along with everything else they believe). Delusional
is another good descriptor.
DrDick -> Paine ...
Fair trade might actually be a good thing, but that is not what "Free trade" generally
means. Mostly it means freedom for capital, chains for labor, and devastation for the environment.
Stubborn1:
About the fact that economists do not offer unconditional policy prescriptions, especially
when it comes to free trade and "the dictum that free trade benefits a nation depends on a long
list of qualifying conditions". One thing I have to strenuously say about that: BULLSHALONEY!
All I heard in my econ classes were the benefits of free trade. EVERYONE drank the kool aid!
I even had a prof who had worked in the Council of Economic Advisors and his role was to review
trade policies. He told us flat out he would ALWAYS ALWAYS ALWAYS support any and all free trade
agreements that came up, without ANY regard to damage done to domestic firms and/or workers. Paul
Krugman wrote one of our text books which, like many econ textbooks at the time, had WHOLE chapters
dedicated to debunking free trade myths! Now you are going to tell me that economists never take
a stand on a policy position as being good or bad?! ARE YOU KIDDING?
Pgl I have seen you post and have agreed with you many times, but not on this one, hell no!
MacAuley -> Stubborn1...
You are so right, Stubborn1. I have taken at least six international econ courses, and in every
case the prof was strongly in favor of "free trade", usually the more the merrier. Last year,
as a refresher I took an internet Int'l Econ course at "Marginal Revolution University", which
was surprisingly good except for the relentless free-trade propaganda.
Kenneth said...
Friday, May 15th, 2015, "Details of President Barack Obama's proposed trade deal, the Trans
Pacific Partnership, have been kept secret, and the deal itself is kept in a locked room guarded
by men with guns, with members of Congress having to schedule an appointment and jump through
hoops just to actually read the massive proposed treaty.
Let me tell you what you have to do to read this agreement. Follow this: You can only take a few
of your staffers who happen to have a security clearance, because - God knows why - this is secure.
This is classified. It's nothing to do with defense," said Boxer.
Boxer then described how she was forced to turn over her cell phone and was prevented from even
taking notes while looking over the 800-plus page trade treaty.
"So I go down with my staff that I could get to go with me, and as soon as I get there, the guard
says to me, 'Hand over your electronics. Okay. I give over my electronics. Then the guard says,
'You can't take notes.' I said, 'I cannot take notes?'" said Boxer.
Some have taken to calling the TPP treaty "Obamatrade," in reference to the secretive nature in
which Obamacare was written and how then-House Majority Leader Nancy Pelosi infamously claimed,
"We have to pass it to find out what's in it."
At the heart of the TPP is something referred to as a "living agreement provision," which means
the treaty can be amended or changed at any time after it is ratified, without congressional approval,
essentially handing over U.S. sovereignty and subjugating U.S. businesses and workers to international
laws, according to CNS News.
While this treaty is being promoted as being about FREE TRADE, it is really just a massive corporatist
agreement that gives increased authority to major international corporations, which will hurt
both American labor unions and small businesses.
Conservatives need to look past the pleasant sounding platitudes put forward by the Establishment
Republicans who are supporting this massive secret deal that only benefits major international
corporations, and (gulp) team up with socialists like Sen. Elizabeth Warren to kill this deal,
which will only hurt America in the long run.
'At the heart of the TPP is something referred to as a "living agreement provision," which
means the treaty can be amended or changed at any time after it is ratified, without congressional
approval, essentially handing over U.S. sovereignty and subjugating U.S. businesses and workers
to international laws, according to CNS News.'
---
what's new, this is SOP in the U.S., don't bother to read the fine print, it's out of date before
the ink is dry, like hospitals that don't accept same day payment on site, then submit individual
bills showing up months later from every damn person within 50 ft of the patient and refuse to
confirm if there's more
and Scott Walker is busting up unions with right to work laws so labor can have the same power
under a 'living agreement' as hospitals to charge for services provided.
MacAuley -> Kenneth...
Kenneth,
It's not accurate to call TPP "Obamatrade" since the concept was developed and fleshed out in
2007 and 2008 under the Bush Administration. Most of the work was managed at the SES level, since
the Bush Administration was pretty lame-duck by then and most of the political appointees were
looking for jobs. But the Bush Administration at the cabinet level gave approval for the exploratory
discussions and conceptual analysis of a TPP.
By the time Obama arrived in 2009 there was a coherent TPP initiative ready for the Obama Administration
to consider. I doubt that Obama had heard of TPP before he came to Washington, but it wasn't long
before the Obama Administration decided to go forward with it.
Paine said...
Dani is a source of wisdom and shrewdness
A combo rarely combined in one head
LOL! Almost. You really think that growth can continue forever and ever in a biosphere with
finite resources?
Tell us another fairytale and good luck with that!
But yes, let the truly insolvent fucks and worthless fucks go to the guillotine already!
Bro of the Sorrowful
using metrics in economics and applying mathamatical formulas to quantify all aspects of
the economy has been a major and far reaching disaster. none worse, perhaps with the exception
of unemployment and inflation, than the totally fraudulent metric "GDP". youll notice in von
mises' magnum opus human action that there is not a single formula.
were it not for the measurement of the ambiguous "GDP", we would not be so concerned with
growth.
pods
We sure as hell would be concerned with growth.
Expansion is what is required by our monetary system.
That is why inflation of 2% is "stable prices" and everyone and their mother talks about
growth.
Fraction reserve currency requires expansion (exponential) to function.
No growth=no currency system.
That is why sustainability is a no go right out of the gate.
pods
Bro of the Sorrowful Figure's picture
i was speaking more of an ideal world in which we would be operating under a sound monetary
system. my problem with using economic metrics for everything is that it takes the focus off
of real problems and gives huge power to the international banking cartel by allowing them to
manipulate the numbers without end. we start from a false monetary system, then apply a metric
system based on false logic to justify that monetary system, while also making those metrics
esoteric enough that the average person simply stops paying attention or freezes up when such
metrics are mentioned. that way the economy can be absolute shit, with obvious signs to anyone
with eyes, and yet your average person will still say, well GDP is up and unemployment is down
so things must be good.
Harry Balzak
Are you implying that reality exists without accounting?
I would summarize the Keynesian view in terms of four points:
1. Economies sometimes produce much less than they could, and employ many fewer workers than
they should, because there just isn't enough spending. Such episodes can happen for a variety
of reasons; the question is how to respond.
2. There are normally forces that tend to push the economy back toward full employment. But
they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary
period of pain.
3. It is often possible to drastically shorten this period of pain and greatly reduce the human
and financial losses by "printing money", using the central bank's power of currency creation
to push interest rates down.
4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close
to zero. In that case temporary deficit spending can provide a useful boost. And conversely,
fiscal austerity in a depressed economy imposes large economic losses.
Is this a complicated, convoluted doctrine? ...
But strange things happen in the minds of critics. Again and again we see the following bogus
claims about what Keynesians believe:
B1: Any economic recovery, no matter how slow and how delayed,
proves
Keynesian economics wrong. See [2] above for why that's illiterate.
B2: Keynesians believe that printing money solves all problems. See [3]: printing money can
solve one specific problem, an economy operating far below capacity. Nobody said that it can
conjure up higher productivity, or cure the common cold.
B3: Keynesians always favor deficit spending, under all conditions. See [4]: The case for fiscal
stimulus is quite restrictive, requiring both a depressed economy and severe limits to monetary
policy. That just happens to be the world we've been living in lately.
I have no illusions that saying this obvious stuff will stop the usual suspects from engaging
in the usual bogosity. But maybe this will help others respond when they do.
I would add:
5. Keynesian are not opposed to supply-side, growth enhancing policy. They types of taxes that
are imposed matters, entrepreneurial activity should be encouraged, and so on. But these arguments
should not be used as cover for redistribution of income to the wealthy through tax cuts and other
means, or as a means of arguing for cuts to important social service programs. Not should they
be used only to support tax cuts. Infrastructure spending is important for growth, an educated,
healthy workforce is more productive, etc., etc. Economic growth is about much more than tax cuts
for wealthy political donors.
On the other side, I would have added a point to B3:
B3a: Keynesians do not favor large government. They believe that deficits should be used to stimulate
the economy in severe recessions (when monetary policy alone is not enough), but they also believe
that the deficits should be paid for during good times (shave the peaks to fill the troughs and
stabilize the path of GDP and employment). We haven't been very good at the pay for it during
good times part, but Democrats can hardly be blamed for that (see tax cuts for the wealthy for
openers).
Anything else, e.g. perhaps something like "Keynesians do not believe that helping people in need
undermines their desire to work"?
According to TIC,
China, between its mainland and Euroclear holdings, sold a record $83 billion in Treasurys in the
month of July. It also means that China has liquidated a whopping $184 billion notional in US Treasurys
in 2015. Finally, and here it the punchline: the sale of ~$83 billion took place in July.
This is before China announced its devaluation on August 11 and before, as we also first reported,
it sold another $100 billion in Treasurys in August.
Jesus College, Cambridge hosted, once more, the world's leading Symposium on Economic Crime,
and over 500 distinguished speakers and panelists drawn from the widest possible international fora,
gathered to make presentations to the many hundreds of delegates and attendees.
What became very quickly clear this year was the general sense of deep disgust and repugnance
that was demonstrated towards the global banking industry.
I can say with some degree of certainty now that a very large number of academics, law
enforcement agencies, and financial compliance consultants are now joined, as one, in their total
condemnation of significant elements of the global banking sector for their organised criminal activities.
Many banks are widely identified now as nothing more than enterprise criminal organisations,
who engage in widespread criminal practice and dishonest conduct as a matter of course and deliberate
commercial policy.
My prediction is that bankers will be jailed in the next economic/financial crisis. Lots and lots
of bankers.
It may seem to many that those working within this profession will remain above the law indefinitely
in light of the lack of any accountability whatsoever since the collapse of 2008. It may seem that way,
but extrapolating this trend into the future is to ignore a monumentally changed political environment
around the world. From the ascendancy of Donald Trump and Bernie Sanders here in the U.S., to Jeremy
Corbyn becoming Labour leader in the UK, big changes are certainly afoot.
I have become convinced of this change for a little while now, but we won't really see evidence of
it until the next collapse. However, something I read earlier today really brought the point home for
me. Rowan Bosworth-Davies recently attended the 33rd Cambridge International Symposium on Economic Crime
and provided us with some notes in an excellent piece titled,
The Banking Criminals Exposed. Here are a few excerpts:
Jesus College, Cambridge hosted, once more, the world's leading Symposium on Economic Crime,
and over 500 distinguished speakers and panelists drawn from the widest possible international fora,
gathered to make presentations to the many hundreds of delegates and attendees.
This Symposium has indeed become an icon among other international gatherings of its knd and
over the years, it has proved to be highly influential in the driving and development of international
policy aimed at combating international financial and economic crime.
What became very quickly clear this year was the general sense of deep disgust and repugnance
that was demonstrated towards the global banking industry.
I can say with some degree of certainty now that a very large number of academics, law enforcement
agencies, and financial compliance consultants are now joined, as one, in their total condemnation
of significant elements of the global banking sector for their organised criminal activities.
Many banks are widely identified now as nothing more than enterprise criminal organisations,
who engage in widespread criminal practice and dishonest conduct as a matter of course and deliberate
commercial policy.
