No Wonder the Economy Isn't Improving

I've read countless news headlines recently about how economists are "surprised" over an "unexpectedly bad" economic indicator.

But it's not surprising at all. It's no mystery.

The government hasn't taken the necessary actions, and has instead been doing all of the wrong things.

Let's recap.

The leading monetary economist told the Wall Street Journal that this was not a liquidity crisis, but an insolvency crisis. She said that Bernanke is fighting the last war, and is taking the wrong approach. Nobel economist Paul Krugman and leading economist James Galbraith agree. They say that the government's attempts to prop up the price of toxic assets no one wants is not helpful.

The Central Banks' Central Bank (BIS) slammed
the easy credit policy of the Fed and other central banks, the failure
to regulate the shadow banking system, "the use of gimmicks and
palliatives", and said that anything other than (1) letting asset
prices fall to their true market value, (2) increasing savings rates,
and (3) forcing companies to write off bad debts "will only make things
worse".

BIS also cautioned that bailouts could harm the economy (as did the former head of the Fed's open market operations).

And BIS warned
that the Fed and other central banks were simply transferring risk from
private banks to governments, which could lead to a sovereign debt
crisis.

Virtually all leading independent economists have said that the too big to fails must be broken up, or the economy won't be able to recover (and see this). Instead, they have been allowed to get even bigger (and see this and this).

While modern economic theory shows that debts do matter (and see this), the U.S. is spending on guns and butter like debts are a good thing.

Nobel prize winning economist George Akerlof predicted
in 1993 that credit default swaps would lead to a major crash, and that
future crashes were guaranteed unless the government stopped letting
big financial players loot by placing bets they could never pay off
when things started to go wrong, and by continuing to bail out the
gamblers. (Not only has the government rewarded the gamblers, bailed them out and let them engage in a new round of risky betting, but it hasn't even reined in credit default swaps.)

And instead of trying to restore trust in our financial system - which is a prerequisite for any sustainable economic recovery
- Summers, Geithner, Bernanke and the boys have tried to sweep the
problems under the rug and con the public into believing that
everything is okay and that no real reform is needed.

As I wrote in October:

William K. Black - professor of economics and law, and the senior regulator during the S & L crisis - says that that the government's entire strategy now - as during the S&L crisis - is to cover up how bad things are ("the entire strategy is to keep people from getting the facts").

Indeed, as I have previously documented,
7 out of the 8 giant, money center banks went bankrupt in the 1980's
during the "Latin American Crisis", and the government's response was
to cover up their insolvency.

Black also says:

There has been no honest examination of the crisis because it would embarrass C.E.O.s and politicians . . .

Instead, the Treasury and the Fed are urging us not to examine the crisis and to believe that all will soon be well.

PhD economist Dean Baker made a similar point, lambasting
the Federal Reserve for blowing the bubble, and pointing out that those
who caused the disaster are trying to shift the focus as fast as they
can:

The current craze in DC policy circles is
to create a "systematic risk regulator" to make sure that the country
never experiences another economic crisis like the current one. This
push is part of a cover-up of what really went wrong and does absolutely nothing to address the underlying problem that led to this financial and economic collapse.

Baker also says:

"Instead of striving to uncover the truth, [Congress] may seek to conceal it" and tell banksters they're free to steal again.

***

Time Magazine called Tim Geithner a "con man" and the stress tests a "confidence game" because those tests were so inaccurate.

William Black said:

How
do you think we did the stress tests? Like doing a stress test on an
airplane wing, but you don’t actually have airplane wing. And don’t
know what airplane wing is made out of. It’s a farce.

And see this.

And
while stopping the rising tide of unemployment is key to reversing the
financial crisis, the government hasn't done much at all to staunch the
loss of jobs.

For example, as I wrote last August:

The government has committed to give trillions
to the financial industry. President Obama's stimulus bill was $787
billion, which is less than a tenth of the money pledged to the banks
and the financial system. [106]

Of the $787 billion, little more than perhaps 10% has been spent as of this writing. [107]

The Government Accountability Office says that the $787 billion stimulus package is not being used for stimulus. [108]
Instead, the states are in such dire financial straights that the
stimulus money is instead being used to "cushion" state budgets,
prevent teacher layoffs, make more Medicaid payments and head off other
fiscal problems. So even the money which is actually earmarked to help
the states stimulate their economies is not being used for that purpose.

