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08-05-2011, 07:32 AM   #1
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House GOP, You've Been Had

House GOP, You’ve Been Had

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Dear GOP,

Out here in America, we we’ve been debating between five options regarding the U.S. debt crisis:

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Large decreases in spending.
Moderate deceases in spending.
A budget freeze with no increase or decrease.
Moderate increases in spending.
Large increases in spending.
You, on the other hand, have had a debate in Washington which included only the last two options on the list. And since Washington is an echo chamber in which the terms of the debate are initiated by government and reflected back by media, you forgot that any other options even existed. In the end, the reality-distorting effects of the echo chamber won out and we had a national debate about whether we should do the ‘responsible’ thing and obey ‘the adults in room’ and raise spending quickly, or should we instead embrace the ‘far right’ policies of the ‘intransigent’ economic ‘terrorists’ and flirt with default. So you chose to split the difference between rapid spending increases and moderate spending increases. You considered nothing resembling a freeze or even, gasp, an actual cut. Instead we got Washington cuts, that is reductions in planned increases.

Investors saw it right away. The Dow sold off badly in response to the deal. Gold went to dizzying new nominal highs, touch 1670 per ounce. The dollar rallied ever so slightly against global currencies, but that of course includes a comparison to the crippled euro. The current haven currencies, like the yen and the franc rallied. The franc hit fresh highs and the yen rallied so much that the bank of Japan intervened this week to weaken it against the dollar.

Remember what the echo chamber said? If you didn’t raise the debt ceiling, Asian markets … markets … markets would crash … crash … crash. Well you DID raise the debt ceiling and they crashed anyway.

Remember what the echo chamber said? If you didn’t raise the debt ceiling, rating agencies … agencies … agencies would downgrade … downgrade … downgrade. Well you did raise the debt ceiling and Moody’s put you on negative watch and S&P is under enormous pressure to downgrade you.

If don’t downgrade this month, then brace yourself for Thanksgiving when the ‘super congress’ finds that it is no wiser than the current ‘under congress’. Rating agencies don’t matter much anyway,: they have become the captain obvious of the risk management world. They ratify ex post facto realities. Bond spreads have already registered the fact that in the world of developed nation sovereign debt, we are middle of the pack, not riskless Olympian gods.

What did we investors see, which you rulers did not? Quite a bit, actually. But what stands out is this: you traded cash for promises. My good friend, Ron Morris, a highly successful serial entrepreneur whose most recent venture is his own business talk radio network, told me that his first rule of negotiations is to never, ever, ever trade cash for a promise. You either trade promises for promises, or cash for delivery, or if your opponent is patsy enough to go for it, you trade promises for cash. In this case, House GOP, you were the patsy.

You fell for one of the oldest tricks in the budget book. I call it The Roy Rogers – you thought Trigger would save you. But those spending triggers never work. Those Legislator’s last name, hyphen, legislator of opposite party’s last name bills which promise that if you don’t cut by some arbitrary amount, it will trigger some automatic cut of some politically unacceptable amount bills, always fail. Gramm-Rudman-Hollings springs to mind. When you see one of those hyphenated bills, look at the name on the republican side of the hyphen and you know who the pasty is (I’m looking in your direction, McCain-Feingold).

Trigger never saves the day, because no congress has the authority to bind a future one. When it’s time for the automatic Armageddon cuts to medicare and military to kick in later this year, congress will simply refuse to do it.

At least that’s what the gigantic global credit market is saying to us. The best way to measure the risk of treasury default is to compare treasury yields to various other types of bonds, including those from other counties.. The riskier the bond, the higher the yield. If we are going to lend money to you and we’re afraid you might not pay us back, then we demand a higher interest payment to compensate for the risk. I’ve spend much of this week looking at the various yields. After all of the histrionics about a global financial melt-down, when you finally did what the President and his echoes in the media told you to do, risk premiums barely moved. Spreads against other U.S. bonds moved 2 or 3 basis points (a basis point is a hundredth of a percent); spreads against other nations moved by orders of magnitudes of 12 or 18 basis points.

In other words, bond investors never believed that you would default anyway, and therefore, they don’t believe that you changed the risk by caving in. Gold investors registered their (actually our) vote that you’ve chose the path of debasement rather than default.

In other words, you’ve been had.