Speaker after speaker addressed the implications of the scandalous level of PPI fraud, whose
repayment and compensation schedules now run into billions of pounds.
Some speakers struggled with the definition of such activity as 'Mis-selling' and needed to
be advised that what they were describing was an institutionalized level of organised financial crimes
involving fraud, false accounting, forgery and other offenses involving acts of misrepresentation
and deceit.
One of the side issues which came out of this and other debates, was the general and
genuine sense of bewilderment that management in these institutions concerned, (and very few banks
and financial houses have escaped censure for this dishonest practice) have walked away from this
orgy of criminal antics, completely unscathed. The protestations from management that these
dishonest acts were carried out by a few rogue elements, holds no water and cannot be justified.
In the end, I sat there, open-mouthed while evidence against the same old usual scum-bag financial
institutions, was unrolled, and a lengthy list of agencies, all apparently dedicated to dealing with
fraud and financial crime, lamely sought to explain why they were powerless to help these victims.
This was followed by a lengthy list of names of major law firms, and Big 5 accounting firms
who were willing to join with these pariah banks to bring complex and expensive legal actions against
these victims, bankrupting them, forcing them from their homes, repossessing properties they had
worked for years to create, while all the time, the regulators and the other agencies, including
to my shame and regret, certain spineless police forces, stood by and sought to justify their inaction.
At one stage, we were shown how banks ritually and deliberately take transcripts of telephone
calls made between complainants and the bank, and deliberately and systematically go through these
conversations, re-editing them and reproducing them in a format which is much more favourable to
the bank.
For the first time, I found routine agreement among delegates that the banking industry had
become synonymous with organised crime. Many otherwise more conservative attendees expressed their
grave concern and their repugnance at the way in which so many of our most famous banking names were
now behaving. It is becoming very much harder to believe that the banks will be able to rely on the
routine support they have traditionally enjoyed from most ordinary members of the public.
The election of Jeremy Corbyn to the leadership of the labour Party means that banking
crime and financial fraud will now become an electoral issue.
But now, the new Labour leadership will focus the attention of the electorate on the relationship
between the Tory party and their very crooked friends in the City, and the degree of protection that
the Square Mile gangsters and their Consiglieri, their Capos, and their Godfathers will become much
more identifiable. Bank crime will now become much more identifiable as a City practice and their friends
in the Tories will be seen as being primary beneficiaries.
Things are moving in the direction of justice. At a glacial place for sure, but moving
they are.
pot_and_kettle
When they're swinging from lamp posts lining Broadway and Water St, *then * I'd call it progress.
Til then, same old same old...
11b40
There were over 1,000 felony prosecutions that came out of the Savings & Loan fiasco in the 80's,
with a 90% conviction rate.
But, to your point, these were not the big Wall Street Bankers. Mostly just your local common banker
thief and his cronies, with a few politicians thrown in for good measure. No big fish were prosecuted
during the Depression era, either.
vincent
A reminder of how JPM saved its own ass in 2008. Worth bookmarking....
Dream on, Mike. Just who will jail the banksters? They own the governments of USA, Canada, and
Western Europe. Not a chance in my lifetime.
GCT
Politicians and the judicial branch are in the banks pockets. I will believe it when I see it
to be honest. I have yet to see real bankers or for that matter politicians go to jail. As long as
the big fines are paid nothing will change. Must be nice to create money from nothing to pay these
fines and fucking your customers over at the same time.
Fahque Imuhnutjahb
Wishful thinking. If any justice is to be meted out then the "little people" will have to take
it upon themselves.
And by little people I mean the plebes, not dwarves; but the dwarves are welcome to help, unless
of course
some of them are little bankers, then they're not welcome, but the rest are. Glad we got that cleared
up.
The conventional unemployment rate (U3) is now close to assessments of its longer-run normal level,
but other dimensions of labour market slack remain elevated:
U3 does not reflect the incidence of hidden unemployment, namely, about 2˝ million
Americans who are not actively searching for work but are likely to rejoin the labour force as
the economy strengthens; and
U3 does not incorporate the extent of underemployment (individuals working part-time
who are unable to find a full-time job), which remains significantly higher than its pre-recession
level.
Thus, the 'true' unemployment rate – including hidden unemployment and underemployment –currently
stands at around 7Ľ%, and the total magnitude of the US employment gap is equivalent to around 3˝
million full-time jobs.
Non-farm payrolls have been expanding at a solid pace, but that pace will need to be maintained
for about two more years in order to close the employment gap.
In particular, recent analysis indicates that the potential labour force is expanding by about
50,000 individuals per month due to demographic factors. Thus, if non-farm payrolls continue rising
steadily by about 200,000 jobs per month (the average pace over the past six months), then the employment
gap will diminish next year and be eliminated in mid-2017. By contrast, a tightening of monetary
conditions would cause the economic recovery to decelerate and the pace of payroll growth might well
drop below 100,000 jobs per month, in which case the employment gap would barely shrink at all.
The contours of the inflation outlook
The FOMC has established an inflation goal of 2%, as measured by the personal consumption expenditures
(PCE) price index. Its recent communications have stated that the tightening process will commence
once the FOMC is "reasonably confident" that inflation will move back to the 2% objective
over the medium term.
It seems unwise for such a crucial policy decision to place so much weight on the FOMC's inflation
outlook and little or no weight on the observed path of wages and prices.
FOMC participants' inflation forecasts over the past few years have proven to be persistently
overoptimistic (see Figure 1).
Figure 1. The recent evolution of core PCE inflation
Note: In this figure, the core PCE inflation rate is given by the four-quarter
average change in the PCE price index excluding food and energy, and the FOMC's outlook is given
by the midpoint of the central tendency of core PCE inflation projections, as published in the FOMC
Summary of Economic Projections (SEP) at each specified date.
For example, in early 2013, when core PCE inflation was running at about 1˝%, FOMC participants
generally anticipated that it would rise to nearly 2% over the course of 2014 and 2015, whereas in
fact it has declined to around 1.2%. Indeed, its underlying trend has been drifting steadily downward
since the onset of the last recession.
Despite some recent suggestions to the contrary, there is a strong empirical linkage between
the growth of nominal wages and the level of the employment gap.
Moreover, as shown in my recent joint work with Danny Blanchflower, the wage curve exhibits some
flattening at high levels of labour market slack, which explains why nominal wage growth has remained
subdued over the past few years even as the employment gap has declined from its post-recession peak
(see Figure 2). This empirical pattern also implies that the pace of nominal wage growth is likely
to pick up somewhat over coming quarters as the employment gap declines further.
Figure 2. The wage curve
Note: In this figure, each dot denotes the pace of nominal wage growth (as
measured by the 12-month change in the average hourly earnings of production and non-supervisory
workers) and the average level of the employment gap (including hidden unemployment and underemployment)
for each calendar year from 1985 to 2014 and for August 2015 (the latest BLS employment report).
Gauging the stance of monetary policy
Fed officials have recently characterised the current stance of monetary policy as "extremely
accommodative." Such characterisations may be helpful in motivating the onset of "policy
normalisation" but seem inconsistent with professional forecasters' assessments of the equilibrium
real interest rate and with the implications of simple benchmark rules.
The distance between the current federal funds rate and its longer-run normal level depends crucially
on the magnitude of the equilibrium real interest rate.
Most FOMC participants have projected the longer-run normal rate to be about 3ľ%, consistent
with an equilibrium real rate only slightly lower than its historical average of about 2%.
Over the past few years professional forecasters have made substantial downward revisions to their
assessments of the 'new normal' level of interest rates.
Surveys conducted by the Philadelphia Fed indicate that professional forecasters expect short-term
nominal interest rates to be around 2ľ% in 2018 and to remain at that level on average over the
next ten years, corresponding to an equilibrium real interest rate of only ľ%.
Such revisions presumably reflect the downgrading of the outlook for potential output growth as
well as prospects for headwinds to aggregate demand persisting well into the future.
If professional forecasters' assessments are roughly correct, then the current funds rate
is by no means extremely accommodative.
In June 2012, then-Vice Chair Yellen noted that "simple rules provide a useful starting point
for determining appropriate policy" while emphasising that such rules cannot be followed mechanically.
That speech considered the Taylor (1993) rule along with an alternative rule analysed by Taylor (1999)
that Yellen described as "more consistent with the FOMC's commitment to follow a balanced approach."
Thus, it is instructive to evaluate each of these simple rules using the current core PCE inflation
rate (which is 1.2%), the CBO's current assessment of the output gap (3.1%), and professional forecasters'
consensus estimate of the equilibrium real interest rate (r* = 0.75).
Using these values, the Taylor rule prescribes a funds rate of 0.1%, exactly in line with
the FOMC's current target range of 0 to 0.25%; and
The Taylor (1999) rule prescribes a funds rate well below zero (-1.4%).
Neither of these two benchmarks calls for a tighter stance of policy. Indeed, the 'balanced approach'
rule preferred by Yellen (2012) indicates that macroeconomic conditions will not warrant the initiation
of monetary policy tightening until sometime next year.
Assessing the balance of risks
Over the past 18 months, FOMC statements have regularly characterised the balance of risks to
the economic outlook as "nearly balanced." Of course, that assessment has recently
come into question due to a bout of financial market volatility in conjunction with shifting prospects
for major foreign economies (most notably China).
Regardless of how financial markets may evolve in the near term, however, it seems clear that
the balance of risks remains far from symmetric. If the US economy were to encounter a severe adverse
shock within the next few years (whether economic, financial, or geopolitical in nature), would the
FOMC have sufficient capacity to mitigate the negative consequences for economic activity and stem
a downward drift of inflation?
For example, if safe-haven flows caused a steep drop in Treasury yields along with a sharp widening
of risk spreads, would a new round of QE still be feasible or effective? Alternatively, would the
Federal Reserve implement measures to push short-term nominal rates below zero, as some other central
banks have done recently?
In the absence of satisfactory answers to such questions, it is essential for the FOMC to maintain
a highly accommodative stance of monetary policy as long as needed to ensure that labour market slack
is fully eliminated and that inflation moves back upward to its 2% goal. Such a strategy will help
strengthen the resilience of the US economy in facing any adverse shocks that may lie ahead.
Concluding remarks
The FOMC's near-term strategy has become so opaque that even the most seasoned analysts can only
guess what policy decisions may be forthcoming at its upcoming meetings. Moreover, the FOMC has provided
no information at all (apart from the phrase "likely to be gradual") about how its policy
stance will be adjusted over time in response to evolving macroeconomic conditions.
Unfortunately, such opacity is likely to exacerbate economic and financial uncertainty and hinder
the effectiveness of monetary policy in fostering the goals of maximum employment and price stability.
Therefore, it is imperative for the FOMC to formulate a systematic monetary policy strategy and to
explain that strategy clearly in its public communications.
References
Blanchflower, D G and A T Levin (2015), "Labor Market Slack and Monetary Policy," NBER Working
Paper No. 21094.
Taylor, J B (1993), "Discretion Versus Policy Rules in Practice", Carnegie-Rochester Series on
Public Policy 39, pp. 195-214 (also released as SIEPR Publication No. 327, November 1992).