Indeed, much of the $787 billion was earmarked pork [109], not for anything which could actually stimulate the economy. [110]

Mark
Zandi - chief economist for Moody's - has calculated which stimulus
programs give the most bang for the buck in terms of the economy:

[111]

But very little of the stimulus funds are actually going to high-value stimulus projects.

Indeed, as the Los Angeles Times points out:

Critics
say the [stimulus money reaching California] is being used for projects
that would have been built anyway, instead of on ways to change how
Californians live. Case in point: Army latrines, not high-speed rail.

***
Critics say those aren't the types of projects with lasting effects on the economy.

"Whether
it's talking about building a new [military] hospital or bachelor's
quarters, there isn't that return on investment that you'd find on
something that increases efficiency like a road or transit project,"
said Ellis of Taxpayers for Common Sense.

Job creation is
another question. A recent survey by the Associated General Contractors
of America found that slightly more than one-third of the companies
awarded stimulus projects planned to hire new employees. But about
one-third of the companies that weren't awarded stimulus projects also
planned to hire new employees.

"While the construction portion
of the stimulus is having an impact, it is far from delivering its full
promise and potential," said Stephen E. Sandherr, chief executive of
the contractors group.

It's unclear how many jobs will be
created through the Defense Department projects. Most of the
construction jobs are awarded through multiple award contracts, in
which the department guarantees a minimum amount of business to certain
contractors, and lets only those contractors bid on projects.

That
means many of the contractors working on stimulus projects already have
been busy at work on government projects.even the stimulus money which
is being spent [112]

David Rosenberg writes:

Our
advice to the Obama team would be to create and nurture a fiscal
backdrop that tackles this jobs crisis with some permanent solutions
rather than recurring populist short-term fiscal goodies that are only
inducing households to add to their burdensome debt loads with no
long-term multiplier impacts. The problem is not that we have an
insufficient number of vehicles on the road or homes on the market; the
problem is that we have insufficient labour demand.[113]

Donald
W. Riegle Jr. - former chair of the Senate Banking Committee from 1989
to 1994 - wrote (along with the former CEO of AT&T Broadband and
the international president of the United Steelworkers union):

It's
almost as if the administration is opting for a rose-colored-glasses PR
strategy rather than taking a hard-nose look at actual consumer and
employment figures and their trends, and modifying its economic
policies accordingly.[114]

As yesterday's front-page story on ABC notes:

Even as many Americans still struggle to recover from the country's worst economic downturn since the Great Depression,
another crisis – one that will be even worse than the current one – is
looming, according to a new report from a group of leading economists,
financiers, and former federal regulators.

In the report, the
panel, that includes Rob Johnson of the United Nations Commission of
Experts on Finance and bailout watchdog Elizabeth Warren, warns that
financial regulatory reform measures proposed by the Obama
administration and Congress must be beefed up to prevent banks from
continuing to engage in high risk investing that precipitated the near
collapse of the U.S. economy in 2008.

The report warns that the
country is now immersed in a "doomsday cycle" wherein banks use
borrowed money to take massive risks in an attempt to pay big dividends
to shareholders and big bonuses to management – and when the risks go
wrong, the banks receive taxpayer bailouts from the government.

"Risk-taking at banks," the report cautions, "will soon be larger than ever."

Without
more stringent reforms, "another crisis – a bigger crisis that weakens
both our financial sector and our larger economy – is more than
predictable, it is inevitable," Johnson says in the report,
commissioned by the nonpartisan Roosevelt Institute.

The
institute's chief economist, Nobel Prize-winner Joseph Stiglitz, calls
the report "an important point of departure for a debate on where we
are on the road to regulatory reform."

The report blasts some
of Washington's key players. Johnson writes, "Our government leaders
have shown little capacity to fix the flaws in our market system." Two
other panelists, Simon Johnson, a professor at MIT, and Peter Boone of
the Centre for Economic Performance, voiced similar criticisms.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner "oversaw policy as the bubble was inflating," write Johnson and Boone, and "these same men are now designing our 'rescue.'"

The
study says that "In 2008-09, we came remarkably close to another Great
Depression. Next time we may not be so 'lucky.' The threat of the
doomsday cycle remains strong and growing," they say. "What will happen
when the next shock hits? We may be nearing the stage where the answer
will be – just as it was in the Great Depression – a calamitous global
collapse."

