Quantum Pranx

ECONOMICS AND ESOTERICA FOR A NEW PARADIGM

Archive for February 2010

Crunch time for Obama, and the World

leave a comment »

by Anatole Kaletsky
From:
Times Online February 26

TODAY’S summit is crucial to policy and economic prospects in the US and the West.

YOU MAY NOT HAVE NOTICED, but today is a very important day for US politics, world economic prospects and even for the global balance of power between Western democracy and benign dictatorship along Chinese lines. Why? Because today marks either the beginning of the end of Barack Obama’s presidency, or the end of the beginning.

At ten a.m. US eastern time, he will host an all-day “summit”, broadcast live on nationwide TV, with his Republican congressional opponents and his wayward Democratic supporters, to try to establish some kind of political consensus on the top priority of his presidency – reform of the ruinously expensive US healthcare system. Medicine now absorbs 17 per cent of US national income, double the average in other advanced economies.

If nothing is done to change the US healthcare system, it can be stated with mathematical certainty that the US government and many leading US companies will be driven into bankruptcy, a fate that befell General Motors and Chrysler largely because of their inability to meet retired workers’ contractually guaranteed medical costs.

Today’s summit represents Mr Obama’s last chance to find a way forward, either by shaming some Republicans into supporting him or by embarrassing his own perennially divided Democratic Party into uniting around a single plan. If he is unable to do this, he will have almost no chance of passing any significant legislation on any other issue. In short, Mr Obama has staked his entire presidency on today’s summit. If you are not convinced, just listen to the President’s own radio broadcast last weekend: “What’s being tested in the healthcare summit is not just our ability to solve this one problem, but our ability to solve any problem.”

Consider what three years without effective government in Washington could mean, not only for America but for the entire Western world. The absence of effective US leadership will dash any hopes of progress in foreign policy, whether on issues such as energy, trade and climate change or on security threats such as Afghanistan, Iran and the Middle East.

Read the rest of this entry »

Greek Saga Won’t Kill the Euro but the End May Begin Here

with one comment

by Liam Halligan
Originally published 13 Feb 2010

Could the endgame of this Greek tragedy be a eurozone break-up? The single currency’s supporters maintain that such an outcome is mere mythology.

GREECE ACCOUNTS FOR ONLY THREE PER CENT of the 16 member states’ combined GDP, they say, and has lower debts than some of the banks bailed-out during sub-prime. A loan of €20bn (£17.5bn) would do the trick, we’re told. That’s less than the British government injected into either Lloyds or the Royal Bank of Scotland.

Such analysis sounds vaguely plausible. But it is naïve and politically dishonest. Then again, the single currency was built on political dishonesty. That’s because, at the heart of the eurozone project there was always a fundamental contradiction – one that the architects of monetary union never dared to address. Now its being highlighted for them, whether they like it or not.

While the European Central Bank controls eurozone interest rates and the money supply, the size of each country’s fiscal deficit results from the spending and taxation decisions of its own sovereign government.

How can you enforce collective fiscal discipline in a currency union of individual sovereign states, each answerable to their own electorate? The truthful answer is you can’t – not unless you subjugate the autonomy of democratically-elected politicians and, by proxy, their voters.

Voters don’t like that. Neither do politicians. Faced with a choice between seriously annoying their own voters and seriously annoying the ECB, the most ardently “pro-European” lawmakers, even those with years of Brussels trough-nuzzling under their belt, will always side with their own. That’s why the eurozone will ultimately break-up – whether Greece is bailed out or not.

The eurocrats blame “speculators” for the single currency’s woes. That’s a bit like sailors blaming the sea. The eurozone is ultimately doomed because, in the end, economic logic wins and the will of each country’s electorate bursts through. This current Greek saga won’t end the eurozone – but future historians will identify it, perhaps, as the beginning of the end.

Many have said it’s hardly surprising that Greece (with its history of financial profligacy and capital flight) has emerged as the eurozone’s Achilles heel. A more germane observation is that, while fiscally wayward, Greece is also the birthplace of democracy. If the Greek population wants to get upset, throw out its elected politicians and reject austerity, it must be allowed to do so. I think they’d be mad, but it must be their choice.

Read the rest of this entry »

How a New Jobless Era Will Transform America

with 2 comments

by Don Peck
Image Credit: Fredrik Broden

The Great Recession may be over, but this era of high joblessness is probably just beginning. Before it ends, it will likely change the life course and character of a generation of young adults. It will leave an indelible imprint on many blue-collar men. It could cripple marriage as an institution in many communities. It may already be plunging many inner cities into a despair not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years to come.