Taylor, J B (1999), "An Historical Analysis of Monetary Policy Rules", in J. B. Taylor (ed.),
Monetary Policy Rules, Chicago, IL: University of Chicago Press
Yellen, J L (2012), "Perspectives on Monetary Policy", speech at the Boston Economic Club Dinner,
Boston, MA, 6 June.
"...It is Republican industrial policy to make workers into slaves working themselves
to death like in slave labor camps. But if you must go into debt to get a job, why bother getting a job when
you can not get a job is rack up less debt or figure out how to subsistence
survive. Not even cutting welfare spending will make going into debt to work for less
than it costs to work make sense. "
"...That is correct. You are too busy discussing whether the gini
coefficient is 0.49 or 0.48. The financial markets will blow
up under your nose and you idiots will be arguing irrelevant
nonsense. Then the economy will blow up and you will blame everybody
but the Fed. "
The Fed Must Banish the 1970's Inflation Devil: Will the Fed raise rates when it meets later
this month? Inflation remains below the Fed's two percent target, and that argues against a rate
increase. But labor markets appear to be tightening and that is raising worries that higher inflation
is just ahead. Should the Fed launch a preemptive strike against the possibility of wage-fueled
inflationary pressure?
Hopefully there's at least one argument against raising rates that you have not heard before.
Yep, the Fed printing money to inflate stock prices is really creating like 500,000 new
jobs per month because higher stock prices drives CEOs to boost profits to maintain P/E by
hiring new workers to increase labor costs.
Seriously, economists do not want to defy the conservative free lunch economic orthodoxy
that higher prices from higher labor costs and lower profits is the key to growth and that
this can be done without increasing money supply because velocity will magically increase,
instead of decreasing steadily as it certainly has during the 21st century because money is
stuck sloshing around not being paid to labor.
Velocity of money is the lowest across the board in a decade and Mark Thoma is calling for
even lower velocity to the point that money is just standing still.
M2 and MZM are the lowest estimated by the Fed in the entire half century of the statistic,
and M1 is the lowest since 1975 during a steady rise over decades of stable bank regulation
and rising interest rates that ended in the early 80s when banking got radically deregulated.
From that point, M2 was on a roller coaster up and down, always higher than 1976 until it reached
an all time peak in 2007 when it began a constant decline as the Fed keeps increasing M2 without
driving any matching increase in economic activity.
I'm beginning to reject my belief [that] inflation is related to fiscal, banking, and industrial
policy, not money supply. I had been convinced by Monetary History of US by Schwarz-Friedman,
but the past decade has provided a counterexample that I believe rejects the core of monetary
theory. Look at the following graph and justify any theory that money supply increases drives
inflation, not US industrial policy which has been devoted to restricting consumer spending
capacity while creating excessive supply of consumer goods and restricting investment in capital
goods.
The problem with Friedman's theory of money and prices is that it under-values the importance
of expectations in price setting. The problem with your theory of money and prices is that it involves a lot of hand-waiving
and ignores things like interest rates.
Why is the labor force participation rate so low? I know that the part of it that
is not demographics is due to "long term trends", but what trends are those, exactly?
I don't know how you could estimate how much slack there is in the labor market without
first getting a handle on this. If the labor force dropouts really are gone for good,
then there's probably not a lot of slack. If they're going to come back, then there is.
Some of it is due to demographics. Most of it is due to discouraged workers dropping
out of the labor force. Employment hysteresis and all that.
But, as depressing as that fact is when you think about it
the one bright side is that tight labor markets could plausibly draw many of those
discourage workers back into the labor force.
pgl -> sanjait:
Thanks Eric and Sanjait - comments that contribute to the conversation. In 2005
I was arguing for an employment to population (EP) ratio near 64% and we did get back
to 63.5% without inflation. OK, the demographic argument updated 10 year later puts
my EP ratio goal at 62%. But the current EP is 59.4%. That's way too low.
sanjait -> pgl:
If I was going to do a deep analysis of EMPOPs, I'd track each age/sex tier reported
by the BLS separately and look at the disaggregated trends, which could reveal a lot.
For example, in the period immediately after the crash, I recall reading how most
working ages had big declines in LFP, with the exception of people near and just in
retirement age, which actually went UP (likely due to them desperately seeking to
repair their finances after seeing their 401k's collapse).
What's happening now? I don't know precisely, but I do know that technology and
demographics haven't change THAT MUCH since 2009, and the decline in the ratio was
coincident with the cycle.
I also know that if labor markets actually were tight, workers would be seeing
bigger raises, and that after being beaten down both by a huge recent economic downturn
and a long term secular trend, it's probably not a bad thing if wages were to rise
a little bit faster than output for some period of time.
Interesting. That's not the trend my lying eyes remembered from post-crisis, and
I had no idea there was such a shift in the middle 2000s.
Though, now that I think about it, it was probably the above *65* group that saw
a spike in LFP post crisis, which would get washed out in a data set taht includes
55-64 year olds.
I'd parse that out myself, but my browsers don't appear to support the Java applet
for this link.
Between 2000 and 2013, the only age group in which median household or family real
income increased was that over 65. The reason for the increase was Social Security
benefits which are indexed to inflation:
It is Republican industrial policy to make workers into slaves working themselves
to death like in slave labor camps.
But if you must go into debt to get a job, why bother getting a job when
you can not get a job is rack up less debt or figure out how to subsistence
survive.
Not even cutting welfare spending will make going into debt to work for less
than it costs to work make sense.
Until Republicans start rounding up the non-working men and put them in slave
labor camps, men are going to keep dropping out of the labor force and just
get by on subsistence. But Republicans won't put men to work even if they do
round them up, and they have rounded up millions in prisons, because putting
slaves to work means you are engaged in government building government owned
capital assets, or you are competing with for profit industries you depend on
for money.
Democrats would happily put millions of workers to work at solid middle class
wages building productive capital assets that corporations will contribute millions
in political support to get done for their benefits. In fact, businesses have
started calling for taxes they pay to be hiked to get such productive assets
built for them.
But all the focus is placed on electing a good dictator to hike taxes and
put millions of men to work earning middle class wages while electing a board
of directors that is determined to liquidate the enterprise.
Trump is saying "as CEO I was the dictator who got things done, so elect
me dictator and I will run over Congress and get things done." Bernie Sanders
is promising to lead millions of people to trample the Congress the same people
elected - the populist dictator.
The myth of FDR is that he ruled like a dictator.
The truth is FDR channelled the populism that elected legislatures stampeding
to do something anything.
Populism today is electing legislatures to do something anything to get government
out of the way of individuals wanting to take anything they want from those
who have it because they have been indoctrinated by right and left that government
is what prevents you from getting what you want.
In particular, its Obama that has prevented everyone from getting free energy,
free healthcare, free SUVs, free houses, free money, free global dictatorship,
Trump and Sanders are making the biggest free lunch promises of all the
potential dictator wannabes.
bakho said
Good Column
Without help from Congress and fiscal policy, there will be no inflation.
We don't have 2016 budget yet. Shutdown could happen.
We live in a time when inflation and unemployment are strongly affected by
fiscal policy and economic shocks, but only weakly affected by monetary policy.
Biggest impact on recovery was the ARRA. Monetary policy drained the battery
and needs a fiscal policy recharge. Monetary policy is weak.
Any change in monetary policy will be swamped by fiscal policy effects.
Which Republicans have you been working to defeat in Congress?
Double Capitulation said
"raising worries that higher inflation is just ahead. Should the Fed
"
~~Mark Thoma~
Déjŕ vu sensation from 43rd administration decision to spend the budget surplus
that wasn't? Hey! If inflation is what you want, raise the public spendthrift
coefficient. Personally I do not fear the prospect that our wealthy cousins
will see their portfolios shrink in nominal value as deflation sets in as
in August 015. Hey! My meagre net worth did plummet last month, but I now
have more buying power as stocks drop, commodities stay below the clouds
and all those playthings I buy at Toys-R-We have become gobs cheaper.
One thing for sure, home prices and improved real estate may slide lower,
but unimproved land prices will rise as population expands exponentially.
Did Mark Twain once quip, "When they stop making the thing the price on
the thing will go up. Buy land, they just stopped making it!"?
Imprecisely, yet gave his insider information to Will Rogers.
Notice how electronic toys usually get cheaper! Knowing this the vendor
keeps the inventory drained at whatever the falling price will bear. As vendor
drops price, M2V accelerates. Same thing happened with auto sales this summer.
Dis-inflationary and deflationary expectations rev up the M2V, gets people
hired as inventory accelerates. Vote for more employment, for lot
Since the Republicans took over Congress, M2V has fallen from 1.75 to
1.60 and shows zero since of failing to continue its fall to 1.5 something
before the next election.
Clinton was able to keep M2V above 2 when Republicans took over and halted
its rise, but one Republicans won the Congress and White House it was downhill
except for the times Republicans rolled out the pork barrels. Then conservatives
reacted badly leading to demands for no more pork.
This is what drives me crazy. It has not been about inflation since the
mid-90s. Why is the Fed still predicating their decisions on inflation? And
why are any economists discussing inflation as the critical factor - one
way or the other. The markets are telling us what the critical issue is -
boom bust boom bust. The volatility in multi year time frame in commodity,
fx and risk markets has gone through the roof in the last 15 years. The central
issue for central banks is to tame these NOT bicker about whether 5.1% unemployment
or 1.7% inflation is too much or too little.
This is why we are in the trouble that we are in.
pgl -> Anonymous
Most of us "liberal economists" are not worried about INFLATION even as
JohnH lectures us ad nausam that we should be.
If interest rates are really low, then stuffing money in a mattress has
no opportunity cost.
Anonymous -> pgl
That is correct. You are too busy discussing whether the gini
coefficient is 0.49 or 0.48. The financial markets will blow
up under your nose and you idiots will be arguing irrelevant
nonsense. Then the economy will blow up and you will blame everybody
but the Fed.
pgl said
Doug Henwood says we are in a "Unicorn" bubble with the low
interest rates fueling it:
Oh boy! Time for more FED bashing. Maybe I should start writing
- fix NY/NJ infrastructure and transportation issues NOW! Fiscal
stimulus that would make my commute easier!
"The inflation problems of the 1970s, the loss of Fed credibility
that came with it, and the need to impose the Volcker recession
in the early 1980s to bring inflation down to tolerable levels
made an indelible impression on policymakers who lived through
that time period."
Apparently what made NO impression on those policymakers was
the more than 10 fold increase in U.S. oil prices from 1973 to
1980 ($3.60/barrel to $39.50/barrel) and the massive oil and
gasoline shortages of that era. The collective amnesia among
economists and politicians about the actual cause of the hyper-inflation
back then is truly astonishing.
How could the Fed have anticipated that oil crisis and prevented
the hyper-inflation? Would raising interest rates before the
Yom Kippur war have prevented the Arab Oil Embargo? How?
In late 1970, the inflation rate was 7.1% and steadily declined
to 3% in 1973. Then in October 1973, the Arab Oil Embargo hit
and inflation quadrupled to nearly 12% in early 1975 as world
market oil prices had quadrupled by the end of 1974.
https://research.stlouisfed.org/fred2/series/STICKCPIM157SFRBATL
No, Ben is a polite contributor whose views often differ from
both yours and mine. You don't get to decide who the trolls are.