***

Frank Partnoy, a panelist from the
University of San Diego, claims that "the balance sheets of most Wall
Street banks are fiction." Another panelist, Raj Date of the Cambridge
Winter Center for Financial Institutions Policy, argues that
government-backed mortgage giants Fannie Mae and Freddie Mac have
become "needlessly complex and irretrievably flawed" and should be
eliminated. The report also calls for greater competition among credit
rating agencies and increased regulation of the derivatives market,
including requiring that credit-default swaps be traded on regulated
exchanges.

With the Senate Banking Committee, led by Chris
Dodd, D-Conn., poised to unveil its financial regulatory reform
proposal sometime in the next week, the report calls on Congress to
enact reforms strong enough to prevent another meltdown.

"Sen.
Dick Durbin once said the banks 'owned' the Senate," says Johnson. "The
next few weeks will determine whether or not that statement is true."

(Here is the Roosevelt Institute report.)

Heck of a job, guys.

Comments

[strike for retu...]

GW, thanks for posting.

Yes, many people are well-informed, but many more aren't.

I'm reading a book (copyright 2007) that in passing mentions how Al Queda took down the Twin Towers.  There is still a lot to be learned.

www.ae911truth.org

[Anonymous]

if anyone thinks that the government or banksters give a fuck about the financial situation, you are a certified grade a deluxe fucktard....

from their own mouths aaron russo explains the contempt in which the banksters, oligarchs, and government hold to stoopid sheople....his telling of nick rockefeller's fuck you is astounding....and your government is owned by these sociopaths...

http://www.youtube.com/watch?v=7nD7dbkkBIA

[doublethink]

The Roosevelt Institute's Forum Referenced Above:

Make Markets Be Markets

http://makemarketsbemarkets.org/?utm_source=Institute+Master+List&utm_ca...

[B9K9]

I believe the fall off by some of the more popular commenters is due to the realization that nothing more really needs be said.

Take this post - it's a nice write-up & analysis, but what new information/knowledge has been conveyed?

For example, Judge writes that "gov't can't 'stimuluate' aggregate demand", whereas Minnestoa Nice comments that "(we) worship complexity in an misguided effort to promote efficiency".

Perhaps 12-18 months ago, these types of comments may have stimulated an ongoing conservation that might have led to more people becoming aware of the reality of the system in which they reside. Today, however, they seem to echo the repetitive plaintive cries of Mish, Denninger, et al.

Yes, these observations are ALL true, but what do they really mean? In other words, what happens when informed people agree a hurricane is coming and there isn't really any more point to debating the finer issues of where it will actually land? They get going.

That's why I think Chewy, Cheeky and a host of others have moved on; I'm contemplating it myself. It's becoming increasingly obvious that it's more critical than ever to start preparing for our societal "close up" aka SHTF moment.

[Shameful]

I agree that in many ways nothing more needs to be said. The wast is totally and wholly screwed and we are heading for an epic collapse. Now I'm here for several reasons. 1. This site is funny, it has actually replaced most of my comedy sites, but I love dark humor. 2. I want to know how close we are, if I look away I will know the train is coming but not how close it is. 3. Enlightenment. I have learned a lot reading this site and continue to learn more and have great discourses with the other denizens. While I can see for some they are "finished" but I plan on reading till Tyler is declared an enemy combatant by the banks.

And in my mind I can prepare for SHTF and keep up here. Because I can't literally run to the hills and live in a remote area with no internet, I'm in a mid sized city whether I like it or not. But good luck on the SHTF prep!

[Meridian]

True, it basically is all variations on a theme for those of us that have been tuned in for the last several years, but to the people that are just now becoming aware of the shit-storm that is coming, having well-thought out posts with up-to-date data is very useful.

I feel your pain though, every day is another ground hog day and that damned "I got you Babe" is playing on the radio again ;-)

[Bob]

+1

[Hulk]

Spot on B9K9, nothing new under the sun as far as information goes. If you are not already prepared, its time to start...
We are already prepared and I am just biding my time now.
Waiting patiently. Trying not to do anything stupid like sell gold..
In a past post, someone mentioned that this type of information caused them to be depressed and also mentioned that they were overweight
and out of shape. For me, this type of info is\was a call to arms
and I certainly hope that others take it as a call to arms.
Time to get in shape and prepared. The exercise will change your
mood,so get started. Just do it...but get a check up first
Get started and after a week, exercise will become a habit you will
become addicted to. I guarantee it. But you have to get off that couch and take a walk, lift some weights.....

