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Obama's Back In: Does He Succumb To Popular (Ignorant?) Opinion Like The Europeans Or Make The Tough Choices

Reggie Middleton's picture




 

Many have asked me if I believe in austerity measures or the Keynsian approach of spending out of recession. I have stated, time and again, that the question is loaded - hence the answer can never be sufficient. When you are trying to go from your home to the market across town in a crowded urban environment, you cannot make the trip successfully by deciding ahead of time that you are just going to make left turns (austerity? Austrian?) or right turns (stimulus? Keynsian?). You come to an intersection and you make the turn that's necessary to get you where you want to go. It might sound overly simplistic and common, but I'll be damned if common sense is one of the most uncommon things I've come across over the last 7 years or so!

On that note, there does appear to be a misunderstanding on how government finances work as compared to finances in the private sector. The government is not a for profit player that competes directly with those in the private sector, but is instead a universal support network that benefits from the success of the private sector. Hence, the government must work in the best interests of the private sector in order to thrive. This sometimes entails taking the other side of the trade to ensure that a trade can take place. One pundit who has done a good job of explaining this through pretty charts that explain the peculiar situation that we are now in (a balance sheet recession), is Dr. Richard Koo of Nomura Securities. See the FT.com article abstract:

In 2008, Barack Obama told the US people the nation’s economic crisis would take a long time to overcome. In 2012, many of those voters are losing patience, because they have not been told why this recession has lasted so long or why his policies were the correct response. Here is the missing explanation – based on not only the US experience, but also that of Japan and Europe. 

Today, the US private sector is saving a staggering 8 per cent of gross domestic product – at zero interest rates, when households and businesses would ordinarily be borrowing and spending money. But the US is not alone: in Ireland and Japan, the private sector is saving 9 per cent of GDP; in Spain it is saving 7 per cent of GDP; and in the UK, 5 per cent. Interest rates are at record lows in all these countries.

For those who may not get the gravity of this statement, it makes no sense to save money with a negative risk/reward proposition, unless of course the saver does not see it that way. One must save if savings are in deficit, and the risk to invest funds is considered greater than the benefit of having said funds in the first place. We are still attempting to wade through the bursting of a massive bubble, and we are playing defensive - not offensive.  In other words, are Americans seeking return OF capital over return on said capital? We are over-leveraged, and to effectively delever you cannot borrow more money or take the risk of aggressive investments. This is so even if investment capital is being offered at zero interest rates. Mr. Koo illustrates the consequences of such behavior eloquently...

However, if someone is saving money or paying down debt, someone else must be borrowing and spending that money to keep the economy going. In a normal world, it is the role of interest rates to ensure all saved funds are borrowed and spent, with interest rates rising when there are too many borrowers and falling when there are too few. 

But when the private sector as a whole is saving money or paying down debt at zero interest rates, the banks cannot lend the repaid debt or newly deposited savings because interest rates cannot go any lower. This means that, if left unattended, the economy will continuously lose aggregate demand equivalent to the unborrowed savings. In other words, even though repairing balance sheets is the right and responsible thing to do, if everyone tries to do it at the same time a deflationary spiral will result. It was such a deflationary spiral that cost the US 46 per cent of its GDP from 1929 to 1933. 

Those with a debt overhang will not increase their borrowing at any interest rate; nor will there be many lenders, when the lenders themselves have financial problems. This shift from maximising profit to minimising debt explains why near-zero interest rates in the US and EU since 2008 and in Japan since 1995 have failed to produce the expected recoveries in these economies. 

For some reason, the Fed doesn't seem to get what Mr. Koo and BoomBustBloggers do!

With monetary policy largely ineffective and the private sector forced to repair its balance sheet, the only way to avoid a deflationary spiral is for the government to borrow and spend the unborrowed savings in the private sector.

Wait a minute! The EU states are definitely borrowing, but they are not redploying the capital back into the private sector, they are simply bailing out banks! In addition, the banks are not deploying the capital into the private sector, they are simply sitting on it, just as Mr. Koo stated they would in the article excerpt above! So, after trillions of borrowing, there's no surprise why there's just relatively pennies making it into the private sector. What Mr. Koo and many who follow Keynsian economic theories seem to forget to include, is that upon borrowing the money to plunge into the private sector, you have to have a plan for paying said monies back. When you borrow said monies and simply waste them (ex. perpetual dead bank bailouts) you create a truly structural problem. Simply ask Greece, or see How Greece Killed Its Own Banks! and then move on to...

As The Year Comes An End The Ability Of Greece To Kick The Can Mirrors The Chances Of A Man With No Feet

Despite extensive, self-defeating, harsh and punitive austerity measures that have combined with a lack of true economic stimulus, Greece has (to date) failed to achieve Primary Balance. For the non-economists in the audience, primary balance is the elimination of a primary deficit, yet the absence of a primary surplus, ex. the midpoint between deficit and surplus before taking into consideration interest payments.

Greece_Primary_balance Greece_Primary_balanceGreece_Primary_balanceGreece_Primary_balance

The primary balance looks at the structural issues a country may have.