Bowyer is the author of The Bush Boom: How a Misunderestimated President Fixed a Broken Economy.


08-05-2011, 07:34 AM   #2
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I just love the kicker at the end of that one.
08-05-2011, 07:57 AM   #3
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QuoteQuote:
Remember what the echo chamber said? If you didn’t raise the debt ceiling, Asian markets … markets … markets would crash … crash … crash. Well you DID raise the debt ceiling and they crashed anyway.
Remember when Obama said "If we don't do something, unemployment could hit 8%"? He did something, and it went to over 10%.
08-05-2011, 11:52 AM   #4
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QuoteOriginally posted by Parallax Quote
Remember when Obama said "If we don't do something, unemployment could hit 8%"? He did something, and it went to over 10%.
I'm sorry, I must have missed that "free rein" that congress gave him.......Not that the voodoo "flat earth" advisers would have helped much either........

08-05-2011, 12:23 PM   #5
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Your grand children have been had as well. Sad state for dure.
08-05-2011, 01:45 PM   #6
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QuoteOriginally posted by Phil1 Quote
Your grand children have been had as well. Sad state for dure.
If that were really the case (as to debt) we'd already be toast.... but keep worshiping the flat earth
08-05-2011, 02:00 PM   #7
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QuoteOriginally posted by Phil1 Quote
Your grand children have been had as well. Sad state for dure.
Yes, yes... The Libertarian argument says the State is borrowing money to put it into the infected organisms existent on the market, which is a waste to be supported by future generations. The market should have been left alone to cleanse itself.
But what if, without the State's injection of money into the economy, the market had literally crumbled before curing itself? Markets are co-participative games; if all players suddenly start to run in fear to save their funds, everybody loses--and not only market players, but people all over the world. (Not to mention market fear is caused by some players.) Today, even with the hit it took yesterday, the DOW is much closer to the 2007 levels than to the bottom reached in 2009.
Besides, even the exorbitant--by a historical-comparative measure, since otherwise there is no objective measure--levels of debt can be paid off in less than two decades, before your grand children become adults. But only a functional economy can pay them.
This isn't to deny the deficit is a serious problem; it just isn't the logical priority in a time of crisis.

Last edited by causey; 08-05-2011 at 02:41 PM.
08-05-2011, 02:04 PM   #8
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QuoteOriginally posted by Parallax Quote
Remember when Obama said "If we don't do something, unemployment could hit 8%"? He did something, and it went to over 10%.
He couldn't have said: "If we don't do something, unemployment could hit 25%"--that is, without spreading panic (or catalyzing panic).


Last edited by causey; 08-05-2011 at 02:11 PM.
08-05-2011, 02:29 PM   #9
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QuoteOriginally posted by causey Quote
The Libertarian argument says the State is borrowing money to put it into the infected organisms existent on the market, which is a waste to be supported by future generations. The market should have been left alone to cleanse itself.
And this is where Libertarianism fails to account for the self preservation motive. Corporations and states - as well as individuals - have this motive, and will not voluntarily go into the good night... The ultimate market cleansing should cleanse not only outmoded or inadequate businesses, but also outmoded or inadequate countries and governments.

Isn't it a good thing if the entire global house of cards came down, now, and gave everyone a new start? Isn't economic and political pain good for us? So what if a few million starve or otherwise die, or that our institutions fail? If they fail that simply indicates they were no longer fit to live.

MMT seems to point out that a sovereign currency / country may postpone demise indefinitely, only other countries and currencies may crowd it out. Ergo, no matter what the Libertarians actually wish for, it ain't gonna happen because the current global financial structure will be defended to the end. Unless aliens land.
08-05-2011, 02:31 PM   #10
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And why should we be surprised at this catastrophe? Where was growth supposed to come from? Consumers, still burdened by the debt that they ran up during the housing bubble, aren’t ready to spend. Businesses see no reason to expand given the lack of consumer demand. And thanks to that deficit obsession, government, which could and should be supporting the economy in its time of need, has been pulling back.

Now it looks as if it’s all about to get even worse. So what’s the response?

To turn this disaster around, a lot of people are going to have to admit, to themselves at least, that they’ve been wrong and need to change their priorities, right away.