Ben Groves -> Paul Mathis
Recheck those numbers. Inflation was at 6.2% in 1973. The
oil shock really didn't impact to 74. Sure, it boosted the numbers,
but not the total cause. It was the same by the late 60's when
inflation surged and disinflation took it down to 3% on a blip.
The US was bumping into cold war generated issues it had never
seen before.
Let's see. Defense spending/GDP fell from 9.3% in 1970 to
6.3% by 1980. Reagan and the Republicans complained Carter let
our guard down with these defense spending cuts. And Ben Groves
blames inflation on "cold war generated issues". That is a troll
for you.
I think we all agree that inflation fell from 1970 through
1972 and then the oil shocks caused massive inflation starting
in 1973 through 1980.
So what could the Fed have possibly done in 1972 to head off
inflation starting in 1973 when the cause of that inflation was
completely unknown in 1972?
Those who blame the Fed for the stagflation of the 70s and
early 80s are just being disingenuous.
"The Emergency Petroleum Allocation Act of 1973 (EPAA) was
a U.S. law that required the President to promulgate regulations
to allocate and control price of petroleum products in response
to the 1973 oil crisis. It was extended by the Energy Policy
and Conservation Act of 1975. The regulations were withdrawn
by President Reagan in Executive Order 12287 of January 28, 1981."
Not saying these price controls were a good idea but they
did exist.
Isn't it important to also consider historically the employment-to-population
ratio?
At present it is 59.4. Ten years ago it was at 62.9? Twenty-years
ago it was at 62.8.
It was back in 1985 that we were at about the same as today.
Perhaps it's wishful thinking, but if the historic high in
this ratio is 64.5 (in 2000) does not that indicate that the
economy has a way to go before it starts bumping up against it's
historical maximum?
Which does not mean it cannot go even higher. The major hurdle
being that we a progressing into a major "age change". That is,
from the Industrial to the Information Age, which means different
and more advanced skill-sets are increasingly more necessary.
Which places an even greater emphasis on education to give
workers the aptitude/skills necessary to find decent wages at
decent jobs.
Tinkering with the interest rate is perhaps an amusing mental
riddle presently, but is it really the most important?
Tight labor markets are the one reliable way to pull that
number up.
And the Fed is talking about raising rates now to prevent
labor markets from getting overly tight, while some of us
are arguing (as loudly as we can) that it's crazy to think
labor markets are overly tight right now, with EM-POP growth
and wage growth both being tepid and inflation expectations
way below target. We're talking about this interest rate tinkering
because it threatens to derail what weak recovery that we
have.
Ben Groves -> sanjait
This is wrong. Labor markets had periods of tightness in
the 1948-64,yet that number would not rise much past 50%.
It wasn't until the Boomers, who were the first generation
to really feature full scale female employment, that it rocketed
along with its demographic population surge.
Accepting history is not easy. You can't use the employment
to population ratio as labor market "tightness". It simply
does not work. The main surge in this index was the late 70's
to the late 80's. Even in the 90's its growth was fading.
sanjait -> Ben Groves
What on Earth?
Do you think that we're going back (or have already gone
back?!) to the days when women didn't work?
I do not, and therefore I don't think an EMPOP ratio from
those days is highly relevant to the question of LFP today.
I really do not understand what you are even trying to
argue here.
Ben Groves -> sanjait
Because it shows the causation with the factors. It is
still much higher than before women went to work, which is
little surprise considering women's employment to population
is still historically very high.
Dan Kervick -> sanjait
Well, I think the point is that it is very hard to formulate
a clear and uncontroversial economic standard for what
the "correct" employment to population is, since historically
this level has varied with non-economic social factors
during both good times and bad times.
Possibly one way to make some progress is to establish
some national targets for growth and economic development,
and then we ask whether the active labor force is large
enough to accomplish those national goals. If it is, then
at that point we have a distribution issue, not an employment
issue. After all, if at some point in the future labor
has grown so productive that we manage to have 5% annual
growth with only 30% of the population employed, and are
also meeting all of our longer-term strategic objectives
with respect to education, energy, health and infrastructure,
then I doubt people will be complaining that the employment
to population ratio is too low.
I personally think we do need a significantly higher
rate of population employment because we are stagnating
economically, and have peculiarly pressing and unmet national
and global challenges that are going to require a high
level of participation. We are going to need a lot of people
working to rebuild our broken and failing society.
Dan Kervick -> sanjait
"Was it also the effect of discouraged
workers turning temporarily and reversibly
into labor force dropouts?"
Yes, I agree this is by far the most
important factor.
With the perspective of a few years behind
us now, we can see that US capitalism responded
to the 2007/8 crisis by jettisoning a significant
portion of the previous workforce, and reconsolidating
the economy around a smaller core group
of economic participants. Even from the
ruthless standpoint of the plutocracy, this
is a foolish path, because the wreckage
it has created is only planting the seeds
of social problems that are going to come
back to bite the plutocrats. But failing
and succumbing to short-termism is what
neoliberal capitalism has been all about
since its inception in the 80's.
"Which does not mean it cannot go even higher.
The major hurdle being that we a progressing
into a major "age change". That is, from the
Industrial to the Information Age, which means
different and more advanced skill-sets are
increasingly more necessary."
You must be referring to the need to raise
horses and mules, make wagons and buggies,
and drive horses and mule teams.
After all, the Republican policy is to let
the highways decay toward being impassible
to motor vehicles, water and sewer systems
fail, dams fail, etc, because the last thing
Republicans want is any American getting a
decent middle class job because their spending
would drive economic growth, and Republicans
want America to go back to lower GDP per capita.
sanjait said
There were some new (to me) arguments in
there, so that's a good contribution to the
discussion from Thoma IMO.
I've heard before the "long lags" argument,
for why supposedly rates need to go up now
when inflation and expectations thereof are
below target, because they don't want it to
overshoot the mark.
Thoma points out rightly that a balance
of risks view strongly suggests we wait anyway.
And I've long believed that central bank
policy doesn't just act through long lags,
but rather through a spectrum of channels that
includes key ones that are quite forward looking.
Even hinting at maybe raising rates has tightened
policy this year.
But in any case, it's interesting to note
that even the somewhat well-established (long
ago) long laggy channels might not be so laggy.
Perhaps this is implicitly conceding too much
to the inflationistas, even having that conversation,
but it's interesting nonetheless.
My dumb rant is based on polling data.
What is your hypothesis based on.
In fact, Americans have all sorts of
divergent and wild opinions about prices
that are very distant from statistical measures
of price levels as produced by economists.
In fact, as I think you know, if you asked
the average American, they would probably
say that inflation is already far too high,
and would have said the same thing at any
point over the past 5 or 6 years. That's
because they base their inflation estimates
on things like food and fuel.
I'm not saying we should listed to these
popular opinions. But the fact that they
are so different from both actual core rates
and Fed statements about expected core rates
is enough to show that the idea that inflation
expectations in the US economy are mainly
a function the Fed's pronouncements is extremely
implausible.
sanjait -> Dan Kervick
Didn't we just have this conversation?
Markets aren't a democracy. Everyday
consumers have inflation expectations, which
matter to the extent that inflation expectations
might change their consumption behavior.
But the inflation expectations that do
move are those of market participants, and
as I carefully explained to you before,
the market participants that have the most
influence on price are the ones that control
the most money.
And you can sure as hell bet that those
money managers pay attention to Fed pronouncements.
You seem to be on a kick of trying to
convince yourself and others that the Fed's
forward guidance doesn't really do anything
in the economy
but you are utterly wrong about this.
The people whose financial decisions
set bond rates listen to the Fed, and
those rates affect the cost of capital
of every consumer and business borrower
and the rates of return of every investor
in the economy. So
yeah, the Fed's pronouncements matter.
{After all, the Republican policy
is to let the highways decay toward being
impassible to motor vehicles, water and
sewer systems fail, dams fail, etc, because
the last thing Republicans want is any
American getting a decent middle class
job because their spending would drive
economic growth, and Republicans want
America to go back to lower GDP per capita.}
Are not they just two branches
of the same party in best USSR
traditions, as Gore Vidal suggested
Gore Vidal: "Our Only
Political Party Has Two Right
Wings, One Called Republican,
The Other Democrat"
likbez said
I think that Fed strategy
is dictated by International
concerns as much, if not
more, as domestic concerns.
== start of quote ===
The source of the term
is a quotation in an October
17, 2004, The New York
Times Magazine article
by writer Ron Suskind,
"Faith, Certainty and
the Presidency of George
W. Bush," quoting an unnamed
aide to George W. Bush
(later attributed to Karl
Rove[1]):
The aide said that guys
like me were "in what
we call the reality-based
community," which he defined
as people who "believe
that solutions emerge
from your judicious study
of discernible reality."
"That's not the way
the world really works
anymore," he continued.
"We're an empire now,
and when we act, we
create our own reality.
And while you're studying
that reality-judiciously,
as you will-we'll act
again, creating other
new realities, which
you can study too,
and that's how things
will sort out. We're
history's actors…and
you, all of you, will
be left to just study
what we do."[2] == end of quote ===
And that's probably
the key to understand
their action or inaction
as for interest rate.
IMHO, in no way
domestic concerns are
of primary importance.
"...The reason the Friedmanian era turned out to be vastly different from the Keynesian era
was because the neoclassical economic reforms were colossal failures."
"...Nothing in the history of the universe has failed more than neoclassical ideology. If one
is to call that failure, one would have to redefined the word failure to include all other failures
that pale by comparison. But according to the Medieval Barbers, their policies were a resounding success.
Anyone who questions them is a philistine. Thankfully, these modern high priests aren't able to burn
dissenters at the stake like their forebears. "
"..."Krugan's free-trade ideology rhetoric shows he's more New Keynesian (neoclassical synthesis)
than Keynesian. More neoliberal than liberal.""
"...Modern Monetary Theology brought back pre-Keynesian boom-to-bust business cycles, drove
down real incomes and the employment rate (now expect a decade before the economy can recover from a
recession.) "
"...China is in hot water because neoclassical reforms have killed demand in the Western economy.
Its economy is founded on importing more and more Western jobs and manufacturing, not to mention GHG
emissions. "
Yes the laws of physics change every 35 years too.
The reason the Friedmanian era turned out to be vastly different from the Keynesian era
was because the neoclassical economic reforms were colossal failures.
Tax cuts did not pay for themselves or create prosperity, they created skyrocketing government
debt. Deregulation didn't create prosperity, but produced numerous disasters including financial
meltdowns. Free-trade exported wealth and jobs and killed real income growth. Modern Monetary
Theology brought back pre-Keynesian boom-to-bust business cycles, drove down real incomes and
the employment rate (now expect a decade before the economy can recover from a recession.)
Nothing in the history of the universe has failed more than neoclassical ideology. If one
is to call that failure, one would have to redefined the word failure to include all other failures
that pale by comparison.
But according to the Medieval Barbers, their policies were a resounding success. Anyone who
questions them is a philistine. Thankfully, these modern high priests aren't able to burn dissenters
at the stake like their forebears.
Economic facts do. Are you trying to state there has not been a sea change in the world economy
since the post WWII era?
Sorry, but Japan, China and Europe are an awful lot different than they were in 1950. And that
is not saying that I disagree with everything you say. Actually, I agree with a lot of it.
But thinking solutions lie in the policies of the 50s and 60s ignore that the problems that
exist did not exist in the 50s and the 60s.