Government expenditures have outstripped revenues ever since 2007 and have gotten worse nearly every year since, despite 3 bailouts a restructuring, austerity and a default!

Greece_Primary_deficit_copyGreece_Primary_deficit_copy

On to Mr. Koo's diatribe... 

Recovery from this type of recession takes time because the flow of current savings must be used to reduce the stock of debt overhang, necessarily a long process when everyone is doing it at the same time. Since one person’s debt is another person’s asset, there is no quick fix: shifting the problem from one part of society to another will solve nothing.

The challenge now is to maintain fiscal stimuli until private sector deleveraging is completed. Any premature attempt to withdraw that stimulus will result in a deflationary implosion – as in the US in 1937, Japan in 1997, and Spain and the UK most recently.

Japan’s attempt in 1997 to reduce its deficit by 3 per cent of GDP – the same size as the “fiscal cliff” now facing the US – led to a horrendous 3 per cent drop in GDP and a 68 per cent increase in the deficit. At that time, Japan’s private sector was saving 6 per cent of GDP at near zero interest rates, just like the US private sector today. It took Japan 10 years to climb out of the hole.


Average citizens find it hard to understand why the government should not balance its budget when households and businesses must all do so. It is risky for politicians to explain but, until they make it clear that the economy will implode if everybody is saving and nobody is borrowing, public support for the necessary fiscal stimulus is likely to weaken, as seen during the past four years of the Obama administration.

The US economy is already losing forward momentum as the 2009 fiscal stimulus is allowed to expire. There is no time to waste: the government must take up the private sector’s unborrowed savings, to keep the economy from imploding and to provide income for businesses and households so they can repair their balance sheets. Fiscal consolidation should come only once the private sector has repaired its finances and returned to profit-maximising mode.

I have ventured along these lines several times in the past. Here is the subscription research that I feel is best poised to take advantage of the guaranteed mistakes to be made ahead, simply click your industry/sector for the most recent research (note, non-subscribers will only be able to view free reports, you may click here to subscribe)...

As for whether Mr. Koo is correct in the application of severe austerity when one should be trying to prime the pump....

Greece Is To Pathogen As Cyprus Is To Contagion As Spain Is To Infected...

CNBC reports Greece Austerity Strike Will Hurt GDP Further even as Cyprus Expects Bailout as S&P Cuts Ratings to Junk:

Cyprus said on Wednesday it expected talks to start with lenders on badly needed aid next week, as ratings agency Standard & Poor's pushed it deeper into junk territory, implying domestic political expediency lay behind a delay in clinching a deal. One of the smallest nations in the euro zone, Cyprus sought European Union (EU) and International Monetary Fund (IMF) aid in June after its two largest banks suffered huge losses due to a write-down of Greek debt.

Well, our Contagion Model showed clear paths of the knock on effects of Greek infection, and we haven't even gotten started with the economic pathogen party yet!

 

Although it seems as if Tyler is being a smart ass, he couldn't be farther from the truth. Reference my piece Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! concerning the accuracy of the IMF's baseline scenarios...

image005.pngimage005.pngimage005.png

And back to the ZH post:

....Breakdown of IMF deleveraging forecasts for the three scenarios, of which the realistic one is highlighted:

  • Under weak policies, the withdrawal of foreign investors accelerates to twice the pace seen since 2009. Periphery spreads widen by about one standard deviation above the baseline.

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Fri, 11/09/2012 - 04:29 | 2963664 MickV
MickV's picture

Obama doesn't care about "public opinion". He is an ideologue, and thus doesn't need no stinkin opinions. His job is to destroy the US Economy and spirit so as to be the government "helper" (imprisoner) when it all falls into a heaping pile of debt fueled disaster. To even consider whether debt can cure debt shows a serious lack of logic, and a severe deficit of common sense. If you were a banker, and one of your clients had income of $50K, and a debt load of $300K would you issue him a credit card? Duh!! It really is that simple. No fancy graphs and charts needed.

Anyway, Obama is ineligible (not a natural born Citizen since he was born British of a British subject Kenyan father, see Minor v. Happersett, 88 US 162, 167; see also Federalist 68 (prevent an improper "ascendant" (ancestor) in order to ensure that the chief magistrate is a "creature of their own"))

While you were all looking down at your Chinese slave made IPhones your Liberty and sovereignty was stolen. There is no more US, since the President is illegal. There is no constitution and no law when the POTUS, who is the executor of the law, is illegal. It would take the blood of tyrants and patriots to restore the Republic, but instead, in this world of 70% idiots, I see a slow slide into the arms of Orwells nightmare. Seen any rule of law around lately? It is now the rule of corrupt and evil men.

Fri, 11/09/2012 - 00:34 | 2963372 MikeMcGspot
MikeMcGspot's picture

"Today, the US private sector is saving a staggering 8 per cent of gross domestic product – at zero interest rates, when households and businesses would ordinarily be borrowing and spending money."

I wonder if this is driven by a change in the way people live and what it takes to be happy in the realm of consumption habits and values?

What should I/we be spending money on to help the cause?

Should I buy a new vehicle? The one I have is 7 years old, has 120k miles on and runs like a champ. I expect to get another 7 years and 120K miles before needing a new one.