See “How the Crash will Reshape America”, March 2009, The Atlantic
http://www.theatlantic.com/doc/200903/meltdown-geography

HOW SHOULD WE CHARACTERIZE the economic period we have now entered? After nearly two brutal years, the Great Recession appears to be over, at least technically. Yet a return to normalcy seems far off. By some measures, each recession since the 1980s has retreated more slowly than the one before it. In one sense, we never fully recovered from the last one, in 2001: the share of the civilian population with a job never returned to its previous peak before this downturn began, and incomes were stagnant throughout the decade. Still, the weakness that lingered through much of the 2000s shouldn’t be confused with the trauma of the past two years, a trauma that will remain heavy for quite some time.

The unemployment rate hit 10 percent in October, and there are good reasons to believe that by 2011, 2012, even 2014, it will have declined only a little. Late last year, the average duration of unemployment surpassed six months, the first time that has happened since 1948, when the Bureau of Labor Statistics began tracking that number. As of this writing, for every open job in the U.S., six people are actively looking for work.

All of these figures understate the magnitude of the jobs crisis. The broadest measure of unemployment and underemployment (which includes people who want to work but have stopped actively searching for a job, along with those who want full-time jobs but can find only part-time work) reached 17.4 percent in October, which appears to be the highest figure since the 1930s. And for large swaths of society—young adults, men, minorities—that figure was much higher (among teenagers, for instance, even the narrowest measure of unemployment stood at roughly 27 percent). One recent survey showed that 44 percent of families had experienced a job loss, a reduction in hours, or a pay cut in the past year.

There is unemployment, a brief and relatively routine transitional state that results from the rise and fall of companies in any economy, and there is unemployment—chronic, all-consuming. The former is a necessary lubricant in any engine of economic growth. The latter is a pestilence that slowly eats away at people, families, and, if it spreads widely enough, the fabric of society. Indeed, history suggests that it is perhaps society’s most noxious ill.

The worst effects of pervasive joblessness—on family, politics, society—take time to incubate, and they show themselves only slowly. But ultimately, they leave deep marks that endure long after boom times have returned. Some of these marks are just now becoming visible, and even if the economy magically and fully recovers tomorrow, new ones will continue to appear. The longer our economic slump lasts, the deeper they’ll be.

If it persists much longer, this era of high joblessness will likely change the life course and character of a generation of young adults—and quite possibly those of the children behind them as well. It will leave an indelible imprint on many blue-collar white men—and on white culture. It could change the nature of modern marriage, and also cripple marriage as an institution in many communities. It may already be plunging many inner cities into a kind of despair and dysfunction not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years.

The Long Road Ahead
SINCE LAST SPRING, when fears of economic apocalypse began to ebb, we’ve been treated to an alphabet soup of predictions about the recovery. Various economists have suggested that it might look like a V (a strong and rapid rebound), a U (slower), a W (reflecting the possibility of a double-dip recession), or, most alarming, an L (no recovery in demand or jobs for years: a lost decade). This summer, with all the good letters already taken, the former labor secretary Robert Reich wrote on his blog that the recovery might actually be shaped like an X (the imagery is elusive, but Reich’s argument was that there can be no recovery until we find an entirely new model of economic growth).

No one knows what shape the recovery will take. The economy grew at an annual rate of 2.2 percent in the third quarter of last year, the first increase since the second quarter of 2008. If economic growth continues to pick up, substantial job growth will eventually follow. But there are many reasons to doubt the durability of the economic turnaround, and the speed with which jobs will return.

Historically, financial crises have spawned long periods of economic malaise, and this crisis, so far, has been true to form. Despite the bailouts, many banks’ balance sheets remain weak; more than 140 banks failed in 2009. As a result, banks have kept lending standards tight, frustrating the efforts of small businesses — which have accounted for almost half of all job losses — to invest or rehire. Exports seem unlikely to provide much of a boost; although China, India, Brazil, and some other emerging markets are growing quickly again, Europe and Japan — both major markets for U.S. exports — remain weak. And in any case, exports make up only about 13 percent of total U.S. production; even if they were to grow quickly, the impact would be muted.