"But thinking solutions lie in the policies of the 50s and 60s ignore that the problems
that exist did not exist in the 50s and the 60s."
EMichael there is a logical hole here. I am not sure I disagree with you on the substance but
there is a coherent argument that the problems that exist NOW are precisely BECAUSE of changes
away from the polices of the 50s and 60s. And that the reason we didn't have the same problems
then is that the policies prevented them. And that a change back to those policies would serve
to ameliorate them.
What you would need to do to rescue your argument is to prove that current problems could
NOT have existed in the 50's and 60's, that there is something unique to today's problems that
make them resistant to yesterday's solutions.
I am not saying you couldn't do that. Merely that you haven't attempted it. Instead you present
a circular argument. What EXACTLY about today's problems make them incurable by yesterday's solutions?
The main thing that did not exist in the US was competition for labor. Free trade is a marvelous
thing when you are the only one selling.
Take a look at trade balances from that period and the last couple of decades.
You can almost trace the trade balance changes to the changes(or lack of changes) to the income
of the vast majority of Americans.
People in here(and myself) talk about the need for a tighter labor market. And we applaud the
actions that create one. But I am almost totally committed to the idea that the only way to create
a tight labor market is protectionism. We have to protect our workers.
Of course there is a price to be paid, but I think the increased costs of some goods will be
overwhelmed by the benefits to be gained by a tight labor market.
Then again, we would be harming other countries trying to move into a industrialized state.
But the last time I looked, none of them were helping me pay for SS; or Medicare; or education;
or the keep the street lights working.
I know it is not politically correct, but charity begins at home. Especially in a home which
has seen such decline in only three or four decades.
Economic policy doesn't happen in a vacuum. Before the 90's there was no internet. There were
its precursors of a sort, e.g. fax and data transmission over the phone, and computer networks/links
based on that (90's comms technology existed but only in the lab or at the high end). In the post-WW2
decades, there weren't built out telephone networks at the national and international level, only
few high end players could arrange to make instant international calls. Even electrification wasn't
completed.
This meant obviously more bottlenecks and more intermediation and control, barriers to
globally distributed operations, and in addition everything happened at a slower speed.
In addition most of the world, including large parts of Europe and the US, was agricultural
or sparsely populated and un"developed".
In the decades after, the "second" and "third" world invested big time in education and technological
development. It really took off when international business logistics and global IT/telecom became
ubiquitous, and "first world" companies eagerly "helped" build the offshore know-how.
Generalizations don't identify any problems, provide any solutions, justify failed policies
or rule out successful policies. Japan and Europe are in hot water because of bad economic policy.
(Not demand-side Keynesian economic policy.)
China is in hot water because neoclassical reforms have killed demand in the Western economy.
Its economy is founded on importing more and more Western jobs and manufacturing, not to mention
GHG emissions.
It's only a matter of time before the entire house of cards collapses. Then people will be
looking to the 1930s for policy solutions
I agree with the others. To say that the economy was different back then is to minimize the
manner in which policy has changed for the worse.
I don't think fundamentally the laws of economics have changed that much because of technology
or globalization or vague "productivity changes."
This is like being like Martin Feldstein who says we should be happy with what we got. No policy
has changed much to the worse since the 1950s and 1960s. For one thing unions have been politically
destroyed.
EMichael said in reply to Peter K
Not the laws of economics, the facts. Y'know the old Keynes thing(supposedly):
"When the facts change, I change my mind. What do you do, sir?"
I'll give you one change.
In the 70's China had almost no foreign exchange reserves. Now they have around $4 Trillion.
That is a real fact. And the reasons behind it are obvious.
"...You're an econ prof, no? In the first year macro I just finished, it was explained that
inflation is a tax on the rentiers class. Thus the power elite hates inflation."
"...The Fed does absolutely nothing to require that the money it creates pays workers to build
anything. Instead the only thing the Fed money does is cause existing asset churn which inflates
asset prices to a bubble as seen by the bubbly stock price indexes globally. Dollars are abundant
and being spent buying old labor in hopes that the value of the decades old labor will be worth more
tomorrow."
pgl still hasn't demonstrated the iron economic law that says that inflation increases must
necessarily be passed along to labor, not stolen by capital.
The precedent of productivity increases stolen by capital over the past 40 years is not
encouraging, but there are economists like Janet Yellen who still disingenuously are that
productivity increases get passed along! And despite the evidence, pgl chooses to believe her!
mulp said...
But printing more money just forces the exiting money to be spent paying workers slower and
slower.
The national economic policy selected by We the People is clearly:
DO NOT PAY WORKERS TO BUILD ANYTHING.
The Fed does absolutely nothing to require that the money it creates pays workers to build
anything.
Instead the only thing the Fed money does is cause existing asset churn which inflates asset
prices to a bubble as seen by the bubbly stock price indexes globally. Dollars are abundant
and being spent buying old labor in hopes that the value of the decades old labor will be
worth more tomorrow.
We the People understand that paying labor to build new assets will crater the prices of all
the inflated asset prices, eg, creating the kind of excess supply we see in fossil fuels which
will cause cratering prices, profits turning to losses, and the asset price bubble popping in
a big way.
The 21st century has proved to me that I was totally wrong to believe in monetary theory based
on the arguments and data of Milton Friedman, and that led me to reexamine the policies of FDR
in the face of a populist Congress.
Insight one: deep crisis is required to motivate We the People.
Insight two: the only way to create a better economy is to pay more workers to work more
Insight three: the only way to pay more workers more to work more is for taxes taking money
from those who have money which is basically everyone in the upper half who will then demand
benefits NOW for all their taxes
Doing the liberal thing to prevent massive poverty in 2008 was the wrong thing. Democrats
should have made demands that Bush and Republicans would totally refuse to agree to, so all
the money market funds experienced runs and 50% of the depository banks got taken over by the
FDIC, and half the businesses in the US stopped paying workers because they could get their
cash in their banks because the banks were taken over by the FDIC. And in 2009, Democrats
should have kept increasing demands and demanding ever higher tax hikes every time Republicans
fought to block Democratic budget bills keeping the economy sinking deeper and deeper making
more and more people poor.
The ideal outcome of 2009 would have been corporate tax rates of 50% on business profits of 5%
ROIC or lower and 90% on all profits in excess of 5% ROIC, but with 100% deduction for all
capital investment excluding buying existing corporations or partnerships. And 90% income tax
rates in excess of twice the median income, excluding buying tax exempt infrastructure
construction bonds or investing in energy efficiency capital assets.
Or a carbon tax that was set to rise every year until tax revenue was zero with all the tax
revenue used to repay Federal debt.
Tax dodging is the biggest incentive to pay workers to build stuff that lasts and that is
productive.
The Fed can't do anything but prevent the required crisis to force the required political
change.
Or cause the crisis that will create change.
The Fed needs to jack up interest rates to, if nothing else, increase the Federal deficit
rapidly by increasing the interest costs.
One of two things would happen: Republicans would win in 2016 and crash the economy by massive
spending cuts driving tens of millions into poverty, homelessness, etc.
Or taxes rates would be greatly increased to reduce the deficit but the high tax rates would
make hiring workers the cheapest way to cut taxes due and get some benefit.
If I were in the Fed I'd be calling for a 1% hike every year (.25% a quarter) for the next
three years.
likbez said...
The USA now reminds me the USSR in a sense that government figures are not using open
verifiable methodology. Some thing that those metrics became yet another "number racket". Some
measures like inflation and GDP are definitely politicized.
That gives an impetus for sites like http://www.shadowstats.com
Those people who operate using pure government statistical figures without questioning their
error range are just another brand of highly paid charlatans. And their papers and articles
should be viewed as exercise in "tail wags the dog"
Actually that can be viewed as another dimension of mathiness.
For example government announced that GDP is 3.7%. And everybody jumps in admiration. And
nobody asks what was GDI released for this period. Suckers...
Peter K. said in reply to likbez...
"The USA now reminds me the USSR in a sense that...
Republicans are dynamic scoring in order to massage the numbers to that their favored policies
look better?
likbez said in reply to Peter K....
My point is the USA now reminds the USSR with its tendency to "beautify" economic data.
Think about all those birth-death adjustments, substitution of U6 with U3 (concepts of
"discouraged workers" and "marginally attached workers"), redefining full employment metric
(which no longer means 40 hours a week employment), hedonic adjustments/substitutes,
"managing" inflation by changing the way it is calculated, price anomalies that bump GDP up,
like tremendously overpriced military hardware, etc.
Please don't throw the baby out with the bathwater
Dan Kervick
"Finally, why the huge fear over a little bit of inflation rather than huge fear over
higher than necessary unemployment?"
It is a good question, and frankly I have trouble believing that people like Fisher actually
*are* worried about a little bit of inflation. Fisher set out his fuller position over a year
ago, and I doubt it has changed much:
He's mainly afraid that the Fed might blow a bubble, and he's afraid that the independence of
the political Fed is being compromised by it's being dragged into service to compensate for
the lack of fiscal and regulatory action by Congress.
I would suggest that, on the second point at least, everyone should get used to the fact that
central bank policy is inevitably a response to politics. That's because central bank policy
is always based on general economic conditions, and general economic conditions are always to
a substantial extent a function of government policy. So central bank policy has to be
responsive to government policy. Tough cookies for all of those believers in an "independent"
central bank. There is no such thing as an autonomous "economy" that is independent of
political choices.
Other not fully acknowledged factors driving the recent debate are equally political. The Fed
is worried that if normalization is delayed, then some time next year the Fed will *have to*
reverse course, one way or another. If that takes place after the parties have chosen their
nominees and the political race is in full gallop, the Fed will be accused of intervening (in
some way, on behalf of someone) in the campaign, and will become a political football. (As far
as I'm concerned that would be great, because the US central banking system needs radical
reform - but the Fed guys wouldn't like it.)
The other thing they are obviously worried about is a recession. If the US experiences a
recession for any reason over the next 18 months, and the Fed is still stuck down close to the
zero bound, then it will not be able to exert a substantial stimulative impact - at least not
without radical new measures like helicopter money. Again, that's something that wouldn't both
me personally, but Independent Fed establishmentarians would freak.
John said...
You're an econ prof, no?
In the first year macro I just finished, it was explained that inflation is a tax on the
rentiers class. Thus the power elite hates inflation.
His hiring of Richard Tang is a pretty good clue and it seems his strategy changed around the
same time.......spidey sense is tingling on this one for sure.......he's a proxy but not sure for who
exactly at this point.
Yale, Goldman, Bernanke (How well do you have to know someone to "test their patience"? A:
pretty fucking well.)
This is a set-up. He's not buying billions of Treasuries with his own money. This fucker is a front/cut-out.
He is doing the dirty, er "God's" work. Someone has to buy this Chinese paper, or else yield contagion
screws the pooch. Where is he getting the money? Bernanke knows.
How the hell does a fund make money by accumulating low yield bonds? Where
is the source of capital to purchase all this? I can't imagine hes managed to get that much OPM (Other
People's Money).
"...Central banks are independent. Independent of their nations best interests." . "...Bernanke is on the record as saying that there is no theory to justify QE. And therefore
there can be no model to justify the amount of QE undertaken and calibrate it to the needs of the
economy. Just a con trick." . "...Growth under free market capitalism largely functions through bubbles - following the
explosion of tech consumerism and ill-advised financial speculation on property assets, North
America has recently benefitted from the fracking explosion as well as the fall in the oil price;
the UK always has its property market. "
Nothing more -- they have collectively destroyed the diligent savers, pensioners and even
the value of small taxed gifts to children.