I used to like to go out to eat and drink with friends and family a lot but we all seem to be enjoying getting together at each others places, making food together, sharing libations, playing music, having good conversation now much more than going out.

Being the owner of a small company and a working stiff in the corporate world, I have a modest income. I suppose I could borrow money to grow my company faster but "Why take on that risk, if we are profitable now?"

Should we be borrowing and spending just for spending sake to sustain our economy?

By more useless crap that takes up space and time to manage. For what good purpose?

I believe some of the reason the savings rate is going up is that many people are weary of consuming for the sake of consumption and are learning there is more to life than stuff.

On the corporate side of things, how much more productive capacity is needed to provide for market demands?

I suppose in manufacturing, more investments in automation can and will cut production cost and enhance capacity, further reducing the need for people in process.

Likewise in the service sector, ongoing investments in process reengineering and technology are further improving efficiency and lowering head count needs.

A good question.." In other words, are Americans seeking return OF capital over return on said capital?"

Instead of saving what should people or companies be spending more money on now to get a return on capital rather than OF capital?

 

 

 

Thu, 11/08/2012 - 22:21 | 2963045 drchris
drchris's picture

Okay, I read Dr. Koo's article.  I get it.  However, is there any way we can chart the progress of delveraging in the US?  How far along are we and how much further will we have to go?  How much more public debt will we need to replace private debt?  The answers to these question seem key to the argument, yet they are absent.

Thu, 11/08/2012 - 21:42 | 2962917 tony bonn
tony bonn's picture

"...Does He Succumb To Popular (Ignorant?) Opinion..."

it's too late - he has already succumbed to ignorant - long long ago.

i value you more as a financial anlyst than economist....please stick to your knitting....

Thu, 11/08/2012 - 20:03 | 2962635 Hannibal
Hannibal's picture

Nothing will change untill the criminal bankster frauds are procecuted. End the fed. End the Ponzi!

Thu, 11/08/2012 - 20:26 | 2962682 CH1
CH1's picture

I am done wasting brain cycles, trying to predict the actions of statist pieces of shit.

Thu, 11/08/2012 - 19:51 | 2962613 Tombstone
Tombstone's picture

Reg, this time was different.  Over the last 30 or so years we have had the largest group of super-spenders, the baby boomers, spend like there is no end.  Bubbles were created due to credit being used with wreckless abandon.  With boomers being forced to face up to retirement in the very near future, they have curtailed their spending; thus demand has fallen.  Retrenching and relevering are not occurring all that much due to more spending by other groups.  Even if the consumer pays down his debts, why will he go back out and relever only to be faced with more debt?  I'm saving as much as possible and have no intention of buying anything I don't need, other than to take a trip or vacation now and then. 

The hardest choice Obama will have to make is what new forms of welfare to create.  We are in this mess because of the following:  free health care, direct welfare payments, rent assistance, utility assistance, government backed auto loans, government backed school loans, free cell phone usage, overpayment of unemployeement benefits, food stamps up the wazoo, a wasted stimulus used mainly to fund Obama supporters and unions, wasted billions on alternative energy  under the false pretense of the scam of global warming, bailout after bailout of companies that did not deserve to be saved, more and more social security and medicare...and the funding of hundreds of government agencies, many redundant and next to useless and the list goes on forever of things the government pays for.

The simple dynamic is this:  Big government=big welfare=big deficits=more of the same until the system implodes.  Take your pick; deflation or inflation, but it still equates to the destruction of the paper money system.  There are NO politicians that are going to fix this mess.  It is very true:  the same minds that create a problem are not the minds to be used in solving it.  Welcome to the new socialist republic of America.

Thu, 11/08/2012 - 20:00 | 2962567 Hannibal
Hannibal's picture

Govt debt do not matter, these are socially constructed (numbers), platonic abstracts invented by central bankers who want us to think that "it" is actually something real, which it is not.  The bankers' dirty little secret is out that "fiat/debt is a fraud and a fucking Ponzi scam. Cheers!

Thu, 11/08/2012 - 18:51 | 2962473 Joebloinvestor
Joebloinvestor's picture

The LIES will continue right up to the day it all falls apart.

Thu, 11/08/2012 - 19:01 | 2962500 Zero Govt
Zero Govt's picture

Yep and at that point of collapse the Left will blame the Right and the Right will blame the Left

and that's the only time they'll ever be right, well half right, because they're both responsible

Govt : nation wrecker for 3,000 years (time this shit's over)

Thu, 11/08/2012 - 18:47 | 2962454 silverserfer
silverserfer's picture

governments want high productivity from masses and force debt burden and stagflation to "crack the whip" and make people do more for less. Power over the people to obtain objectives is where we are now that we are off gold and silver standard. They have intentionaly dumbed down everyone to jump on the ponzi train to the saughterhouse while they collect the real wealth. Cash for gold is for the poeple. JPM shorts are for the miners as most of the silver to obtain is still underground. Miners seem to not care about profit margin not being shorted endlessly on their product. theyre not in the position to just sit on their wealth.    