I still love reading Black's comments. Black IS beautiful man!
I re-watch his video's from time to time, just to hear the truth for a change. I don't think anyone understands this mess as well as Black...and he is so articulate

Great article GW

[Rusty_Shackleford]

Well said.

[WaterWings]

Yeah, what Rusty said.

I think I could be considered in just about every way "addicted". I need to spend more time raising chickens, goats, and good-looking squash.

[MinnesotaNice]

Your thoughts are correct... and what we know to be true has already been said in a myriad of ways over the last year or so.  We all sense what is coming...

However, there are many of us who have been on ZH since its beginning but no longer regularly comment... yet we still read ZH everyday.  The system will break down in an unpredictable and disorganized fashion... and IMO ZH is the best at cutting through the bullsh&it.

For this loyal reader, ZH is now the play-by-play announcer for this inevitable and massive train wreck... where it will be essential to know what those train cars are carrying, where they will land, and how they will affect me personally.  

[Bob]

Likewise for me, at least most days.  For the other missing persons, however, I suspect extraordinary rendition (or some variation thereof.)  You know we're a dangerous bunch . . . 

[Marley]

Society has been through crisis before.  We will make it through this one as well.

[Greyzone]

Our civilization has seen crises before, yes. And so far we've made it through all those that came before. But if you examine history, the same story is true of every civilization - they survive multiple crises but it only takes one, the last one, to end a civilization.

The danger in front of us is that the asses on Wall Street coupled with their paid babboons in Washington have made this mess so large and so entangled that they might find a way to bring down the entire empire on their own heads.

And even if they don't, I wouldn't expect the interim situation to be much prettier, as the only way out of a debt crisis is to deal with the debt, either by paying it down or defaulting it. Let's face it - the current debt load is not payable in the lifetimes of those people who are adults today short of global slavery and poverty living conditions for the majority of the world, while the few at the top would become richer than ever. Does that sound like a prescription for social stability? I didn't think so. Which brings us back to default, which totally resets the entire global system.

Both options will lead to social unrest and possible violence around the world. And even those areas that do not experience social unrest and violence will be impacted by the loss of trade with those areas that do experience such.

It's not a pretty picture but we already jumped out of that plane without a parachute. The only question now is how hard do we land?

[SWRichmond]

I agree with your assessment.  The intractibility of the situation is why I firmly believe they will print; the alternative is to stop giving money to people who don't work, and we know that's not going to happen.

Bernanke's plan is obviously this: avoid a catastrophic hyperinflation by printing just enough to keep the government able to pay people to not work, pay government forces to maintain domestic order, keep banks "profitable", while slowly reducing the middle class's standard of living enough to bring manufacturing back to the U.S.  The middle class has been targeted for termination, and the middle class knows it.

[Anonymous]

Respectfully, what can be done to regulate, bring transparency and manage the ~$683.7 trillion notional value in derivatives
beyond simply BIS statistical measures
(~160 trillion for JPM alone)?

Can Glass-Steagall even be restored in the age of off balance sheet accounting, SIVs, synthetics, the"Enron"ization of the financial system creating perverse incentives to not simply hedge yet
blow up clientele?

Constructive Thoughts on "irrational exuberance" from low interest rates, repeal of Glass-Steagall,
removal of Federal oversight of derivatives, 40x leverage unhedged VAR--
with unheeded, prudent warnings from Brooksley Born and Warren Buffett, any thoughts about how to put the imprudently levered genie back
in a transparent market bottle to prevent a future system wide shock and failure?

[jeff montanye]

check out john hussman's comments a few weeks back on appropriate policy responses.  

a start would be to mark to market, put insolvent firms in orderly receivership (like the little enough to fail have always been treated), separate toxic assets from healthy remainders of financial firms, haircut financial firm bondholders, spend taxpayer money only as a last resort and only to transition the remaining solvent and creditworthy remnants of financial firms to new public offerings with proceeds going to pay off taxpayers then to the ongoing firms.  federal spending should be to support the poorest first (reduce pain) then to the most likely long run productivity enhancing uses (science education, research, infrastructure, transportation, renewable energy, etc.).  

reduce national government debt in times of expansion, increase it in times of contraction.

that the current supreme court believes money should have an unlimited access to politicians who must fund unlimited, unending campaigns is an ongoing problem though.

