Radio commentary, December 17, 2009

Happy Beethoven’s baptism day.

Fed begins to withdraw some indulgence

On Wednesday, the Federal Reserve held one of its regular policy-setting meetings, which happen every six weeks or so, and decided to do nothing, for now. That is, it left the interest rate under its direct control, the so-called federal funds rate, the interest rate that bank charge each other for overnight loans, unchanged at 0. Ok, it’s averaged 0.12% for the last few weeks, which is pretty close to 0. It also said in the statement accompanying the decision that it intends to keep it in this neighborhood “for an extended period,” whatever that means. The Fed described an economy that is slowly mending, but one that has a lot of recovering to do yet, which justifies this level of indulgence.

In the analytical paragraph of their statement, the Fed pointed to improvements throughout the U.S. economy—notably an “abating” deterioration in the labor market, a slower rate of cutback in business investment, and some signs of improvement in the housing market. Most of the evidence they point to is of the less bad but not yet good variety that’s been dominating the news for the last several months.

The Fed also announced that it will be phasing out a number of its extraordinary “liquidity facilities,” which is a fancy way of referring to their recent habit of spending trillions of dollars created out of thin air to support various forms of lending. Now they think that things are healing enough that they can start stopping. We’ll see how well this works. The Fed has been about the only major institution that’s been lending to private borrowers. They’ve even bought about a quarter of the bonds that the U.S. Treasury has issued so far in 2009—foreign investors, it seems, don’t have quite the appetite for lending to Uncle Sam that they did in earlier years. Will this withdrawal of the Fed’s indulgence lead to a relapse of the credit market seizures that characterized 2008?

parsing recovery (cont.)

On Thursday morning, the Labor Department reported that first-time applications for unemployment insurance, filed by the unlucky souls who’ve just lost their jobs, rose last week, the second consecutive rise in this sensitive indicator, which had been in an encouraging downtrend. The weekly figures are noisy, however, and the four-week average, which smoothes out all the week-to-week volatility, continues to drift lower. Continuing claims, the count of those already drawing unemployment insurance benefits, rose a hair, and their four-week average also continued in its downtrend. All this says that the job market is improving, but slowly—which is what all the other evidence suggests as well.

And the Conference Board’s leading economic index, designed to forecast turns in the economic trend three to six months out, rose nicely in November, its eighth consecutive rise. While this is encouraging, the economy still faces fiendish headwinds, most notably the continuing lack of job creation, without which the recovery can’t pick up enough steam to be self-sustaining. Much of the recovery so far reflects the government’s efforts to revive the economy—all the indulgence from the Federal Reserve I talked about earlier, as well as the $787 billion stimulus program that passed earlier this year.

It’s not only the broad macroeconomy that’s gotten a kick from what’s officially known as the American Recovery and Reinvestment Act of 2009. An analysis of that stimulus program, one of the few good things the president and the Democratic Congress have done, by the Center for Budget and Policy Priorities finds that it’s kept more than 6 million Americans from falling into official poverty in 2009, and lessened the sting of poverty for another 33 million. The reasons include tax credits for all workers and especially for working parents, emergency unemployment benefits, a one-time check for $250 sent to Social Security and disability recipients, and an increase in food stamp benefits. Their state-by-state analysis shows that about 419,000 New Yorkers and 844,000 Californians were lifted above the poverty line by bill’s provisions, and 2.4 million poor New Yorkers and 5.9 million poor Californians had their poverty eased. The benefits average out to about $1,000 per affected person per year—not an enormous amount, but since a poverty income is anything below $14,000 for a couple and $22,000 for a family of four, a thousand bucks can make a big difference.

two months’ Pentagon spending could end poverty

On that point, a reminder of how little it would take to end poverty in the USA. The so-called poverty gap, the amount of money necessary to bring everyone whose household income is below the offical poverty line up to that line, was about $138 billion in 2008, less than 1% of GDP. Or, to put it more bluntly, about what the Pentagon spends in two months. Or 3% of the total income of the richest fifth of American households. Or roughly what we spent bailing out AIG. But Wall Street and the war machine really need the money, you see.

Obama snubbed by his bosses

Finally, what a bunch of ingrates. Our president invited a lot of top bankers to the White House early this week to urge them to lend money to actual people and businesses instead of hoarding it, or speculating with it, which is what they’ve been doing. Three of them, Lloyd Blankfein of Goldman Sachs, Richard Parsons of Citibank, and John Mack of Morgan Stanley, didn’t bother to show up, claiming that bad weather kept them from getting to DC. [In an early version of these comments I replaced Blankfein with JPMorgan’s Jamie Dimon. I was wrong. Sorry.] What nonsense. Their banks would have failed without Washington’s assistance, and this is the thanks that Washington gets? And how did our president react to this snub? Instead of denouncing them as the hoarders and ingrates they are, he welcomed them when they phoned in. And I’m sure they’ll continue hoarding their money or speclating with it rather than lending to real people and businesses.