Thu, 11/08/2012 - 17:57 | 2962302 marathonman
marathonman's picture

This is bullshit.  The debt can never be repayed as doing so would interupt the trajectory of debt growth required for the exponential compounding necessary to keep the system going.  The system is only kept alive so that the bankers that issue our money as debt can increase their leverage and power and rip our freaking muppet faces off.  This whole monetary system is a fucking PONZI.  The whole system is irredeemable and will end in deep depression or hyperinflation followed by deep depression.  Gold, silver, commodity money are the solution that nobody wants to hear because it would limit the power of the bankers that own the current debt based system.  Sorry Reggie, I say bullshit.

Fri, 11/09/2012 - 02:31 | 2963559 All Risk No Reward
All Risk No Reward's picture

Hi Reggie,

MarathonMan is 100% correct.  In order to properly understand a system, one has to understand as much data and applied logic as possible.  Then one must apply reason/logic to evaluate the data and the applied logic.

You're analysis assumes their is a societal solution within the central banker box.  That's a  very bad assumption.

The system is working perfectly to destroy national sovereignty, empower the people who enforce this criminal system and to asset strip the productive for the benefit of the parasitic predator class(es).  Let me be clear, the Debt Money Tyranny System is working perfectly according to its designed specifications.

Let's go over some data. 

1. Money is debt.  That's what it is.  Interest bearing debt.

This 3 minute Youtube video explains how one person's money is someone else's debt - BY DEFINITION.

Consequences of Fractional Reserve Banking 2) - Poverty - Debt is not a choice
http://www.youtube.com/watch?v=juQc0rLdB-E

That is a bit of an over simplification, but it does nail the point that one person's money, BY DEFINITION, must FORCE another party into UNPAYABLE DEBT (by definition, the debt associated with a person's money can't be extinguished without the person giving up their money).

2.The monetary system is a fraud and was engineered to covertly and systematically asset strip society.

What isn't evident from that video is the scop the fraud.  That's why this Debt Money Tyranny chart was creatred

Debt Money Tyranny

http://www.keepandshare.com/doc/4768883/debtmoneytyranny-6-1-pdf-60k?tr=77

Society NEVER has enough money to pay back their debts to the money creating, Federal Reserve System controlling, politically connected oligarch class.  They are the masters.  Everyone else is their slave, albeit in a scientific dictator kind of way where, as Aldous Huxley put it, the people will rather enjoy being impoverished and have their liberties taken from them.

3. The Federal Reserve broke Section 2A of the Federal Reserve Act and took credit and monetary aggregate parabolic to GDP instead of keeping it "commensurate with" per applicable law.

Look at the first chart.

http://market-ticker.org/akcs-www?post=207083

That'sa  crime scene, Reggie, but oligarch front men can't be held account to criminally setting up society for a collapse on behalf of the scientific dictator oligarchs, SO THERE IS NO PENALTY FOR BREAKING THE LAW.  This only passes in a nation of complete chumps.

OK, that's enough data to mike my point, but I could go on to add about the mortgage fraud, the ratings fraud, the MBS fraud, the perjury, the Wachovia drug running, the JP Morgan Jefferson County bribery that's gone uncharged, Corzine that ripped off people for his buddies at JP Morgan, etc...  you know, oligarch criminals ripping off everyone's face.  JP MOrgan hasn't even had to return the $1 billion they stole from Jefferson County tax payers via their bribery operation.

Can you "fix" the world's largest credit bubble engineered to rip faces off of Muppets?

No.  You can't.  Your prescription won't work.  What can happen is for society, which rents it money from criminal oligarchs and NEVER has enough to pay it back, BY DEFINITION. to go bust so the TBTF&Jail criminal class can roll up all our assets under their corrupt, criminal front organizations.

Look at the 2nd chart...

http://market-ticker.org/akcs-www?post=207083

See public debt exploding?  See financial debt imploding by about an equal amount?

We need to stop believing the nonsense narrative - that's doing a Charlie Brown and trying to kick the field goal because Lucy says she will hold the ball down this time.

We have to stop being chumps.  Bernanke is a front man for a criminal, Trojan Horse, societal asset stripping international banking cartel.  He's NOT stupid.  He's a psychopathic, lying piece of trash than criminally has continued Greenspan's crime spree by blowing the world's largest credit bubble contrary to black letter law.

He lies about his singular mandate being a phoney "dual mandate."  Read it.  The mandate isn't dual, it is singular.  The expected results aren't singular, but the mandate is singular.  In Orwellian fashion, the criminal oligarchs have substituted the results of the following the mandate as the mandate itself...  in order to criminally break their very own mandate.

There is no fix - there is too much fraudulent debt vreated by a criminal Trojan Horse system that was engineered, from the ground up, to bankrupt us.

Take another look...

Debt Money Tyranny

http://www.keepandshare.com/doc/4768883/debtmoneytyranny-6-1-pdf-60k?tr=77

It's all fraud.

Note that the debt owed and the money are exactly equal.  The oligarchs have convinced the unthinking that this fact makes it unnecessary to track debt because it all "evens out."