[Anonymous]

Respectfully, what can be done to regulate, bring transparency and manage the ~$683.7 trillion notional value in derivatives
beyond simply BIS statistical measures
(~160 trillion for JPM alone)?

Can Glass-Steagall even be restored in the age of off balance sheet accounting, SIVs, synthetics, the"Enron"ization of the financial system creating perverse incentives to not simply hedge yet
blow up clientele?

Constructive Thoughts on "irrational exuberance" from low interest rates, repeal of Glass-Steagall,
removal of Federal oversight of derivatives, 40x leverage unhedged VAR--
with unheeded, prudent warnings from Brooksley Born and Warren Buffett, any thoughts about how to put the imprudently levered genie back
in a transparent market bottle to prevent a future system wide shock and failure?

[Anonymous]

So long as they are rational tax cuts can be a positive. I The tax cut analysis was crude at best in the graph.

Where is Arthur Laffer when you need him. He either been ignored or has been strangly quite lately.

http://en.wikipedia.org/wiki/Arthur_Laffer

[Hulk]

Laffer was interviewed by Bob Brinker a few
weekends ago on Moneytalk. Laffer stated what a bunch of Numbskulls
Bernankhe, Summers and Geithner are and that he could get this "whole thing fixed in a long weekend" Laffer was serious too, not
joking. I about fell out of my chair when I heard him say that..

[strike for retu...]

The nicest thing that can be said about the Fed Res / Fed Govt is that it has tried very hard to treat the symptoms of the economic problems (at least those problems that adversely effect the richest 1% of Americans).

However, by only treating the symptoms, those symptoms have been masked and the actual problems have become much worse.

[Oso]

they gave the heroine addict mega shots of more heroine while telling his family that it was a hedge fund who kicked him in the leg which triggered his problems in the first place.

makes perfect sense.

[Anonymous]

Hmm, so according to Zandi the sure way to a wealthy U.S. is to put everyone on food stamps and unemployment, have those who want to work build infrastructure projects, cut their payroll taxes, and throw money at the states. Yeah, that's the ticket.

What a joke.

[RockyRacoon]

Of course, it's a joke.  How could anyone be serious to conclude that unlimited welfare/unemployment payments produce a robust economy?  Way too simplistic.

Of course, there is the Laffer Curve element to all this:  At some point the benefits don't outweigh the expense.  

[jeff montanye]

the idea is, or ought to be, that national governments, in times of plenty, reduce debt/increase surpluses (accumulate grain or gold bullion if you will) so that in times of famine they can increase debt/reduce surpluses (spend grain or gold).  j.m. keynes gets credit for the fancy version of this idea but it is not that different from what the best rulers have done since the species ceased hunting and gathering and invented agriculture. 

[Anonymous]

GW....

Here it is....

Tax receipts certainly indicate true economic activity....and they are down considerably....

And when Obama INCREASES taxes...they will plummet down more....

This is the econ math the polys simply do not understand...

.............................

Focal point....

Tax structure change

When the Fed finally understands that taxing 50 to 70% of a rapidly declining base....would be much smaller than a broadbased tax whereby everyone pays a little tax....ie 15% Consumption tax....

A 15% Consumption tax ....and the elimination of individual and corporate taxes....would dwarf the tax take of the Obama program that will be imposed....and will solve the employment issue....

Want the true picture of the economy....tax receipts....

Want to really improve the economy....change the tax structure to a 15% consumption tax only....

You can bank on it....

[Anonymous]

Bad idea.

1) A 15% consumption tax would not cover outlays, it would be even further from covering outlays then our current tax structure, so more deficits.

2) We already have consumtion taxes clost to that level in some areas. They go to fund states and municipalities. With how broke they are, the last thing we need to do is have the federal gov't compete for their revenue sources. Also, if the fed taxes @ 15% and state and municipalties are, lets say for instance, 8%, that means a 23% tax total.