To many central bankers are interested in their own existence, hang the rest who rely on a
perceived value that they under right in Fiat currencies.
kimdriver -> miceonparade 6 Sep 2015 16:07
Agreed. It's all a con trick.
Sometimes con tricks can be justified, but this one is so piss poor, and has such adverse
consequences (the inflation of the price of financial assets, not through the injection of
money but through the lowering of long term interest rates and the desire for yield).
Bernanke is on the record as saying that there is no theory to justify QE. And therefore there
can be no model to justify the amount of QE undertaken and calibrate it to the needs of the
economy.
Just a con trick.
soundofthesuburbs 6 Sep 2015 15:54
Many years ago when Alan Greenspan first proposed using monetary policy to control
economies, the critics said this was far too broad a brush.
After the dot.com crash Alan Greenspan loosened monetary policy to get the economy going
again. The broad brush effect stoked a housing boom.
When he tightened interest rates, to cool down the economy, the broad brush effect burst the
housing bubble. The teaser rate mortgages unfortunately introduced enough of a delay so that
cause and effect were too far apart to see the consequences of interest rate rises as they
were occurring.
The end result 2008.
With this total failure of monetary policy to control an economy and a clear demonstration of
the broad brush effect behind us, everyone decided to use the same idea after 2008.
Interest rates are at rock bottom around the globe, with trillions of QE pumped into the
global economy.
The broad brush effect has blown bubbles everywhere.
miceonparade 6 Sep 2015 15:14
Whatever the diagnosis for the less-than-impressive post-crisis recovery – the debt
overhang from the boom years, chronic underinvestment, weak consumer demand as a result of
deep-seated inequality, or some other as yet undiagnosed economic disease – the cure is
unlikely to lie with the central banks.
That is correct. All central banks can do is swap assets with banks. That is not
economically stimulative. Changing the composition of bank portfolios does nothing to get
money to people to spend. They still have to borrow it, and who wants to borrow right now in
order to invest in an economy in which nobody is spending? The answer lies in fiscal policy.
The treasury must increase net spending to get money directly in the hands of people so they
can spend it and turn it into somebody else's income (and so on).
And the market gyrations of recent weeks have been a reminder of a lesson the world
learned in the crisis of 2008 and beyond: central banks are not the omniscient puppet
masters of the global economy they seemed before the crash. Instead, in resorting to
trillions of dollars' worth of quantitative easing, they may have conjured up forces they
can barely control.
Central banks have little effect on economies. But that also means that quantitative easing
won't have conjured up any forces beyond their control. It's just a fruitless exercise in
changing the composition of bank holdings. Unsurprisingly, no reasons are given for this
assertion in the article.
Mark Carney, London
Agustín Carstens, Mexico City
Jon Cunliffe, London
Andreas Dombret, Frankfurt am Main
Mario Draghi, Frankfurt am Main
William C Dudley, New York
Stefan Ingves, Stockholm
Thomas Jordan, Zurich
Klaas Knot, Amsterdam
Haruhiko Kuroda, Tokyo
Anne Le Lorier, Paris
Fabio Panetta, Rome
Stephen S Poloz, Ottawa
Raghuram Rajan, Mumbai
Jan Smets, Brussels
Alexandre A Tombini, Brasília
Ignazio Visco, Rome
Jens Weidmann, Frankfurt am Main
Janet L Yellen, Washington
Zhou Xiaochuan, Beijing
The banking cartel that runs the world.
soundofthesuburbs 6 Sep 2015 12:03
Central banks are independent. Independent of their nations best interests.
But the heads of all major Central Banks are directors of the Bank of International
Settlements in Switzerland (including China). Our policy makers are the same the world over
and they reside in the BIS in Switzerland. The policy is to prop up the global banking system
and stock markets.
Dunbar1999 6 Sep 2015 10:16
The common-sense relationship between lending and borrowing seems to have been lost since
computer programs started working out profit-and-loss equations to ten decimal places in
micro-seconds for the benefit purely of agents -- middlemen, or facilitators Ordinary people
with even a little cash to spare used to be able to lend it, probably to a bank; and then the
bank would lend it to someone else who would pay the bank enough for the use of the money to
enable the bank to pay the lenders. About 3 per cent over the general rate of inflation was
generally agreed to be fair, I believe, for years and years. But now that the act of lending
money (to a bank, lets say, i.e. saving) gets a lot less back than what inflation actually
costs the saver, it makes more sense for millions of people with a bit of spare cash to put it
where they think they'll get a bit more back -- like a posher house, maybe. Or stock in a
snazzy new tech company. And then economists start worrying about asset bubbles, and things
get out of whack and start going to hell in a handbasket. I have never understood why
professional economists, especially those labeled in America "freshwater" economists, never
seem to have studied psychology along with all those charts and equations. There are actually
real people living their daily lives in every part of every economy, after all.
burgermeister 6 Sep 2015 09:43
I suspect, for many normal people, the 2008 crash was a wake-up call. Too much private debt
and not having any spare money lying around for an emergency is no way to live when the
economy can change on a whim.
We've certainly been tightening our belts here since the Tories got in, stockpiling spare
cash in an easy-access savings account (on top of existing investments) and making
over-payments on the mortgage. I have no faith at all in this recovery or in the government to
provide a decent safety-net if it all goes tits-up so this consumer's spending will not be
doing what the economy wants it to.
NWObserver -> MattyTwo 6 Sep 2015 08:56
Gold is merely another token of wealth, although not something that can be created out of
thin air. The true source of wealth is the ability and willingness to create it out of the
resources available in nature and those who possess it are the best positioned to ride out the
storm. Of course, also holding time-tested tokens of wealth like gold can't hurt either.
But those who think creating tokens of wealth in endless supply can make them skim the wealth
produced/owned by the others and do so forever will get a harsh dose of reality.
candidliberal 6 Sep 2015 08:46
Growth under free market capitalism largely functions through bubbles - following the
explosion of tech consumerism and ill-advised financial speculation on property assets, North
America has recently benefitted from the fracking explosion as well as the fall in the oil
price; the UK always has its property market.
Social market Europe will have to liberalise substantially to return to anything
approaching old patterns of growth - only Germany has managed this if under now dusty
Schroeder reforms from the late 90s.
Shakerman 6 Sep 2015 08:46
According to legend, the location of Wall Street, the New York financial district, was
chosen because of the presence of a chestnut tree enormous enough to supply tally sticks for
the emerging American stock (stick) market.
There was a time when the English government created money debt free using wooden (Tally)
sticks.
As Ellen Brown points out in her book "The Public Bank Solution" when debt based money was
forbidden in Medieval England, despite the Black Death and other scourges that had to be
contended with, the economy itself seems to have provided quite easy living conditions.
Introduced by King Henry I (son of William the Conqueror) to thwart the debt creating money
changers, wooden tallies were wooden sticks with notches cut in them and then split
length-ways.
One half of such a stick, which was given to the party advancing funds, had a handle and was
called the "stock", while the other half was called the "foil".
The "foil" was the origin of the term "the short end of the stick."
The term "stock" has evolved to describe shares in publicly listed corporations today.
Thorold, Rogers, a nineteenth century Oxford historian, wrote that during this time (Middle
Ages) when money was not created bearing debt, "a labourer could provide all the necessities
for his family for a year by working 14 weeks."
Fourteen weeks is only a quarter of a year and so for the rest of the time some men worked for
themselves, some chose to study and some fished or engaged in other leisure activities.
Indeed some helped to build the cathedrals and churches that appeared all over England during
that time – massive works of art that were built mainly with VOLUNTARY labour.
Over one hundred thousand pilgrims had the wealth and leisure to visit Canterbury and other
shrines yearly.
William Cobbett, author of the definitive "History of the Reformation," wrote that Winchester
Cathedral "was made when there were no poor rates; when every labouring man in England was
clothed in good woollen cloth and when all had plenty of meat and bread."
Money was available for inventions and art, supporting the Michelangelo's, Rembrandt's,
Shakespeare's and Newton's of the period.
windwheel 6 Sep 2015 07:42
'weak consumer demand as a result of deep-seated inequality, or some other as yet
undiagnosed economic disease' Wow! Has the author not heard of the Permanent Income
Hypothesis? Is he not aware that Technology is changing unpredictably - we don't know what
sort of education and training is worth investing in, let alone which Companies have a robust
business model - as is Demographics - with the result that Uncertainty has increased and,
assuming the Ellsburg effect holds, expected Permanent Income must have declined more than
proportionately?
What is this guff about Central Bankers having been considered omniscient gods prior to
2007? Greenspan mania had nothing to do with Monetarism but was about American exceptionalism
and Randian animal spirits.
Britain is differently placed and may well see some tightening even if the Market continues
to misunderstand what Hu is up to.
NicholasB 6 Sep 2015 06:58
The Shanghai Stock Market is still up on the year. Don't get carried away by the hype.
There was a stock market bubble and it burst. This is not a sudden collapse of the Chinese
economy.
JaneThomas 6 Sep 2015 05:42
That tree is such a metaphor- like a version of the story of King Midas who received his
wish and turned everything into gold, including his child.
'"A piece of bread," answered Midas, "is worth all the gold on earth -- Oh my child, my dear
child I" cried poor Midas, .wringing his hands.'
the problem is in europe and america people are not buying therefore in asia the maker's of
the product have to downsize .The problem is not in Asia but the lack of buyer's in america
and europe .So why do people not buy.Simple they don't have a jobs no saving's
johnbig 6 Sep 2015 04:32
Central banks can do nothing more to insulate us from an Asian winter
I did hear of an intelligent proposal from a Labour politician, which was supported by several
respected economists. It was called People's Quantitative Easing to be used for investment in
infrastructure. Perhaps though we should not spend a much as the Ł200bn already channeled
through the banks
someoneionceknew 6 Sep 2015 04:18
The way out of depression is fiscal policy. All this rubbish about central banks is a
distraction. They don't have the tools to lift aggregate demand.
The European Central Bank proudly announced on Friday that it is erecting a
17-metre-high bronze and granite tree outside its Frankfurt headquarters – an artwork
intended to "convey a sense of stability and growth"
A cruel joke. The Stability and Growth Pact is a suicide cult. Macroeconomic madness.
... For the old lions, Paul Samuelson and Milton Friedman, the '80s meant a bittersweet departure
from the center stage of economics after forty years of dominating the scene. The two had entered
their sixties; neither was out of steam. But the leaders of the next generation had become apparent:
Lucas, in macroeconomics; Kenneth Arrow in nearly everything else.
The election of Ronald Reagan was a triumph for Friedman; they had known each other since Friedman
spent a quarter at the University of California at Los Angeles, shortly after Reagan had been
elected Governor of California.He was invited to lecture in China. And the international success
of Free to Choose kept Friedman in the public eye.
But Paul Volcker took a different approach to monetary policy from the one Friedman advocated,
and Friedman's forecasts became markedly worse. The editorial page of The Wall Street Journal
adopted as its champion Friedman's long-time rival in currency matters, Robert Mundell, now teaching
at Columbia University, and went all in for Mundell's young associate, consultant Arthur Laffer.
