In this first of two posts on John Bougearel’s guest post at Naked Capitalism, Paul Handover suggests that we read it and think about the implications.
A rather sobering reminder of the potential challenges for 2010
I am a subscriber to Naked Capitalism, thoroughly recommended by the way, and recently Yves published a guest post
John Bougearel
by John Bougearel, author of Riding the Storm Out and Director of Financial and Equity Research for Structural Logic.
I wrote to both Yves and John asking for permission to reproduce the article in full but, so far, no replies have been received. Therefore the following are some important quotes from the article which I recommend you read in full by going to Naked Capitalism.
What a shock. U.S. GDP is not growing at 3.5% per year, as originally reported, and celebrated with much fanfare from President Obama about how the stimulus program was working. It is not even growing at the revised 2.8% annualized rate reported a couple of weeks later. The latest re-revised figure is 2.2%.
Nearly the entire 2.2% annualized growth, or 3rd quarter growth of 0.55%, is driven by the cash for clunkers program, the government spending program (also called the stimulus program, but I have a big problem with that particular name), and the extended tax credit for first-time home buyers. As a result, this increase in GDP is not only entirely temporary and fleeting, it will cause lower GDP later.
The cash for clunkers program did not create more overall demand for cars; it simply pulled some of the future demand for a new car into today, all the while wasting millions of tax dollars on administering the program, and putting some dealerships out of business in the process.
The spending program simply shifted profits from businesses to support other segments of society, all of which is temporary and destroys the productive capacity of the economy for many periods to come.
The extended tax credit to first-time home buyers is a real head-scratcher. A curious time to redistribute funds from the producers in the economy to finance a program which lowers the cost to those home buyers who would not have the funds to buy a home in the first place….second wave of home mortgage foreclosures, anyone?
British governmental ‘skills’ now being applied to British universities
THE GOLDEN GOOSE … Greed and the City killed off the financial golden goose – at terrible cost to ordinary people and the economy as a whole. With the problem compounded by government folly, Britain now faces years of debt and austerity to pay for it all. For the moment, the City is reeling, but at least we still have our Higher Education system, don’t we?
Well, errrrmmmm …… yes, we still have it for the moment.
Oxford University
We do – or perhaps did – have a great reputation for having world class universities. Rich foreign parents – including, of course, a good many whose source of income is highly dubious – naturally seek a good education for their children, which Britain in the past was able to provide and their country presumably couldn’t. For decades, a British degree was seen as a precious cachet of excellence in the international paper-chase.
The heads of US mortgage giants Fannie Mae and Freddie Mac may each receive pay packages of up to $6m (£3.7m) for 2009, depending on company performance.
Now I’m not an American nor do I really understand the issues BUT when taxpayers put in $111,000,000,000 of THEIR money into these organisations (that’s $365 for every man, woman and child on the US Census!) and so many of those same US taxpayers are up the proverbial financial creek without a paddle, there has to be a better way of rewarding top bosses (of US publicly owned corporations) than the option of $6,000,000 each!
But the regulator which decided the pay levels said the awards were 40% lower than before the government bailout.
The sums involved reflected the need to attract and retain talent, it argued.
Frankly, I just don’t believe that there aren’t many other incredibly capable business leaders who would do these jobs for a fraction of six million dollars. (The present incumbents are Michael Williams at Fannie Mae and Charles E. Haldeman Jr. at Freddie Mac who will receive a base of $900,000 in 2010 with the opportunity to earn $5.1 more if “certain targets are met“.)
Read the article here – I’m going to lay down in a dark, quiet room for a while!
The US Federal Reserve, or Central Bank, is the banking system’s bank. It is the lender of last resort.
It is through the Central Bank that banks settle their accounts with each other. The central bank serves as a clearinghouse for checks written by depositors, and it holds the commercial banks’ reserves.
Bank reserves (vault cash, and deposits by banks at the Central Bank or the Fed) are monies held out of circulation by banks to satisfy the Fed’s reserve requirements and the currency demand by the public. Excess reserves are those held above the legal reserve requirements to handle uncertain demand. Bank deposits not held in (required plus excess) reserves are used to make loans and earn interest.