Assume two societies - each with 100 people and $1000 cash and $1000 debt.  The oligarchs have trained "economists" to think that 1 guy owning all $1000 and everyon else splitting the $1000 in debt is equivalent to each person owning $10 cash and $10 debt.

That's absurd, unless the oligarchs want to be the one group holding all the cash (in the real world it is real, tangible wealth that matters) and they don't want to give the Muppets a metric that might expose their plans.

To all the readers - don't be mindless and chalk this up to conspiracry theory.  This isn't conspiracy theory, it is conspiracy MATHEMATICS.

I'm here telling you the emperor has no clothes and that assumptions he does in order to provide non solutions within a criminal central bankster box are wrong.

I'm here to tell you that 2+2=4, not 5.  The amazing thing is that the scientific dictatorship didn't have to torture us like Winston Smith...  they use economics to convince us that believing 2+2=5 is in our best interest.

Read Tragedy and Hope by Carroll Quigley.

Read Propaganda by Edward Bernays

Read Art of War by Sun Tzu

The monetary system is working perfectly to covertly and systematically asset strip the nation outside of the consciousness of the people being gutted.

Sun Tzu said, "all war is deception" and "the best warriors never have to fight."

He also said to make you opponent appear wise and to make yourself look foolish...  before you conquer his *ss and gut him.

The system is working perfectly.  The oligarchs are gaining power, the people are losinig power - and fast.

This is nothing new.  Andrew Jackson called these criminals a "Den of Vipers."  Look up the whole quote - nothing has changed except they dump their losses on the chump tax payer looking for "solutions" when the system is working perfectly...  but they won't tell you that.  You have to figure it out yourself.

Henry Ford said, “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. The one aim of these financiers is world control by the creation of inextinguishable debt.”

Does anyone think he was jjoking?

This image was from 1912...  those not swayed by the propaganda understood the fraud UP FRONT.

http://www.zerohedge.com/news/commemorating-99th-anniversary-first-ever-...

Reggie, you don't "fix" a demonic vampire octopus designed to strangle your *ss and transfer all your assets to the criminals that created it.

The cognitive dissonence MUST end.

DEBT BASED MONEY IS A FRAUD.  IT CAN'T WORK FOR SOCIETY.  IT IS DESIGNED TO HURT YOU, YOUR FAMILY AND YOUR COMMUNITY...  ALL IN DUE TIME.

I guarantee you there were bullet proof traders in Greece just a few years ago that are now asset stripped.

All according to plan.

I'll close with William Jenning Bryan laying down a truth that so precious few understand today...

“We say in our platform that we believe that the right to coin money and issue money is a function of government. We believe it. We believe it is a part of sovereignty….

“Those who are opposed to this proposition tell us that the issue of paper money is a function of the bank and that the government ought to go out of the banking business. I stand with Jefferson rather than with them, and tell them, as he did, that the issue of money is a function of the government and that the banks should go out of the governing business.

“When we have restored the money of the Constitution, all other necessary reforms will be possible, and that until that is done there is no reform that can be accomplished.”

~William Jennings Bryan

The Central Banker Box is The (blood sucking) Matrix.  Take the red pill and you will know there is no solution within the Matrix itself.

And yes, this is warfare being waged up us by the oligarchs.  Sun Tzu style Art of War where the victims have NO IDEA they are under attack and the vicrims run arounf proudly mocking those destroying their future as stupid...  no, they are not the stupid one's...  Charlie Brown.  We are the stupid ones who are being taken to the cleaners.

Same.

As.

It.

Ever.

Was.

Thu, 11/08/2012 - 17:43 | 2962242 richard in norway
richard in norway's picture

the real boggie man on the horizen is either comunisim or fastism, already greek sociaty is beeing pulled both ways, i dont like either but i see comunisim as the free market soulution to excessive  inequility. 

Thu, 11/08/2012 - 17:24 | 2962149 steelhead23
steelhead23's picture

Reggie,  You and Yves have damned near convinced me.  But there is a massive political problem here as well I would like to describe.  Public faith in government - and thus, themselves - has been systematically eroded by the strong anti-government spin in our media since around the time of Reagan.  Hence, if government never does anything right, it is hard to ask the populace to encourage the government to incur more debt - debt they are being told their grandchildren will be forced to pay off (a specter made even worse by declining wages).  And you are right - so much government largesse has accrued to those least in need (I seem to recall Dimon being paid $26 million for his superb tutelage of JPM).  Add to that the perception that the theives who put us in this mess have in fact reaped a reward, not a whirlwind and you can see why the austerians are gaining sway.

I am a socialist, so feel comfortable suggesting socialistic solutions.  Obama should propose a right to work law.  By that I don't mean the anti-union laws preventing closed shops.  What I mean is that if someone wishes to work but cannot find work, the government should put that person to work.  Doing what you might ask?  Economic infrastructure improvement and maintenance.  Improve coastal protection, improve electrical grids, improve and maintain bridges, roads, dams, etc.  Green energy projects.  You name it.

Here is what that would accomplish: end the recession.  Protect and expand existing productive capacity.  Improve social cohesion.  Drive conservatives right up the wall.

