Ian Welsh

Ok, enough.  As Glenn Greenwald points out, this ginned up controversy is now about bigotry.  Or, to put it another way, it’s about who the acceptable out-group to hate is in America.

Apparently it’s Muslims.

This is turning into a propaganda coup for Islamic fundamentalists, who are able to point at this controversy and say that Americans hate Islam.   And, frankly, from what I’ve seen, with even some of my readers saying they oppose the “Mosque” (really a chapel in a community center), they’re right.  Americans do hate Muslims.

As many people have pointed out, even George goddamn Bush made sure that this sort of bigotry didn’t burn out of control, but lacking his leadership, it is now acceptable to hate Muslims and say they shouldn’t exercise their constitutional rights.

Meanwhile, employment is sucking wind, the economy is heading into a second downleg of the Depression, the war in Afghanistan continues its disastrous course, Mexico is turning into a failed state and on and on.  America has a 1,000 real problems it isn’t dealing with, but it has time for a ginned up bullshit controversy of a “Mosque”.

This is a step down from the usual celebrity gossip and missing blondes who usually serve as American escapism from reality because it reveals something really fucking ugly about Americans and their hatred of a religious minority. Glenn’s right about that.  Let’s let him have the last word:

Obviously, not all opponents of Park51 are as overtly hateful as those in that video — and not all opponents are themselves bigots — but the position they’ve adopted is inherently bigoted, as it seeks to impose guilt and blame on a large demographic group for the aberrational acts of a small number of individual members. (my emphasis)

Let’s have a chat about the economy, starting with a couple articles.

The first is an article from the NY Times noting that small investors have been moving out of the market in droves: 33.12 billion out of mutual funds this year, so far.  This is entirely rational, not only is the market currently fixed (major movers do not make a profit every single day of a quarter in a free market), but inflation is low and deflation threatening.  When risks are high and inflation is low, the smart thing to do is store your money under a mattress since it will lose little value.

Of course, this is only partially true, since inflation numbers are cooked, and it’s not clear that prices of the things which matter most - food and energy (aka. heating) are actually dropping.

The second article I want to highlight is a column in the Financial Times, by Michael Pettis.  Pettis argues that the surge in exports from China and Germany , which has lead to an explosion of the US trade deficit, is dangerous.  He notes that the fall of the Euro plus austerity in Europe, and the availability of extremely cheap credit to Chinese manufacturers, has increased surpluses in China and Germany.  As European countries that have trade deficits try and lower those, this leaves the US as the designated consumers for the surplus since trade deficit countries in Europe can’t afford to borrow due to the European credit crisis.

This isn’t sustainable, and Pettis fears it will lead to a backlash from America, with actual tariffs and trade quotas.

The larger point is simpler: the countries being punished by “bond vigilantes” are countries running balance of payment deficits.  Countries whose finances are in no better shape than, say, Spain, are not getting hit.

But everyone can’t run a surplus.  It is impossible.  As a simple matter of math, the accounts must balance.  The idea pushed by Germany, that everyone should be more like them, and have positive balances of payments, is nonsense.  It is literally impossible.

Everyone fears a massive decline in trade, as in the 30s.  They should, because we are in a Depression.  However, the fact is that if surplus countries refuse to moderate themselves, then the balance will be fixed some other way. It may be through actual protectionism in the US, it may be through a collapse of US demand, but it will happen.

That which cannot go on does not go on.

In terms of the US economy, it’s pretty clear we’re in a second downleg of the Depression, as predicted.  The key issues are that States and municipalities are essentially bankrupt, and that corporations aren’t hiring.  Corporations aren’t hiring because their profits are fine, and because they don’t see where the sustained growth would come from.  States and municipalities are having income issues because the incomes of median taxpayers have not recovered and the number of employed is not increasing (ignore the “unemployment rate”, what matters is how many people are employed and that hasn’t recovered worth a damn.)  Since States and municipalities have limited ability to borrow and can’t print money, in both cases, unlike the Feds, this means they must cut or raise taxes and in general States are ideologically opposed to raising taxes and municipalities don’t feel they can.  Housing prices remain depressed, which is the main source of money for municipalities.