A research appointment at the Federal Reserve Bank of San Francisco was not the same platform
as the University of Chicago. Friedman still had his membership on the President's Economic
Policy Board, but after he "savaged" Volcker to his face before the president in a meeting
in 1983, both men lost influence. Pointing a finger at Volcker, Friedman said (according to Newsweek's
account), "because of the policies of the Fed under that man we have had an inflationary surge
in the money supply that is going to have to be corrected." Volcker was not reappointed. Edward
Nelson, of the Federal Reserve Bank of St. Louis is writing a
scientific
biography of Friedman. It will make interesting reading when it is done.
In March 1981, Friedman wrote his Newsweek column in the form of a letter to Philip Handler,
president of the National Academy of Sciences, advocating major cuts in the budget of the National
Science Foundation, as a step towards the abolition of the NSF. The Reagan administration
had proposed sharp cuts in the economics program. Friedman argued the government shouldn't
pay for any scientific research. True, the NSF had funded much good science; but it had paid for
much bad science, too, including, he wrote, overmuch mathematical economics. The great scientists
of the past had done without NSF funding. Einstein did his work in a government patent office;
general relativity might never have made it past a peer-review panel. "The innovative ideas
that have stirred controversy in economics since NSF funding of economics began two decades ago
owe little or nothing to NSF funding," he wrote.
Thus did Friedman dismiss the agency that Paul Samuelson had brought to life in 1945.
Perhaps more important, by extension he dismissed the program of government fellowships, awarded
by competitive exam, that had sent Samuelson to graduate school in 1935, all expenses paid
– and countless others since, many of them as impecunious as Friedman had been in 1932.
The NSF ran similar programs in mathematics and many ciences, and the principle had been extended,
by Sen. Jacob Javits (R-NY) to humanities. NSF research grants funding had helped build
the Massachusetts Institute of Technology into a powerhouse to rival Harvard, and played a similar
role at many other public and private universities.
No Samuelson column followed Friedman's. Samuelson never wrote again for Newsweek . He resigned
the column he written for fifteen years. When, many years later, I asked him about his timing,
he firmly denied that it had anything to do with Friedman's column, and wrote me a letter for
the file the next day repeating what he had said. I have always wondered if he sought to defuse
the matter out of habit. That he and Friedman had remained on civil terms for seventy-five years
was clearly a source of pride, though privately he grew less tolerant of his rival after
1980.
Samuelson, too, was in mild recession in the '80s. Keynesian economics hadn't yet rebounded
from the biting criticism of the New Classicals in the '70s. Tensions were growing within the
MIT department over appointments and the direction of future research. Samuelson formally
retired in 1985, at 70, to make room for others. He had plenty to engage his professional attention.
Commodities Corp., which had discovered such natural traders as Paul Tudor Jones and Bruce Kovner,
was winding down, but Samuelson's interest in Warren Buffet's Berkshire Hathaway was gearing up.
The Vanguard Group, whose godfather he had been ever since founder John Bogle introduced the first
index fund, was thriving. Samuelson's friends and colleagues James Tobin, Franco Modigliani,
and Robert Solow received Nobel Prizes.
Young Lions at Large
To the young lions of Keynesian economics in the '80s, rational- expectations macroeconomics
and real business cycle theory posed a considerable bar. To work in the new traditions required
a considerable investment in new tools and mathematical techniques, and, even fully teched-up,
didn't seem to speak very directly to policy. A strong corps of economists went to work to fashion
a "new Keynesian" version of the latest general equilibrium economics. But gradually one rising
star of saltwater economics after another left academia for a policy job.
Martin Feldstein, of Harvard University, was the first. As something of an acolyte of Milton
Friedman, Feldstein was never very high in salinity, but he demonstrated plenty of professional
backbone as Chairman of the Council of Economic Advisers under Ronald Reagan for two years in
the early days of the controversies over deficits before returning in 1984 to Harvard and his
position as president of the National Bureau of Economic Research. Stanley Fischer, of MIT,
was next, wrapping up a highly successful research career in order to serve as chief economist
of the World Bank (a path that led to leadership positions in the International Monetary Fund,
governor of the Bank of Israel and, currently, vice chairman of the Fed). Lawrence
Summers, Feldstein's student, served as campaign economist to Democratic candidate Michael Dukakis
in the 1988 presidential campaign and succeeded Fischer at the World Bank before joining the Clinton
administration, where he advanced to Secretary of the Treasury.
Soon the flood was on: Jeffrey Sachs, Joseph Stiglitz, Olivier Blanchard, Kenneth Rogoff,
Gregory Mankiw, Glen Hubbard, and Christina Romer were among those MIT- or Harvard-trained economists
who served in government jobs or NGO positions. Paul Krugman retooled as a journalist.
Lists of MIT and Harvard graduates in high positions in European, South American, and Asian
governments were even longer. Did this differ in kind, and not degree, from the trajectory
of academic economists dating back to to the New Frontier, if not the New Deal? I think
so.
In 2006, Harvard's Mankiw, in an
article for
the Journal of Economic Perspectives argued, as I did in a book, that the differences in interests
among economists were best understood as being similar to those between scientists and engineers.
The early macroeconomists, led by Samuelson and Friedman, had resembled engineers seeking to solve
practical problems, Mankiw wrote; macroeconomists of the past several decades, led by Tjalling
Koopmans, Jacob Marschak, Kenneth Arrow, and others had been more interested in developing analytic
tools and establishing theoretical principles. Their students the '80s had joined teams along
similar lines. "Recently Paul Romer, of New York University, introduced a different distinction
to elucidate some of the controversies in present-day macro – between
bench science and clinical medicine. Both analogies will get plenty of elaboration in future
years, for this is what changed in kind in the '80s: economics developed a clinical/engineering
wing.
... ... ...
likbez said...
Due to his role in neoliberal transformation of Chile after Pinochet coup of 1973, Friedman
can be viewed as a one of the first economic hitman for multinationals, member of organized
crime disguised as an economist. According to the 1975 report of a United States Senate Intelligence
Committee investigation, the Chilean economic plan was prepared in collaboration with the CIA.
In 1987 45% of Chile's population was below poverty line. From Wikipedia:
==Start of quote ===
Milton Friedman gave some lectures advocating free market economic policies in Universidad
Católica de Chile. In 1975, two years after the coup, he met with Pinochet for 45 minutes,
where the general "indicated very little indeed about his own or the government's feeling"
and the president asked Friedman to write him a letter laying out what he thought Chile's economic
policies should be, which he also did.[26] To stop inflation, Friedman proposed reduction of
government deficits that had increased in the past years and a flat commitment by government
that after six months it will no longer finance government spending by creating money. He proposed
relief of cases of real hardship among poorest classes.[2] In October 1975 the New York Times
columnist Anthony Lewis declared that "the Chilean junta's economic policy is based on the
ideas of Milton Friedman…and his Chicago School".[26]
=== End of quote ===
In her book The Shock Doctrine, Naomi Klein criticized Friedman's recipe for neoliberal
scheme of the economic rape of the countries under disguise of transformation toward "free"
market economics -- the neoliberal restructuring that followed the military coups in several
countries using suspiciously similar schemes. She suggested that the primary role of
neoliberalism was to be an ideological cover for capital accumulation by multinationals. Chilean
economist Orlando Letelier considered that the main driving force behind Pinochet's dictatorship
violence toward opponents was the level of opposition to Chicago School policies in Chile.
And Friedman himself was a coward who never personally acknowledged his role in the events.
After a 1991 speech on drug legalization, Friedman answered a question on his involvement with
the Pinochet regime, saying that he was never an advisor to Pinochet (also mentioned in his
1984 Iceland interview), but that only his students (Chicago boys) were involved.
He was followed by Harvard mafia with their economic rape of Russia in early 90th. Probably
also prepared in collaboration with the CIA...
It is interesting that the paper does not mention Galbraith who was important opponent of
Friedman (see "Friedman on Galbraith, and on curing the British disease", 1977) . In those
two lectures Friedman disagrees with Galbraith's four most popular works: "Countervailing Power,"
"The Great Crash of 1929," "The Affluent Society," and "The New Industrial State". Friedman
consistently repeats the neoliberal dogma that it is unfettered free market, with minimal rules
and regulations, is the best economic system.
So it might be useful to distinguish between two instances of Friedman: the first is Friedman
before "Capitalism and Freedom" and the second is after. Friedman after Capitalism and Freedom
is a pitiful figure of a prostitute to power that be.
chris herbert said...
The best observation was the one by Wojnilower that the animals in the zoo were let out
of their cages.. They are still roaming around, not yet put back in their regulatory cages.
The list of financial crises beginning in the 1980s looks as bad and as frequent as those of
the 1800s. Technology gives a sheen to the past 35 years or so, but underneath there's been
immense intellectual damage. A degradation of morals and honesty. Today, greed is good. I'll
be gone, you'll be gone (IBGUBG), rules politics and finance today. The animals are still lose,
more trouble will visit the Kingdom.
bakho said...
Interesting history lesson.
Needs more links.
Friedman's spat with Volcker:
In Friedman's view, Volcker was too vulnerable to political pressures from Congress and
the White House, Condemned by liberals and conservatives for plunging the country into recession
and worried that continued high interest rates would cause massive default by Third World debtors,
Volcker in mid-1982 shifted his sights away from the monetarist approach, loosening the Fed's
targets for money growth and restoring interest-rate manipulation as a policy tool. In the
five months before the November 1984 elections, the Fed increased the money supply to bring
down interest rates and thus fuel the recovery to better Reagan's chances at re-election. After
Reagan's reelection victor in November, the Fed again tightened the money supply, "This is
not monetarist policy," Friedman says, "The key element of monetarism is to define what you
are going to do and then stick with it."
For any Fed chairman, Friedman thinks, the temptation to linker with money-supply targets
is probably irresistible. According to the monetarist doctrine, the Fed chairman's job is purely
technical, "a matter of every month looking at the money base and making sure it increases
by about a quarter of one percent," Friedman explains, "If the Fed chairman were to do a good
job, he would become an unknown, a faceless bureaucrat."
I wonder if so many of the young economist went into policy because the people involved:
Volcker, Friedman, Laffer etc were pretty clueless and made bad predictions.
bakho said...
Just how wrong was Friedman?
DARPA turned the internet over to NSF and NSF spun it off into a large commercial engine.
NSF funds high risk investment, the kind that most corporations cannot. High risk research
means many projects that don'r pan out, a small pool of winners and a handful that hit jackpot.
It takes a large organization with very deep pockets to fund enough high risk research over
long periods to have a good likelihood of getting a large hit. Industry cannot fund at that
level, government can.
Another example: NSF funded obscure biochemistry into esoteric research on enzymes that
could degrade DNA. That research became the foundation of genetic engineering. Who could have
known?
pgl said in reply to Paine ...
Warsh did write an incredible amount of BS in this silly essay. I didn't think Mundell ever
endorsed Laffer's stupid cocktail napkin.
Lafayette said...
REAGANOMICS
From WikiP: {According to Keynesian economists, a combination of deficit spending and
the lowering of interest rates slowly led to economic recovery. However, conservatives insist
that the significantly lower tax rates caused the recovery. From a high of 10.8% in December
1982, unemployment gradually improved until it fell to 7.2% on Election Day in 1984.}
Even Reagan, a good friend of Friedman, when push-came-to-shove, indulged is stimulus spending
to get his presidency out of the deep-doodoo.