Then, once the recession is over and growth again tops 2% - raise taxes to pay down the debt - but pay attention to monetary flows.

I see our current situation much like having the timing belt go out on one's car he/she uses to get to work.  Should that person reduce his/her working hours by walking to work so he/she could save enough to repair the car?  Or, should he/she borrow the money to fix or replace the car?  I am sure you know the answer.  Self-sacrifice to create a better tomorrow is reasonable, even laudable - masochism is not.

Thu, 11/08/2012 - 18:37 | 2962425 Manic by Proxy
Manic by Proxy's picture

The last  4 years are notable for rabidly progovernment media spin. Not anti as you state. Check that box. As for for difficulty in asking the populace to encourage the government to incur more debt, what do you think the results of this election reflect? The populace is demanding exactly that - more stuff from a broke government. Check that box. Your vaunted socialism is exactly why government largesse has gone to the top of the heap. That's what happens in socialism. Always has - history confirms the absolute corruption of a system that eliminates liberty and diverts savings and capital to the privileged few. Check that box. And we don't want to eliminate closed shops,oh no, because that would open employment to non-union workers. Can't have that, since support of sacred cows like unions is more important than actually employing those who actually want to work. At least according towards socialists such as yourself. And check that box. And ending by calling self-sacrifice "laudable" is laughable. Laughable because you want more borrowing and spending to solve your problems. You are part of the 47%, the 99% and the self-indulgent herd. All boxes checked:your argument is bereft of reason and plausibility.

Thu, 11/08/2012 - 19:44 | 2962603 Rearranging Dec...
Rearranging Deckchairs's picture

Yeah definitely agree regarding socialism and corruption. Having applied for and having friends working in various government jobs in this sh&ty economy,  its become clear to me that who you know is even more important in government hiring decisions than qualifications even compared to the corporate world. Ex girlfriend got a teaching job when they supposedly weren't hiring those without credentials, because mom worked as a school's librarian. Her father was able to pick up extra shifts as a longshore worker to make sure he made up his social security quarters he didnt' get by virtue of being a fire captain because his son in law was connected to that union. Even a friend of mine described the hiring process as an assessor's office and lets just say there was a lot of inside information needed to have a shot at the job. First what to study for the civil service exam. Then the questions you would be asked in the first round and the questions you'd be asked in the second round. Then he was sabotaged in that the HR pion gave him the wrong appointment time for his second round interview in which he was supposed to show up an hour early to write an essay. They gave extra points for already having been a county employee, and presumably for affirmative action characteristics.  Yeah when the only decent employment ( salary for 40 hour week and health care benefits) is government  its all about whom you know.

 

Thu, 11/08/2012 - 18:04 | 2962323 Totin
Totin's picture

"What I mean is that if someone wishes to work but cannot find work, the government should put that person to work." 

That wouldn't drive conservatives up the wall. Sounds like a good idea. If you want welfare and an EBT then you'll have to pick up trash beside the road, or dig ditches, or whatever.  It'd also lead to a healthier America - less Oprah and Bon-Bons, more physical exercise. It'd be a win/win for both parties.

Thu, 11/08/2012 - 17:43 | 2962243 dexter_morgan
dexter_morgan's picture

 

"Public faith in government - and thus, themselves - has been systematically eroded by the strong anti-government spin in our media since around the time of Reagan."

What media is this you are seeing? All I hear and read, other than here, is that government is where the solutions lie, not with the private sector and real freedom and capitalism.

 

Thu, 11/08/2012 - 17:24 | 2962147 Manic by Proxy
Manic by Proxy's picture

Deflation, depression, severe social upheaval and the inevitable reset of war is a certainty. There is absolutely no chance that economists,bankers and politicians can put this malignant genie back into the lamp. It is a conceit that anyone opines otherwise.

Thu, 11/08/2012 - 16:46 | 2961917 Clowns on Acid
Clowns on Acid's picture

Reggie - Always appreciate you well written and indeed researched, opinion. You are sometimes early (butthat is what stop losses are for).

In this piece you write well about a microcosmic issue within the US socio-economic meltdown. We must go to the source of the issue.

Will Obama (and his DEM leadership) be like Clinton or Chavez?

I believe that anything less than Clinton will cause a market meltdown (or at least see Ben's very visible hand enter the equity market). Gold is becoming the new "money market" fund. Rehypothcate that bitchez !

 

Thu, 11/08/2012 - 18:56 | 2962478 Zero Govt
Zero Govt's picture

I think you're confusing anything in Govt or its policy outlook as being something higher order than a parasitical fuck

look through the history books of left and right Govt with the following eyes: suck, suck, suck, suck ...country bankrupt

there, 2,000 waffling books on the economy and Govt boiled down to a single sentence of definitive ultimate truth. The End.

 

 

Thu, 11/08/2012 - 16:42 | 2961898 Fred Hayek
Fred Hayek's picture

Reg, the problem with Koo's abhorrence of savings is that people are acting rationally.  When goods are overpriced people are wise not to buy them.  The Fed is desperately trying to keep asset prices up when, in fact, they need to drop as they're unreasonably high.