When banks make loans, they do not actually lend out the equivalent in cash but instead create on their balance sheet a loan asset and an equal liability called a demand deposit. Such lending by banks is limited only by reserve requirements (set by the Fed) and the cash they need to satisfy cash withdrawal demand by their customers.
As these loans are then re-deposited by the borrower, the multiplier process continues as fractional reserves are held back and the balance is “lent” out again.
The US poor pay czar is lamenting his task: how to limit the pay of executives at companies receiving a bailout without undercutting the ability of the firm to secure talented management. “It’s a delicate balance! Very difficult indeed.” Well, Mr. Czar, difficult for you, maybe, but a piece of cake for the labor market. That’s exactly what the labor market does, day in and day out, quite naturally.
Compensation should not be the purview of an appointed administrator serving at the pleasure of the executive branch of the U.S. Government.
A round up of this strange world that we all live in.
[In fact Chris wrote this on Sunday, 13th but due to the backlog of LfD posts to be published, it has been held until today, the 20th. The points are still as valid. Ed.]
Judges in charge of Britain’s controversial new Supreme Court have been provided with robes they will hardly ever wear at a cost of £137,956 to the taxpayer.
The hand-crafted black brocade robes – embroidered with real gold thread – will not be worn by the 12 Supreme Court Justices in normal session.
They will be donned only perhaps twice a year for ceremonies such as the State Opening of Parliament or the beginning of the legal year. The rest of the time, the judges will wear everyday suits.
A snip at £140,000 ($224,000) Photographer – Ron Coello
It’s only money …. plenty more where that came from…
BRITISH POLITICS: Few things are more pathetic than the Liberals‘ current poll rating of 17%, with Labour on 26% That the worst government in the history of the world is still way ahead of the Liberals is of course a tribute to the lunacy of Labour voters, who seem not to understand the terrible damage this govt has done. Still, some of them have done very well under Labour: doctors, judges, high-ranking civil servants, consultants …. all more or less bribed with the people’s money.
Lib-Dems must be very depressed; if you can’t get a decent poll-rating when up against this motley bunch of venal, pompous, pretentious and incompetent misfits then you wonder really what the point of their party is.
Democracy?
Still, you get the government you deserve, so they say. Except that the British voting system is hopelessly undemocratic. In the next election a vote for the Lib-Dems is probably going to be wasted, risking the danger of letting Brown sneak in despite everything.
As for UKIP, it is a perfectly tenable position to want to get out of the EU. I’d guess that 30% of the electorate would want this, and that’s a very conservative estimate. Yet they have NO CHANCE WHATSOEVER of getting ANY representation in parliament.
This is not democracy, but of course it suits the two dinosaur parties very well indeed.
TIGER WOODS: what a pathetic, sordid saga this is. Not his bedroom antics, but the media obsession with it. People are dying all over the world of treatable diseases, of inhuman treatment at the hands of the North Koreans or others. Democracy is destroyed by religious nutters in Iran, millions more tons of ice melt, while politicians bleat uselessly (and expensively) in Copenhagen (I note they didn’t choose Scunthorpe! Might not have got such a good turnout!)
OIL: Oh, and on the climate front and the importance of reducing emissions I note that the Iraqi government is predicting oil output to rise to 12 million barrels a day within a few years – the same as Saudi Arabia.
That IS good news!!!!! … the British Labour government will hit us with every stealth and non-stealth tax you can imagine “to save carbon” and pay for yet more consultants and managers while the rest of the world greedily sups up billions more tons of oil.
Apparently, this has been a bumper year for oil discoveries …. you couldn’t make it up! An extra-terrestrial observer must be scratching his head wondering how the universe could have spawned up such a bizarre species.
Yet the press is full of Woods ….. and because he is good at golf … hitting a ball into a hole, a skill of such nanoscopically-sized irrelevance to the world’s problems. What sort of mentality is it that is even interested in yet another, crass, boring superstar who has failed to resist the temptations that money brings?
JFK was the great hero who would save the world but turned out to be just another, faithless, lying philanderer. Who can have any illusions since the days of Marilyn Monroe and the extinguished candle?
OBAMA PEACE PRIZE: The surreality of this obsession with over-sexed but hyper-boring celebrities is matched only by that involved in the award of the Nobel Peace Prize to Obama. What exactly has Obama actually DONE?