To steal and paraphrase a line from Adolph Reed, from many years ago and a very different set of circumstances, Obama more and more reminds me of George Bush but without the courage of his convictions.

10 Comments on “Radio commentary, December 17, 2009

  1. Pingback: Flopenhagen |

  2. Just a fan letter – great, really fluid interviews these last couple of shows – the Atlantic Yards fiasco, the “Cooling It” author, Kevin Gray – eclectic and extremely informative – brilliant.

  3. Oh, please, Peter. Empty bullshit by BHO, who specializes in empty bullshit.

  4. Great interview with Kevin. One point of slight disagreement. I don’t think Taibbi ever thought that Obama was a progressive, I think his support for him was more of an anti-Clinton thing (he really hates the Clintons).

  5. Oh, for Christ’s sake, Cian.
    Matt Taibbi is a scribbler, just like you or me.
    Sure, he got off on reporting some “scandalous” truths about the US political theater, but if the point is that this theater is full of mountebanks and lunatics, then why continue to report on it?

    According to Taibbi’s thin liberalism, because we had Bernie Sanders and Henry Waxman, we had “hope,” which he transmuted into veneration of Obama. What does Taibbi do now with this record of bullshit? Well, he gets on a suit-and-tie and blithers on the Bill Moyers show with establishment liberals, trying still to forge some path of – well, what is it? Is he a political thinker? Is he some heroic Gen X reporter out to save our government?

    Taibbi wrote some godawful slavering about Obama’s appeal in Rolling Stone, stuff that was about at the Golden Book level of gee-whiz sophistication. Rolling Stone itself, Bruce Springsteen, Bob Dylan, Michael Moore – all these somewhat 60’s folks were cheerleaders for the Obama con.
    In fact, I wonder if this very site promulgated some “hope”-ish drivel based on that con? Yes? No? Maybe? Doesn’t matter that much – but I would pay to see Taibbi come clean and read aloud some choice nonsense he penned from that time.

  6. Mjosef – this site? Promulgating hope-iness? You don’t mean me, do you? Never for a moment did I do that, except in finding some cheer that the disillusionment of the hopers might be productive someday.

  7. Mjosef: And can you point to anything you’ve written recently with the political impact of Taibbi’s Goldman’s piece? Or anything as interesting as the stuff he wrote on Russia for the Exile.

    “Is he a political thinker? Is he some heroic Gen X reporter out to save our government?”

    Maybe he’s just trying to make people aware of, and angry about, what’s happening. Is that so bad? And what is it exactly that you’re doing which is making such a difference.

  8. As I anticipated a few years ago, the main longer-term outfall of the financial crisis is not the collapse of capitalism but rather its adjustment to new conditions and new terms of trade. Specifically what we can see now is a more conservative lending stance (in the US $3 trillion worth of credit facility disappeared in 2008), a durably higher unemployment rate putting a cap on real wage growth, a real GDP growth rate which in the medium term is roughly half of what it was before, a sharp increase in the inequality of wealth and income, and, perhaps most importantly, the “marginalization” of about 50 million Americans. By marginalization I mean that these people own very few assets and for the longterm either do not have an income, or a very irregular income, or an income so low that they can hardly survive on it. This severely limits their participation in society and its resources. As a corrollary, this contributes to an increase in the “grey” and “alternative” economy, and it is likely in the longer term to increase crime rates. In turn, that leads to a preoccupation with social control and a more conservative moral climate, the main theme of which could be summarized as “obey orders and cooperate, or risk social exclusion and indifference to your plight”. The obverse of that is the steady growth of a “counter-culture” among people who are really shut out from opportunities, and therefore are forced to find alternatives to make some sort of life. America lacks much of an ethic of ameliorating poverty – poverty is supposed to be your own fault – and thus the emphasis will be on “containing” poverty and “regulating” its consequences within minimum acceptable limits, and the focus is on the minimum standards of acceptable behaviour. Paradoxically because the US is a very wealthy society, it can sustain a high level of poverty in its midst without destroying the social order. It’s not really an economic problem so much, from the point of view of the oligarchy, but a social control problem. Since groups emerge in society who have very different and opposed interests, at first we see a rather fractured, confused political scene but in the longer term new political movements begin to crystallize. America has traditionally been ruled by a plutocracy but the new political culture is likely to be “a political culture which money just can’t buy”, simply because people haven’t got it and the rhetoric of the wealthy has become highly suspect. And that should make American political culture much more interesting and diversified than it has been in recent decades.

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