Schlicter does a good job taking apart Koo's foolishness at the link below:

http://detlevschlichter.com/2012/11/contra-richard-koo-and-the-keynesians-it-is-not-about-aggregate-demand-but-about-real-prices/

 

 

Thu, 11/08/2012 - 17:22 | 2962137 disabledvet
disabledvet's picture

Obviously the consumer is acting rationally...but not because "prices need to fall." a price is not set by ANYONE...unless of course you're arguing for price controls...and I don't believe this Administration is. So it's simply wrong to argue...as is done by everyone here...that "the price should be this" or "the price should be that." The price is the price...take it or leave it bitch. (so to speak.) the question you need to ask is "where do I get the George W Bush Borrow Bucks!" (cue to wind blowing across Great Plain...with nothing there but wind it would seem.) and of course the answer is that unless "Cram Down Man" loosens the purse strings on the long end...hey, "you ain't got no book." and no...bankrupting the States of New York, New Jersey, Connecticut, Illinois,'California and the whole Continent of Euro does not make Banker McCranky happy either. What does Banker McCranky want? Violin players at the restaurant, accordion players at the Met, wild spectacles at the county fair, wild spectacles on your eyes. "let us not think of price" is his goal...and puts him in a lending mood. Thus...unlike what Reggie has argued here...that the Fed buying all that Government Debt "makes bankers happy to lend" is EMPIRICALLY false...for how else to explain front running Reggie? In short "Uncle Gorilla Paper is the normative form...not just since 2008...but going forward as well. In short "in order to have an income in New York you need to hold one trillion in Federal debt first." that's the BANKER...Wall Street of course is SHORTING that and "trying to kill that guy." which in fact they did quite well in 2008. But he's still...Cranky McBanker.

Thu, 11/08/2012 - 16:37 | 2961874 sbenard
sbenard's picture

Anyone who thinks Obama will make the tough choices doesn't know Obama. His history is replete with Marxists, communists, and radicals of all stripes. He's Barack O-dogma, through and through. He's Machiavelli Obama! The end justifies the means to Emperor Obama!

Before he's done, we will experience the GREATEST Depression -- the Obama Depression. His self-avowed hero is FDR. Look what he did; he "fundamentally transformed" A depression into The Great Depression -- one that destroyed small business and the US economy for nearly a generation!

Plan and prepare accordingly! Buy gold!

Thu, 11/08/2012 - 16:05 | 2961757 Everybodys All ...
Everybodys All American's picture

Reggie. We have a spending problem. Period. Will the cuts necessary to bring things back in line be painful to gdp and hence require tough decisions by politicians that will hurt Americans? Yes. Do you really think Obama has shown the ability to do anything other than read a telepromptor to now suddenly fix this economy, spending problem, and deficit. No chance in hades.

Thu, 11/08/2012 - 15:58 | 2961728 orez65
orez65's picture

Dear Mr. Middleton:

This whole discussion is non-sense.

Fiat money is counterfeit.

Fractional reserve banking is fraud.

What our financial system has done is created and leveraged money that does not exist.

The deflation that you talk about avoiding is the fraud and counterfeit that needs to be unwound.

With real money, gold and silver, and with fractional reserve banking outlawed we would not be in the situation that we are in now.

Thu, 11/08/2012 - 15:57 | 2961724 richard in norway
richard in norway's picture

got to say reggie that you surprised me here, i love your stuff but i tend to skip the more austrian stuff cos im not keen on it, this was much more in sync with my own thinking. but we need to get rid of credit money in the future

Thu, 11/08/2012 - 15:59 | 2961730 richard in norway
richard in norway's picture

btw

 

full respect for posting this on zerohedge and then sticking around to argue your case

Thu, 11/08/2012 - 15:48 | 2961686 Jack Sheet
Jack Sheet's picture

It would be nice to have an executive summary of this piece in 3 bullet points and toal length not more than 150 words.

Thu, 11/08/2012 - 17:38 | 2962219 dexter_morgan
dexter_morgan's picture

ok. print mo money

Thu, 11/08/2012 - 19:07 | 2962526 mllange
mllange's picture

print mo money - save da man at all costs - screw da peasants.

Thu, 11/08/2012 - 15:35 | 2961613 Uncle Remus
Uncle Remus's picture

I don't know Reggie. I have to wonder though how much of any direct-to-the-consumer stimulus would actually be put back into the economy or simply used to pay off exisitng personal debt or be converted to a more tangible store of value.

Thu, 11/08/2012 - 15:50 | 2961693 docj
docj's picture

I can tell you for me, clearly the latter (plow some or all into the mortgage and use whatever is left for PMs). Then again, my plan for at least the next 2-4 years is to lower my and my family's economic/consumer profile as much as possible (got a college tuition to state school to pay starting in July - ugh).