Nobel prize winner
Crucially, there is practically NO change in the Middle East (except the major change for the good brought by the reviled George Bush and Tony Blair! the world is nothing if not full of irony); the USA still cravenly supports Israel, which CONTINUES to build and/or enlarge settlements, which denies any possibility of ever putting right some of the wrongs of the past (Palestinian exiles, appropriation of their land, stealing of their capital and so on – even the West Bank roadblocks are mostly still in place.)
Yet even in the pathetic there can be humour, as when he said that to bring peace the USA had to make war, or words to that effect.
Yes, he is of course right, but it was still funny. I wonder what Mother Theresa would have said? And Nelson Mandela? He had to sweat out decades in prison preaching non-violence to earn his NPP, while Obama only had to get elected to get his. Truly the triumph of hope over reality.
Perhaps hope is all there is left. I nearly said “we have left”, but then I realized that I haven’t actually got much myself.
US still struggling to find a proper health care solution
We’ve all heard this definition of insanity: doing the same thing over and over again but expecting a different result.
Here, in a nutshell, is the insanity of the current U.S. health care debate:
Medicare, the government’s single-payer wealth redistribution health care program, is quickly going bankrupt. No one disputes this fact.
When President Obama refers to “cutting costs of healthcare,” he is referring to cutting the Medicare budget. Period. No increased efficiencies, no improved services, no reduced market-clearing prices. No, cutting costs refers to reducing the fraction of the U.S. government’s tax collections devoted to Medicare.
The new Health Care Plan is fundamentally a new Medicare program. Let’s call is Medicare 2.0.
Medicare 2.0 is being funded in large part by cutting the current Medicare budget item. We are supposed to ignore the fact that the funds cut from the current Medicare program will be spent on Medicare 2.0.
The Medicare 2.0 plan shifts as much as 25% of its (under)estimated costs (e.g. payments to physicians) to other accounts. The costs are still there; these obligations would still need to be paid by the government under the proposed legislation, but Congress is hoping the public won’t “count” the shifted costs if they slap another name on them, further fostering the illusion of “lowering costs of health care.”
Medicare 2.0 will also go bankrupt but, as a larger, more far-reaching entitlement program, the impact on the U.S. budget will be larger and more far-reaching.
I must say that I am very confused about bringing an admitted terrorist into our country and its court system, where everyone is presumed innocent until proven guilty, has an attorney assigned to them if they cannot afford one, and they enjoy the full rights and benefits of any other individual accused of a crime in the United States.
Evidence will be brought to bear on the case and, based on the preponderance of the evidence as presented skilfully by attorneys on both sides, and as adjudicated freely and with respect for the law, the judge and/or jury will find KSH innocent or guilty.
If, as Eric Holder, Obama’s choice for the U.S. Attorney General, has indicated ‘KSH’ should be found guilty of horrible crimes and should be brought to justice, I am wondering what is Holder’s real purpose of trying this mastermind here. He must know that there is a chance that the well-meaning set of 12 honest, everyday jurors in this case, through legalese or side-deals or bias, might find to acquit. Right? Then what?
Holder says he’s guilty, yet brings him here (while trying others in a military tribunal) to “try” him in a courtroom which Holder expects to find him guilty. I see the twisted mess we are left with if this happens. But where’s the upside?
Yesterday, a Post was published a Post about Greg Craven. It made the point that social media was becoming a very real force in influencing opinions and how that threatened traditional politics. Here’s an extract:
I was doing some research for an earlier Post about Copenhagen and came across a YouTube video created by Greg. More details and links later after making a more fundamental point.
This video of Greg’s has had 2,704,000 viewings! The information on that YouTube ‘page’ has had over 7,500,000 viewings. Greg has now written a book and so on, and so on.
Now I want to return to the core subject of how we deal with very complex issues that have the power to decimate humanity, e.g. global warming.
The fact is that the majority of people who think about such issues as global warming don’t have the skills and knowledge to determine what to do for the best. It comes down to determining risks, which was the theme of an earlier Post acknowledging the work of Peter L Bernstein.
That’s also the theme of Greg Craven’s video on YouTube. It’s a noble effort by a concerned citizen of Planet Earth. Watch it.
Learning from Dogs 