Of course, some players won’t change. Republicans won’t stop screaming about the deficit because they weren’t sincere in the first place: Their deficit hawkery was a club with which to beat their political opponents, nothing more — as became obvious whenever any rise in taxes on the rich was suggested. And they’re not going to give up that club.

But the policy disaster of the past two years wasn’t just the result of G.O.P. obstructionism, which wouldn’t have been so effective if the policy elite — including at least some senior figures in the Obama administration — hadn’t agreed that deficit reduction, not job creation, should be our main priority. Nor should we let Ben Bernanke and his colleagues off the hook: The Fed has by no means done all it could, partly because it was more concerned with hypothetical inflation than with real unemployment, partly because it let itself be intimidated by the Ron Paul types.

Well, it’s time for all that to stop. Those plunging interest rates and stock prices say that the markets aren’t worried about either U.S. solvency or inflation. They’re worried about U.S. lack of growth. And they’re right, even if on Wednesday the White House press secretary chose, inexplicably, to declare that there’s no threat of a double-dip recession.

Earlier this week, the word was that the Obama administration would “pivot” to jobs now that the debt ceiling has been raised. But what that pivot would mean, as far as I can tell, was proposing some minor measures that would be more symbolic than substantive. And, at this point, that kind of proposal would just make President Obama look ridiculous.

The point is that it’s now time — long past time — to get serious about the real crisis the economy faces. The Fed needs to stop making excuses, while the president needs to come up with real job-creation proposals. And if Republicans block those proposals, he needs to make a Harry Truman-style campaign against the do-nothing G.O.P.

This might or might not work. But we already know what isn’t working: the economic policy of the past two years — and the millions of Americans who should have jobs, but don’t.
http://www.nytimes.com/2011/08/05/opinion/the-wrong-worries.html?_r=1&src=ISMR_AP_LO_MST_FB
08-05-2011, 02:38 PM   #11
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QuoteOriginally posted by Nesster Quote
And this is where Libertarianism fails to account for the self preservation motive. Corporations and states - as well as individuals - have this motive, and will not voluntarily go into the good night... The ultimate market cleansing should cleanse not only outmoded or inadequate businesses, but also outmoded or inadequate countries and governments.

Isn't it a good thing if the entire global house of cards came down, now, and gave everyone a new start? Isn't economic and political pain good for us? So what if a few million starve or otherwise die, or that our institutions fail? If they fail that simply indicates they were no longer fit to live.

MMT seems to point out that a sovereign currency / country may postpone demise indefinitely, only other countries and currencies may crowd it out. Ergo, no matter what the Libertarians actually wish for, it ain't gonna happen because the current global financial structure will be defended to the end. Unless aliens land.
A kind of "please, die" social Darwinism The long version: "please die, the crystal globe called 'the market' says it's time for you to take a deep, never ending nap."
08-06-2011, 04:35 AM   #12
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QuoteOriginally posted by jeffkrol Quote
And why should we be surprised at this catastrophe? Where was growth supposed to come from? Consumers, still burdened by the debt that they ran up during the housing bubble, aren’t ready to spend. Businesses see no reason to expand given the lack of consumer demand. And thanks to that deficit obsession, government, which could and should be supporting the economy in its time of need, has been pulling back.

Now it looks as if it’s all about to get even worse. So what’s the response?

To turn this disaster around, a lot of people are going to have to admit, to themselves at least, that they’ve been wrong and need to change their priorities, right away.
The problem is, the uber capitalists believe that 'pain' is what is required to get past this mess - pain until people have 'deleveraged', pain until people have developed 'realistic expectations', pain until the problems have 'worked their way out of the system'. In other words, a sharp recession that allows the weak to go under and the strong to reposition themselves and to take the hit of defaults and bankruptcies.
08-06-2011, 07:18 AM   #13
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QuoteOriginally posted by Nesster Quote
The problem is, the uber capitalists believe that 'pain' is what is required to get past this mess - pain until people have 'deleveraged', pain until people have developed 'realistic expectations', pain until the problems have 'worked their way out of the system'. In other words, a sharp recession that allows the weak to go under and the strong to reposition themselves and to take the hit of defaults and bankruptcies.
WHICH based on the MMT/fiat money ideas is humanistic-ally and morally invalid.

As I said once, if America ever woke up and realized the unnecessary pain and death it caused to it's own citizens by mis-understanding it's own power and authority, THE powers that be would be in a world of hurt..........
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