Thu, 11/08/2012 - 15:32 | 2961581 booboo
booboo's picture

"For those who may not get the gravity of this statement, it makes no sense to save money with a negative risk/reward proposition, unless of course the saver does not see it that way"

The days of "saving" are over for the vast majority of what used to be called the middle class. Real incomes are being chewed to bits by inflation, created in fact by the "stimulus" or "left turns" Savings by banks are really nothing more then demand pulled forward from future generations through "stimulus" thus robbing your grandchildren of their ability to save. I guess if you are ok with robbing future generations so you can continue sipping wine and traveling the globe ain't no one gonna stop you, I on the othe hand have a huge issue with it, JMHO.

As for austerity, the general public do not need lessons in austerity as the working stiffs are imposing in their own homes and life. What austerity does do though is reveal the lies that have been told to the public sector employees as well as those that continue to believe that SS will never change, (If your confused about this just look at your next statement from the SS administration where it states "If congress makes no changes") Personally I look forward to the day the public sector employees are bitch slapped with reality. The debt merchants are getting nervous as they are running out of slack in the rope that is attached to their own neck. Snap bitches.

 

Thu, 11/08/2012 - 15:50 | 2961649 Zero Govt
Zero Govt's picture

yes it's a bit of a concern to me that anyone outside the glutenous circle of greedy thieving Jabba the Hut Govt would ever worry about austerity depressing the economy even further

So what? That's precisely what's got to happen and the sooner Govt is put on a crash diet the sooner the bleeding of money into that sewer system stops and that money gets put to productive use (ie. green shoots, the recovery)

the bloated Govt parasite needs to go under the knife, the sooner it's guillotined the better

..bring on the 'Depression in Govt', that's the actual SOLUTION, not a problem in the least

Thu, 11/08/2012 - 15:22 | 2961542 misnomer
misnomer's picture

My Grade 6 son says that we're stupid for believing that if governments give the banks money, that they will share the wealth. 

 

 

Thu, 11/08/2012 - 15:28 | 2961563 Uncle Remus
Uncle Remus's picture

Wait - is he in a public school?

Thu, 11/08/2012 - 15:59 | 2961736 misnomer
misnomer's picture

Yes, and I am constantly fighting against their indoctrination of him as an unthinking drone and debt slave. 

I think he's just pissed his savings account accrues no interest.

Thu, 11/08/2012 - 15:15 | 2961511 Ghordius
Ghordius's picture

Reggie, just a little thing:

usually the left/right is understood as

 

LEFT: "Socialist". Spending. Keynesian. "Progressive". Inflationary. Fiat Money. Stimulus spending.

RIGHT: Conservative. Saving. Austrian. "Reactionary". Deflationary. "Sound Money". Austerity.

Thu, 11/08/2012 - 15:05 | 2961478 GubbermintWorker
GubbermintWorker's picture

Sorry, but I'm taking a huge left turn and saving all my capital in the form of physical gold and silver....anything else is just too risky.

Thu, 11/08/2012 - 15:05 | 2961477 GubbermintWorker
GubbermintWorker's picture

Sorry, but I'm taking a huge left turn and saving all my capital in the form of physical gold and silver....anything else is just too risky.

Thu, 11/08/2012 - 14:50 | 2961407 madcows
madcows's picture

Monty Python:

oh, come now Mr. Creosote.  It's just a mint.  just a teeny tiny bite.

not another bite.  i'm stuffed.

  It's waffer thin.

oh very well.... swell swell swell .... BOOM.

Thu, 11/08/2012 - 14:43 | 2961375 Zero Govt
Zero Govt's picture


Obama's Back In: Does He Succumb To Popular (Ignorant?) Opinion Like The Europeans Or Make The Tough Choices

 

'Oh Bumma, Bumma is Back'

 

(Short'n'Snappy Headlines Inc Corp)

Thu, 11/08/2012 - 14:29 | 2961317 Richard Whitney
Richard Whitney's picture

Dr. Koo is coo-coo; you can quote BO on any position, he simply tells listeners what they want to hear.

Here is a February 2009 speech by BO that contradicts Koo's selective quote:  http://www.youtube.com/watch?v=SaQUU2ZL6D8

Thu, 11/08/2012 - 14:28 | 2961312 SmittyinLA
SmittyinLA's picture

"Pat, I'll take Obama Succombs for $1000" 

 

Oh noooo, my portfolio is perfectly positioned for "CTRL P" 

Thu, 11/08/2012 - 14:29 | 2961310 Dingleberry
Dingleberry's picture

We will have both cuts and printing. No other way out.  Hope you are part of the inside 1%.  Maybe you will keep some of your standard of living. The rest of us.......look out below!!

 Reality is a bitch.  And it's coming soon to a town near you.

Thu, 11/08/2012 - 14:51 | 2961416 madcows
madcows's picture

nope nope nope.  Bernanke was very adamant.  it's not monetizing the debt.

Thu, 11/08/2012 - 15:21 | 2961537 hawk nation
hawk nation's picture

 

We will have DEFAULT DEFAULT DEFAULT

 

 

 

 

we

Thu, 11/08/2012 - 14:06 | 2961235 CharlesFilson
CharlesFilson's picture

It sounds to me like the problem is that banks are holding enough capital, but there is no appetite for debt. Others who hold capital see no market in consumers because they are overleveraged. 

If this is true then the only stimulus that will have any effect, is one which deleverages the consumer. 

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