3) Why would we want to discourage consumption at this point? People are already reducing consumption and starting to save again, great in the long-term but just reduces money volocity and negates the multiplier affect of any dollar spent in the short-term.

4)Why a regressive consumption tax? At a time when income inequality is at an all-time high? How about we get real revolutionary and get back to a progessive tax structure!

[economessed]

But before we do THAT, let's just party on some more.  I mean, come one -- there seems to be absolutely NO downside to huge increases in borrowing.  Maybe Cheney was right!  We've blasted the deficit through the roof, and yet rates remain at all-time lows, the dollar still buys a cheeseburger, we're going to get free health care, we get to fight discretionary wars that goose the mil-indu complex, we get to own automobile and insurance companies, we don't ask our banking sector to tighten their belt, and something keeps buying this debt like an 85 year-old cat hoarder.  We're never going to pay any of it back anyway -- why even suggest we start paying up?

[Anonymous]

We're never going to pay any of it back anyway -- why even suggest we start paying up?

Precisely!

The game is that the ones who can print the most money the quickest gets the first grabs at worlds resources - and the nations who keep trading their limited assets away for printed paper, of which there is an unlimited amount, are suckers who will starve, later.

Everyone knows the US will default - they are playing "wish it wasn't so", but they know. Therefore the rest of the "leaders" will loot & pillage all the way down - why not?

The ship is sinking, once its at the bottom, its not like anyone will be counting the silverware!!

[A_MacLaren]

We haven't reached Reinhart's and Rogoff's tipping point yet, or maybe we have, but the markets are cuising down the banks of de-nile.

[MinnesotaNice]

We have chosen as a society to worship complexity in an misguided effort to promote efficiency.  However, complexity and transparency have a direct inverse relationship... with that which is most complex being opaque to all but its designers and controllers... and that which is least complex being transparent to all. 

Financial reform and breaking up TBTF's are lame attempts at unwinding some of these complex systems in a organized way... but complexity in nature generally can only be unwound in a disorganized fashion... and as we are part of nature we shall find the same disorganized end to these complex systems we have created. 

The complexity of our societal systems at this point in history are simply too great... and will implode under their own weight and lack of transparency.

[Anonymous]

Outstanding metaphor MN.

The intuition behind this rings true. While any analogy or metaphor is unsuitable and dangerous when used wrongly, I'd like to try my hand. Let's use Microsoft Windows as an example (analogs in parenthesis).

You have this program Windows that is originally unstable and quirky. The core (fractional reserve lending and fiat fiscal standard) generally gets the job done (promoting enhanced liquidity and growth) most of the time, although on occasion you deal with BSODs (recessions). So instead of starting from scratch or adopting a perhaps superior architecture (is Linus the non-fractional reserve Windows?), you hide the flaws by adding another couple million lines of code (expanding the credit facility). This prevents certain types of crashes, but increases the complexity--and vulnerability (to the Lloyds, who also happen to be the programmers)--of the overall system. Before long, you have a program that has tens of millions of lines of code and no one from Microsoft that understands all the risks inherent in the exchange of the separate chunks of code. Now put some political pressure on Microsoft and watch as their institutional human capital and accumulated knowledge gets pinched (screw this place, I'm taking my bonus and moving to Costa Rica). Then you are left with this towering, unstable edifice and a crew of novices to man the fort, while what remains is an ongoing struggle of individuals to exploit the vulnerabilities of the system to their gain.

It may not be an apt analogy, but it's a useful construct, at least to me. The point is, regardless of the perceived intentions of Microsoft (or the USFed) whether one considers they are neutral or avaricious, system complexity will outstrip the human capacity to manage that complexity, which will result in a fatal error.

[Bob]

At a major Symposium that gathered a great number of the world's top IT people, 100 of the attendees were surveyed on this question:

"If Microsoft built an airliner, would you fly on it?" 

99 of the respondents gave variations of "Are you fucking crazy?" 

The remaining respondent answered "Hell yeah . . . it wouldn't even reach the end of the runway!"

In the Fed-Wall Street complex, we've contracted exclusively with Microsoft for airliners,  maintenance and air traffic control.

Welcome to Microsoft Airlines.