Read the rest of this entry »

Wealth Disparities in U.S. Approaching 1920s Levels

leave a comment »

Posted originally February 21, 2010 by Seeking Alpha
See here for original article

WHAT A TIME TO BE AN OLIGARCH! All I wanted to do was vomit when I saw this.
 Folks, there is no way we can have economic prosperity in this country when the top 1% has all of the money. The middle class is basically being destroyed right in front of our very eyes. Consumption economies die when the consumers have no money to consume!
 This graph was an eye opener for me (not that I should be surprised):

I see growing signs of desperation and anger as the wealth of this nation continues to get transferred to the elite of this nation.

People are starting to “lose” it as a result. This past week’s airplane event in Austin was a disturbing development. [See story following this article below.] I must admit that I really am not surprised. The government shouldn’t be either.
 Things are only going to get worse in the violence department as the taxpayers continue to get violated and more desperate as a result of this economic cataststrophe. The news media tried to downplay the actions in Austin.

I think Washington was both surprised and concerned about what took place in Texas.
I have to ask: Should the government really be surpised that an American flew a plane into an IRS building in a fit of rage as we all get repeatedly fleeced by the political and social elites of this country?

Let me preface all of this by saying violence is not the answer here. However, why shouldn’t every American be infuriated by what has ocurred since this crisis began?
 
All the government has done is bail out Wall Street continuously since 2008. My guess is the disparity of wealth in this chart would look even worse if it included 2009.

The rest of America has basically been ignored minus a few housing programs to help lower mortgage payments.
 That’s what’s been so frustrating about this whole crisis and America is finally starting to get it.  Just about ALL of the steps that have been taken by the government to help fix this crisis have involved throwing more and more money to the financial elites of this country.  I mean, the examples are endless: TARP, AIG, Bank of America, Citi, Freddie, Fannie… Need I say more?

The sheeple are finally realizing that the money is not trickling to them like Washington had promised when they threw billions to the banks. The people have only seen things get worse while Wall Street has prospered.  They now want to know where their friggin’ bailout is!

They are also realizing that the goverment’s actions since this all started in 2007 have done nothing but drop the yields on their CD’s to 0%. Gee thanks!

Let’s not forget that the sheeple/middle class were also victimized by Wall Street as they were gamed into buying homes they couldn’t afford.

Read the rest of this entry »

Millions of Unemployed Face Years Without Jobs

leave a comment »

by Peter S. Goodman
Originally published: New York Times, February 20, 2010

BUENA PARK, Calif. — Even as the American economy shows tentative signs of a rebound, the human toll of the recession continues to mount, with millions of Americans remaining out of work, out of savings and nearing the end of their unemployment benefits.

“There are no bad jobs now. Any job is a good job,” said Jean Eisen, who became unemployed more than two years ago.

Economists fear that the nascent recovery will leave more people behind than in past recessions, failing to create jobs in sufficient numbers to absorb the record-setting ranks of the long-term unemployed. Call them the new poor: people long accustomed to the comforts of middle-class life who are now relying on public assistance for the first time in their lives — potentially for years to come. Yet the social safety net is already showing severe strains. Roughly 2.7 million jobless people will lose their unemployment check before the end of April unless Congress approves the Obama administration’s proposal to extend the payments, according to the Labor Department.

Here in Southern California, Jean Eisen has been without work since she lost her job selling beauty salon equipment more than two years ago. In the several months she has endured with neither a paycheck nor an unemployment check, she has relied on local food banks for her groceries.

She has learned to live without the prescription medications she is supposed to take for high blood pressure and cholesterol. She has become effusively religious — an unexpected turn for this onetime standup comic with X-rated material — finding in Christianity her only form of health insurance. “I pray for healing,” says Ms. Eisen, 57. “When you’ve got nothing, you’ve got to go with what you know.”

Warm, outgoing and prone to the positive, Ms. Eisen has worked much of her life. Now, she is one of 6.3 million Americans who have been unemployed for six months or longer, the largest number since the government began keeping track in 1948. That is more than double the toll in the next-worst period, in the early 1980s.

Men have suffered the largest numbers of job losses in this recession. But Ms. Eisen has the unfortunate distinction of being among a group — women from 45 to 64 years of age — whose long-term unemployment rate has grown rapidly.

In 1983, after a deep recession, women in that range made up only 7 percent of those who had been out of work for six months or longer, according to the Labor Department. Last year, they made up 14 percent. Twice, Ms. Eisen exhausted her unemployment benefits before her check was restored by a federal extension. Last week, her check ran out again. She and her husband now settle their bills with only his $1,595 monthly disability check. The rent on their apartment is $1,380.