Since there is no chance of a real stimulus being passed (and if there was, Obama would do it badly, like he did the last one) and since Obama refuses to spend the TARP money on the economy until it’s his reelection on the line rather than Congressional Dems, and since there’s no obvious source of new jobs in the US economy, I see little reason to expect the US economy to recover.  Even if the world economy somehow does, it will route around the US, since the US is a high cost domicile and there is no good reason to produce in the US.  In the old days you produced in the US because that was where the next big tech boom occured, the skills were there, and you needed in.  With the deliberate strangling of innovation in the US due to the oligopolization of the economy, the next tech boom (if there is one) is unlikely to occur in the US.

Overall, there isn’t a lot of reason to be cheerful.  If the economy does manage to pick itself up off the floor, that would mean an increase in the price of oil, and inside of two years (and probably inside of one, if it was a good recovery) that increase would spike the recovery in any case.

None of this was necessary, but Obama chose to not just ask for too little money in his stimulus, but spent the money very badly even outside of the hugely useless tax cuts.  The money did not give the economy an obvious medium term direction: either a huge telecom build-out or an energy and conservation build-out, and the huge bailouts for financial firms created a more concentrated financial sector full of zombie banks with no intention to lend money.  The failure to create a workable cram down on housing prices which also rescued underwater home owners has left housing prices underwater and credit markets still sclerotic.  With the House either going Republican in the fall, or if it remains Democratic with the Democratic margin being controlled by hard-core Blue Dogs, even if Obama did buy a clue, there is little chance that a decent restructuring stimulus bill could get through Congress and the actions of regulatory bodies like the FCC, the Justice department, as well as Obama’s implicit recognition of the health oligopoly, make it clear that his administration has no intention of challenging, let alone dismantling, the oligopolies which are draining the life blood of the US polity.

Plus ca change…

An excerpt from January 5th, 2009:

I’ve long observed that the only economic policy that Obama really really believes in is tax cuts. During the election, even when no one really cared, he would keep repeating, over and over and over again, that he was going to cut taxes.

The problem is that giving money to people without pricing power (most middle and working class people) is pointless. People with pricing power, like health care providers, credit card companies (who can and will raise rates) and employers (who will take into account that their workers are now taking home more money and thus don’t need as much from them) will simply take the money away. And at this time workers and ordinary consumers just don’t have pricing power.

Likewise corporations are not going to create real new jobs if there’s no demand. Who wants to invest into this economy? This isn’t an economy where you hire new people, it’s an economy where you take any money you’ve got and you use it to buy up distressed competitors and properties at generational lows. Then you rationalize your new acquisition with your own company by laying people off. We’ve just spent the past few months watching this play out in the banking industry, heavily subsidized by the government, now we’re going to have to watch the government subsidize buyouts of non-financial companies. If at first giving money to corporations (banks) doesn’t work, why not try it with even more companies?

Stimulus at this time should not be tax cuts, it should be spending. Rewire the country’s energy infrastructure, make every building energy efficient, rebuild roads, build high speed train corridors on the west and east costs, then connect them to each other. Give cities money to build the trams or subways they’ve been wanting to build. Push high speed internet out to everyone, and at the same time increase its speed to international standards (i.e. 10x as fast as the crappy “high” speed internet North Americans get). Move to single-payer healthcare and buyout the health insurance companies. Extend UI to 12 months, and create a bunch of programs that folks can work in as was done in the Great Depression.

Spend money and that money will create demand—for all the products needed for all those projects, for the workers to build all the trains, rail lines, roads, power lines, high speed internet, and so on. And you won’t just be giving money away to be spent in all the same ways that got us where we are, you’ll be refitting the economy. The key thing that hasn’t got through the thick skulls of the elites is that the old economy didn’t work for the majority of people. It was broken. Even the “prosperity” which the elites had (and they did, they are richer than they have been in a century) was fake—it was based on profits that didn’t exist. Wall Street’s losses weren’t losses, they were the revelation that every profit they made for the last 10 years was fake and based on fraud.

The economy needs to be restructured, and that means spending on restructuring, not giving money to people to spend in the same patterns as they did before. That doesn’t mean no money shouldn’t be given out, it should. Relief for those who need help should be generous, but the majority of money shouldn’t go to handouts, it should go to creating a new America and creating jobs that Americans can work in to help create that new America.

Seriously. You read the mainstream press or even many blogs, and they notice things only after it’s too goddamn late to do much about it.

I covered this in January and April and July and August of 2009.  Yeah, I told you so is declasse, but goddamn it, I told you so.

Imagine that.

What’s remarkable, actually, is how often some form of exercise is better for a variety of conditions than pharmaceuticals.  From depression to osteoperosis to preventing the effects of Alzheimer, getting active generally works as well or better than drugs.