Which the Replicants stonewalled in 2010 when a Great Recession was in full sway, but the PotUS
was a Democrat ...
pgl said in reply to Lafayette...
Wikipedia gets another wrong. It was Reagan's 1981 tax cut (deficit spending) that led Volcker
to do round 2 of his tight money. Volcker kept trying to make a deal withe White House - reverse
the fiscal stimulus in exchange for lower interest rates. The White House did not even know
what was going on. And Wikipedia does not either.
The final important observation germane to our current
circumstances is that when market prices turn down, margin debt levels
drop like a rock. Think about leverage. It works so well
when the price of assets purchased using leverage rise. Yet leveraged
equity can be eaten alive in a declining price environment. Forced
liquidations are simply price insensitive selling. Of course, this
will only occur after prices have already dropped meaningfully enough
to either force margin calls, or cause margined investors to liquidate
simply in order to remain solvent or limit loss. We have certainly
seen a bit of this in recent weeks.
Why is all of this talk about
margin debt important?
In
Part 2: The Criticality Of Monitoring Margin Debt Closely From Here
we explore how ever higher levels of margin debt represent tomorrow's
heightened price volatility in some type of a stressed market
environment, whether that be a meaningful correction or outright bear
market.
Both are an eventuality, the only question is When?
nmewn, that is what the pit boss says at a casino.
When the odds are in the houses favor or it's a rigged game, why not loan money to the suckers
at the table.
Casino markers can be issued to just about anyone who requests one. It is a zero-interest line
of credit that is intended to make gambling easy and accessible to everyone. A gambler fills out
an application for the line of credit, and pursuant to NRS 205.130, a gambler is given 30 days
to pay back the debt.
"Employers added 173,000 jobs in Aug., jobless rates falls to 5.1%" by Paul Davidson, USA TODAY...9:33 a.m. EDT...September 4, 2015
"Payroll growth slowed in August as employers added 173,000 jobs in a key report that could help
the Federal Reserve decide whether to raise interest rates later this month.
The unemployment rate fell from 5.3% to 5.1%, lowest since March 2008.
Economists surveyed by Bloomberg expected employment gains of 218,000, according to their median
forecast.
Businesses added 140,000 jobs last month, fueled by strong advances in health care, professional
and business services, and leisure and hospitality. Federal, state and local governments added 33,000.
Partly offsetting the disappointing report is that job gains for June and July were revised up
by a total 44,000.
Wage growth picked up moderately as average hourly earnings rose 8 cents to $25.09 after dipping
in June, and are up 2.2% the past year, slightly faster than the tepid 2% pace so far in the recovery.
The Fed is seeking signs of faster wage that would indicate stronger inflation as it considers increasing
its benchmark interest rate.
The report is the most significant the Fed will review before its September 16-17 meeting. Until
recent financial market turmoil..."
"...Personally, I think he senses that RE/New Classicalism
is in decline, not comprehending why, struggling to understand, looking for scapegoats (Solow,
tribal behaviour, mathiness) and is essentially mourning its demise."
"...read Kuhn famous book on The Structure of Scientific
Revolutions, in which he argues persuasively (or shows definitively, for those who prefer), that
"Competition between segments of the scientific community [tribes?] is the only historical process
that ever actually results in the rejection of one previously accepted theory or in the adoption of
another," though at the same time, most progress comes from working within an established paradigm.
My own intuition is that economics if very much like physics in both those respects. "
So, within economics, is macro unusual? Of course not. Indeed, the whole emphasis of post-1970 macroeconomics
is to do it like everyone else. Before 1970, no one would have been discussing macro and Dixit-Stiglitz
in the same sentence. Should economics work like physics? Of course not. We're studying very different
problems requiring very different methods. Why would you expect economists to behave like physicists?
What's my bottom line? Romer is just leading us through an unproductive conversation -
one that's not going to persuade anyone of anything.
"Romer is just leading us through an unproductive conversation
- one that's not going to persuade anyone of anything."
It's almost as if Romer is wandering around testing the waters seeing how far he can push things before
he actually says what he wants to say coherently.
Personally, I think he senses that RE/New Classicalism
is in decline, not comprehending why, struggling to understand, looking for scapegoats (Solow,
tribal behaviour, mathiness) and is essentially mourning its demise.
Actually, Romer doesn't argue that physicists are not tribalists – he just asserts it, on
the basis of a thought experiment based on two particular statements. It may well be true that
there is a lot of consensus on the particular physics statements in his post, but no doubt you
could also find a couple of statements in economics that most economists agree about. For
evidence of tribalism in physics, google "superstring controversy," or at a more personal
level, Newton and Hooke, Einstein and Lenard.
Or read Kuhn famous book on The Structure of Scientific Revolutions, in which he argues
persuasively (or shows definitively, for those who prefer), that "Competition between segments
of the scientific community [tribes?] is the only historical process that ever actually
results in the rejection of one previously accepted theory or in the adoption of another,"
though at the same time, most progress comes from working within an established paradigm. My
own intuition is that economics if very much like physics in both those respects.
As to how tribalism has arisen in economics, the answer is easy: economists are people, and
people are tribal. Search the psychology of "ingroup bias".
HHNW_GDP.jpg 1920x1080 105 KB
.
The book argued that Saudi Arabia had overstated its oil reserves, that its oil production was
on the cusp of terminal decline, and that prices were set to soar.
Its a generational thing. Right after WW2, many of the elite had just that epiphany that unless they have the common people behind them, they are toast. But now they are dead or dying, and their grandkids are basically once more thinking that they can go it alone. This because they have not had the required experiences that help develop the wisdom.
What Marx saw long ago, we can see today, and without relegating ourselves to his analysis, come to our own conclusions. Contradictions, summed up well by Lincoln as a house divided against itself cannot stand is just as true today. Millions of guns to protect the citizenry from tyranny have only resulted in a 1/4 million murders and 5 times as many shootings since Jan 1, 2000, some placing people in wheel chairs and other crippling gunshot afflictions, and more and more institutionalized state oppression, economic exploitation and miserable lives propped up in an alcoholic haze until the liver or brain gives out. We have more food than we know what to do with so we throw away almost as much as we eat. And we have eaten ourselves into morbid obesity, diabetes and heart disease. The contradictions abound from the kitchen table to the kitchen cabinet of the White House where there seems to be nothing passed so freely as bad advice.
The Welfare State arose from the sacrifices of the population in giving their sweat, blood and tears to defend their nation during war, to be rewarded for their sacrifices, rewards which were demands for power sharing and more in the paycheck, more benefits and more time to enjoy the life spent in a more prosperous world. It seems to me that Obamacare is not simply in death spiral all of its own making, but even more so, because it is the best attempt capitalism can produce in an America that is the most capitalist of societies down to the marrow its bones. Little competition from the Church or the social relations between nobles and subjects set for in the laws that were disestablished to free markets for commodification and money making. Money making enterprises structured the laws from slavery, to the voting franchise with little from the state to cushion any of the hardships of life in America.
Health care is the largest industry we have. It is approaching 20% of the GNP. I remember the great national freak out in the late 1970s when congress realized it was approaching 10%. Nothing seems to be stopping the costs from spiraling upward and onward. No risk of deflation here where nothing is spared to save a life, operate on some poor little afflicted child, or buy a piece of equipment the size of an office building that shoots a proton beam at cancer, one cancer cell at a time.
When Obama Care becomes a clear burden to even the democrats who can point to it now as some sort of accomplishment, and it is an accomplishment for the people who finally get to see a doctor, get into a hospital, get that operation or diagnosis that saves their lives, when even those accomplishments number in the millions, it will be part of a health care industry for which $Trillions of dollars can no longer be justified or even funded. As that financial collapse approaches, it would be better for politicians to declare the defeat of a program better rolled into one universal single payer system currently operating as Medicare, than try to reform, shore up or the old tried and true public lie, get rid of its waste and corruption.
Declare victory with Medicare as the solution and put everyone into it. The only paper work left should be each person's medical history with diagnosis and healing as the happy ending to the story.
There is a fundamental error in perception in the Western world that is so pervasive that people can't even see it. As a most basic component of a healthy society people need to be able to survive at a local community level without outside support. Only after that is taken care of should people concern themselves with luxuries, inter-community and international relations.
Welfare–not to mention other government services–can appear to have positive impacts if one only looks at their effects in isolation, however I think there is a devastating and pernicious impact on people's ability to form community bonds and have local resilience with things like welfare.
Also, let's also not forget that Americans consume far more of the earth's precious resources than any other group in the world. Welfare etc are social services that can only be funded through the world-wide looting operation of the American empire. Do these recipients of empire benefits have a moral right to share in the loot of empire? Perhaps instead of domestic welfare it would be more ethical for the American empire to provide social benefits for the indigenous peoples who are forced from their lands to work like slaves for the empire's benefit. Although admittedly if the American empire used it's loot for the benefit of the foreign peoples whose lives it destroyed then there'd probably be nothing left to spread around to the military, or to pacify and police the domestic population. So I suppose that's not a serious proposal.
Welfare etc are social services that can only be funded through the world-wide looting operation of the American empire
This is obviously not true. Unless every social democratic country in the world is considered as a piece of the American empire. And even then, I would argue that we can easily afford a generous welfare state with a small shift in priorities away from (globally destabilizing) defense spending to social productive spending on human development.
Obvious to who? America lavishes so much money on its military not only because of corruption, but also because it has the world reserve currency and is a guarantor of the safety of international shipping. These facts are inextricably linked to the America's status as the world hegemon. The empire provides order and structure, and enforces the extraction of resources from the periphery to the center. The bread and circuses are inextricably linked to the empire's military activities and trying to tease them apart will only lead to collapse of the entire system sooner than it will otherwise happen.
"Social Democratic"–now that's an interesting phrase. Did you know that Syria is a democracy, and was an extremely prosperous and well-education nation prior to 2011?
Here's a telling paragraph from the Wikipedia article about Syria:
[Dec 27, 2015] The Sneaky Way Austerity Got Sold to the Public Like Snake Oil
Notable quotes:
"... When children don't get good educations, the production of knowledge falls into private control. Power gets consolidated. The official theoretical frameworks that benefit the most powerful get locked in. ..."
"... Not only were the politicians worried about votes but also the welfare state was a way to head off a left wing revolution. ..."
"... the change began in 1976 with the election of Rockefeller-funded Jimmy Carter, who immediately launched an austerity program. Support for Keynesian economics was further eroded by the 70's stagflation which we now know was caused by Mid East oil but at the time the "left" were like deer in the headlights, with no clue what to do. ..."
"... The final nail in the coffin was the fall of the Berlin Wall and the collapse of the USSR, discrediting communism. After that, "there was no alternative" to corporate capitalism. Or more accurately, the left was slow to formulate an alternative and to this day is still struggling with an alternative as we have observed with Syriza. It's not enough to oppose austerity, you have to have a constructive plan to fix things. ..."
[Dec 24, 2015] In 2012, Greek pension funds, which were obliged under Greek law to own government bonds were hit by debt write-down and lost about 10 billion euros or roughly 60 percent of their reserves