“We’re looking at the very real possibility of being homeless,” she said.

Every downturn pushes some people out of the middle class before the economy resumes expanding. Most recover. Many prosper. But some economists worry that this time could be different. An unusual constellation of forces — some embedded in the modern-day economy, others unique to this wrenching recession — might make it especially difficult for those out of work to find their way back to their middle-class lives. Labor experts say the economy needs 100,000 new jobs a month just to absorb entrants to the labor force. With more than 15 million people officially jobless, even a vigorous recovery is likely to leave an enormous number out of work for years.

Some labor experts note that severe economic downturns are generally followed by powerful expansions, suggesting that aggressive hiring will soon resume. But doubts remain about whether such hiring can last long enough to absorb anywhere close to the millions of unemployed.

A New Scarcity of Jobs
Some labor experts say the basic functioning of the American economy has changed in ways that make jobs scarce — particularly for older, less-educated people like Ms. Eisen, who has only a high school diploma.

Large companies are increasingly owned by institutional investors who crave swift profits, a feat often achieved by cutting payroll. The declining influence of unions has made it easier for employers to shift work to part-time and temporary employees. Factory work and even white-collar jobs have moved in recent years to low-cost countries in Asia and Latin America. Automation has helped manufacturing cut 5.6 million jobs since 2000 — the sort of jobs that once provided lower-skilled workers with middle-class paychecks.

“American business is about maximizing shareholder value,” said Allen Sinai, chief global economist at the research firm Decision Economics. “You basically don’t want workers. You hire less, and you try to find capital equipment to replace them.”

Read the rest of this entry »

Written by aurick

22/02/2010 at 2:51 pm

Wall St. Helped to Mask Debt Fueling Europe’s Crisis

leave a comment »

From The New York Times
Originally published February 13, 2010

Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.

Gary D. Cohn, above, president of Goldman Sachs, went to Athens to pitch complex products to defer debt. Such deals let Greece continue deficit spending, like a consumer with a second mortgage.

AS WORRIES OVER GREECE RATTLE WORLD MARKETS, records and interviews show that with Wall Street’s help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels. Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November — three months before Athens became the epicenter of global financial anxiety — a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting.

The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.

It had worked before. In 2001, just after Greece was admitted to Europe’s monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means.

Athens did not pursue the latest Goldman proposal, but with Greece groaning under the weight of its debts and with its richer neighbors vowing to come to its aid, the deals over the last decade are raising questions about Wall Street’s role in the world’s latest financial drama. As in the American subprime crisis and the implosion of the American International Group, financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere.

Read the rest of this entry »

A Greek crisis is coming to America

leave a comment »

by Niall Ferguson Financial Times, London
Posted originally Wednesday, February 10, 2010

IT BEGAN IN ATHENS. IT IS SPREADING TO LISBON AND MADRID. But it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies. For this is more than just a Mediterranean problem with a farmyard acronym. It is a fiscal crisis of the Western world. Its ramifications are far more profound than most investors currently appreciate.

There is of course a distinctive feature to the eurozone crisis. Because of the way the European Monetary Union was designed, there is in fact no mechanism for a bailout of the Greek government by the European Union, other member states, or the European Central Bank (Articles 123 and 125 of the Lisbon treaty). True, Article 122 may be invoked by the European Council to assist a member state that is “seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control,” but at this point nobody wants to pretend that Greece’s yawning deficit was an act of God. Nor is there a way for Greece to devalue its currency, as it would have done in the pre-EMU days of the drachma. There is not even a mechanism for Greece to leave the eurozone.

That leaves just three possibilities: one of the most excruciating fiscal squeezes in modern European history — reducing the deficit from 13 per cent to 3 per cent of gross domestic product within just three years; outright default on all or part of the Greek government’s debt; or (most likely, as signalled by German officials on Wednesday) some kind of bailout led by Berlin. Because none of these options is very appealing, and because any decision about Greece will have implications for Portugal, Spain, and possibly others, it may take much horse-trading before one can be reached.

Yet the idiosyncrasies of the eurozone should not distract us from the general nature of the fiscal crisis that is now afflicting most western economies. Call it the fractal geometry of debt: the problem is essentially the same from Iceland to Ireland to Britain to the US. It just comes in widely differing sizes.

Read the rest of this entry »