In terms of societal health, doing everything we can so that people eat healthily and get exercise would probably do more than anything else.

Instead we subsidize corn syrup and build suburbs without sidewalks.

This is positively Orwellian, and people on the progressive side should not be cooperating with it. There are still 50,000 US troops in Iraq and they include brigades which are, absolutely, combat troops.  Call them “advisers”, but nothing has changed, they are combat troops.

Update: Oh hey, the plan is to double the number of mercenaries in Iraq, as well.

The big problem in the US economy right now is consumers are cleaning up their balance sheets.  People are either dealing with debt overhangs from the previous consumption binge or they fear for their future incomes due to either wage cuts or job loss and thus they pay down debt and increase their savings.  On an individual level this may be good, but in aggregate, this is a recession.

I know my family is using our marginal dollars to improve our balance sheet.  Assuming no significant negative shocks in the next eighteen months, my family’s balance sheet will be the cleanest since our wedding.  At that point, several deferred purchases will be contemplated, and our net consumption will increase.

A few months ago, I reiterated a proposal from several dirty fucking hippy bloggers to use the Federal government’s core competencies of borrowing money, writing checks, and collecting money to accelerate balance sheet clean-up:

The New York Times has an interesting Op-ed that echoes what some ‘Hog guest writers were saying in February 2009 on a way to stimulate the economy, improve consumer cash flow and balance sheets as well as generate some short term federal revenue… offer consumers a chance to refinance high interest revolving debt with lower interest debt offered by the federal government….

Going from 18% to 8% interest, the individual with $10,000 in credit card debt would see their initial monthly payment go from $250 a month to $167 per month.  Using a declining minimum payment formula  (monthly interest expense +1% of current balance), the debt burden at the end of the year is still $9,000 but the interest expense declines from $1,570 to $700.  That gap of $870 is greater than the ARRA Making Work Pay tax credit…

This debt would be relatively secure and low-risk for the US government to issue as the IRS could be made the collection agency for the debt.  Long term risk could be lowered by changing the minimal monthly payment formula so that the monthly minimum would be interest expenses plus 1% of principal + half the savings from the interest arbitrage.  That change would accelerate the repayment of debt while also freeing up cash flow for consumers to either spend or save….

Since I wrote that piece, long term Federal interest rates have dropped another 45 basis points, so it would be even cheaper and profitable for the federal government to offer a one time debt restructuring deal.  It would have the advantage of increasing short term consumer cash flow so either consumption is increased in the short term, or the balance sheet clean-up efforts take significantly less time.

The Very Serious People are coming around to this idea.  Bill Gross of PIMCO wants to use the federal government’s backing of Fannie and Freddie Mac to leverage a massive refinancing scheme for fixed rate mortgages that are federally backed and where the borrowers are current on payments:

Bill Gross, who runs Pacific Investment Management Co.’s $239 billion Total Return Fund, said that policymakers “should quickly re-engineer” a plan that would refinance all non-delinquent mortgages backed by the federal government. The rate on a 30-year fixed-rate mortgage averaged a record-low 4.44 percent in the week ending Aug. 12, according to taxpayer-owned mortgage giant Freddie Mac….

Greenlaw estimates about 18.5 million taxpayer-backed mortgages are at rates higher than 5.75 percent interest.

This idea is structurally similar to the credit card idea.  It would free up current cash flow that could be used for either increased balance pay-down and thus balance sheet clean-up accelerates or that cash flow would be used primarily for current consumption. It would also marginally reduce the number of mortgages that go bad as the carrying cost of a house that is marginally underwater would significantly decrease.  The big losers under this proposal would be the MBS tranche holders who are only making significant money on newly purchased securities if the payback occurs over several years instead of very quickly.

Either of these proposals would accelerate balance sheet clean-up, and right now acceleration is needed.

I’ve avoided this controversy because it’s so profoundly stupid, but since it won’t die and go away, let’s put it in terms even knuckle-draggers can understand.

Freedom of religion is a fundamental American value.

If you are against a mosque near the World Trade Center you are against freedom of religion.  That means you are anti-American.  You are a person who does not believe in the freedoms many Americans fought and died for.

In short, you’re anti-American scum.  If you don’t believe in freedom of religion, you aren’t an American worthy of the name.