[Hulk]

Well put MN, except that my belief is that the designers no longer
understand it and NOBODY has control of it, it is controlling us.
KISS (keep it simple stupid) principles have not been adherred to,
possibly for ego reasons, possibly for obfuscation purposes,
but the end effect is that this complex system has been perturbed way
beyond its ability for a stable orbit ever to be achieved again around the strange attractor.
In a matter of time, its Game Over. QED

[AR15AU]

I disagree with your premise that tax cuts have a negative return.  If that were true, then it would stand to reason that raising taxes would improve the economy. 

[Oso]

wrong wrong wrong wrong wrong.

tax cuts that are not matched by cuts in spending have negative multipliers.  You have to look only as far as Dubya.  His tax cuts in the early noughts had a multiplier of 0.3.  Fucking stupid cuz he increased spending dramatically.

This has been shown empirically through the years, Japan, here in the US, everywhere frankly.  If i get a tax cut, Im just saving it because i KNOW i am going to have to pay it out sometime later. 

[jeff montanye]

.3 is not negative.  as was said before, the richer you are, the less you spend, so the highest multipliers are when the funds go to the poorest.  as for productive assets, those who invest in them do so to sell.  without sufficient demand/consumption they will not (or they will fail).  both are necessary.  inflationary recessions/depressions tend to be characteristic of insufficient investment in production; deflationary ... insufficient aggregate demand/consumption.  imo the best thing in the article is the reference to the anna schwartz comment that what we have is a solvency rather than a liquidity crisis and that extend and pretend precisely does not cure it and gives the banks the time and the means to aggravate and worsen it (as well as using up limited government resources in a fruitless effort).

[Marley]

So what happens when you give businesses tax cuts?

[masterinchancery]

Pretty comprehensive; the inmates have taken over the asylum.

[Judge]

This shows the stupidity of the concept of 'stimulus' when welfare payments are deemed better for the economy than reducing the penalty on savings and investment....

At the very core, gov't can't 'stimuluate' aggregate demand, it can only distort it and manipulate the markets, causing further problems down the road.

[Anonymous]

If you don't understand that people who have to choose between food and shelter are more likely to spend extra money than people who are short Greek bank stocks, it is worse than useless to try to debate with you.

[Problem Is]

"This shows the stupidity of the concept of 'stimulus' when welfare payments..."

Anony:  "If you don't understand that people who have to choose between food and shelter are more likely to spend extra money than people who are short Greek bank stocks..."

Gee, Anony... When Judge said stupidity of welfare payments... I thought he was talking about the stupidity of:

Wall Street Bailout Welfare Payments...

Military Industrial Welfare Payments...

Health Insurance Industry "Reform" Welfare Payments...

HAMP Backdoor Bank Bailout Welfare Payments...

Obama truly is magic!

What program or legislation CAN'T President Barry O-Hoover turn into a Corporate/Wall Street Bailout Welfare Payment?

[George Washington]

Barry O-Hoover.

[SmalleyD]

Anyone can spend money. But are these recipients likely to invest/innovate with their receipts. Their activities do not create sustainable jobs like building a factory or developing software does.

[hungrydweller]

Zandi's chart is complete BS.  By logical extension, if all it took to "stimulate" the economy was to hand out transfer payments, let's just put the entire US population on welfare and the USA will be kickin' some serious ass in the global economy.

Too bad he didn't say everything to the right of the line will have a negative return.  Maybe then there would be some credibility.

[Alexandra Hamilton]

Precisely. Welfare received by citizens is immediately spent and enters the economy. It is spent on housing, food, clothing, communication, debt down-payment.

It is a matter of distributing the money created by the Central Banks. Don't give it to bankers give it to the people directly.

[Anonymous]

Why is it BS? Because it doesn't fit with or suit supply-side ideology?
I've seen similar charts that point to similar ROI from other sources. It ain't BS. And upping both corporate tax and the top marginal rate (using the breakdown used in earlier decades which affected only the top 1-5%, not the top quintile) would pay for it just fine.

[Burnbright]

Actually the whole concept is BS because the only way to "add money" to the economy is to print it. But beside that the way GDP is calculated it is also BS because most of the way GDP is calculated is through non productive means. They measure expendetures as growth even if it is fueled by debt for god sakes.

[jc125d]

Heck of a job, George.

[Assetman]

Agreed.  Great job, George.

Entered from my Blackberry.  Atop the ledge of a 20 story building.