The Karzai government in Afghanistan has been making a series of back-channel and plausibly deniable conversations with Quetta Shura Taliban(QST) leaders for most of a year now.  Karzai and his coterie of cronies know that the Americans, NATO and the rest of ISAF will be drawing down their support (both cash and combat troops) in the next couple of years.  They know that they need to face reality as it is instead of how they would like it to be, and that means dealing with Pashtun conservatives and tribal militias as a legitimate political force with political interests in Afghanistan.

The US government has been schitzo about talking with anti-Karzai government forces including various elements of the Taliban.  I’ve long contended that there should only be one red-line in any talks — a disavowal of support for any far-enemy terrorist groups, and then everything else is a local matter that can be subject to horse-trading.

It looks like the QST is making a bid for its local legitimacy to be recognized while also willing to concede some of its counter-counterinsurgency tactics of assassinations and non-governmental organization targeting.  The Guardian has details:

NATO and the United Nations are cautiously considering a Taliban proposal to set up a joint commission to investigate allegations of civilians being killed and wounded in the conflict in Afghanistan, diplomats in Kabul say…

The statement called for the establishment of a body including members from the Organisation of the Islamic Conference, UN human rights investigators, NATO and the Taliban…

Such a body could conceivably act as a confidence building measure for future talks among various Taliban elements, the US, NATO, ISAF and the Karzai government. If such a body was established, and it successfully embarrassed Taliban elements from carrying out an effective night-letter and assassination campaign, that would aid in the delivery of a valuable public good — public security, so that would be a win for the US counter-insurgency strategy. At the same time, such a body would be a recognition of the Taliban as a legitimate military and political actor with legitimate interests in southern Afghanistan. This is something worth pursuing.

This is something I’ve been on about for a while, because the Hispanic activists I know are almost all absolutely livid about Democrats in general and Obama in specific.  The reason isn’t just that comprehensive immigration reform appears dead in the water, it’s that Obama not only continued Bush’s brutal “enforcement only” policy, which breaks up families but has actually ramped it up.

To put it simply, Hispanics are the future of America.  Their population numbers are growing, fast, and Democrats need to sew them up.  And their identification with Democrats is dropping, because Democrats are attacking them.  It is quite common for citizen Hispanics to know undocumented immigrants; for those immigrants to be their friends or even family.  And the outright prejudice that simmers behind anti-immigrant fervor is something they experience in their daily lives.  Seeing Obama and Congressional Democrats pandering to that prejudice—spending more money and sending more men to the border and for raids, is not endearing Democrats to them.

They feel, in a word, betrayed.  And as Politico notes, the Hispanic media has turned on Democrats as a result.

I don’t know why Democrats feel that kicking their own base: women, gays, Hispanics and such, is good politics.  It hasn’t helped them with independents or Republicans, all it has done is demoralize the base in a base election year.

“We’re slightly less bad than the other guys” isn’t much of a slogan.  And in some cases (abortion, immigration), it’s not even clear that it’s actually true.  Democrats added new restrictions on abortion, and have ramped up anti-immigrant enforcement.

Promises are all very nice, but as with the Employee Free Choice Act, DOMA, DADT, and civil liberties, Obama’s rhetoric on Hispanic issues has been opposed to his actions.

Here we go again:

The Federal Reserve acknowledged on Tuesday that its confidence in the economic recovery had dimmed, and announced that it would use the proceeds from its huge mortgage-bond portfolio to buy long-term Treasury securities.

This after all the money they printed to directly help out banks (these numbers understate the issue):

The Fed bought $1.25 trillion in mortgage-backed securities, and another $200 billion in debts owed by government-sponsored enterprises, primarily Fannie Mae and Freddie Mac, and completed the purchases in March. The Fed had planned to allow the size of that portfolio to shrink gradually over time as the debts matured or were prepaid. Instead, the Fed will reinvest the principal payments in longer-term Treasury securities.

As a friend of mine noted, no wonder Modern Monetary Theory (the distinctly unmodern discovery that the government can, hey, print money) is taking off in certain circles.  After all, if the government can print money for banks, why not for jobs?

The reason not, folks, is that if you do that, oil will go back to levels which will crash out the economy.

The real, actual, economy, is not one spreadsheet.  It consists of people doing things, and the vast majority of those things require energy.  The ur-energy is still oil.  And no, there is not enough oil to go to full capacity utilization—because doing so will kick gasoline well over $5/gallon.

Until that problem, among others, is fixed, the economy is never going to be really good for Americans ever again.  Every attempt to fix things which does not fix energy, will not work for any useful length of time.