The Light at the End of the Tunnel

Is an oncoming train. Now that the annual gladiators battle is over, U.S. citizens (and did anyone else pick up on Townshend’s ‘Do You?’ after the initial chorus of ‘those hypnotized, don’t lie’) will have to address the issues more important than who triumphed in the ‘Colosseum’.

So in that vein of thought I offer the following for your consideration.

One gets back to what the Obama Admin and Congress are still failing to address(and could be argued to be covering up) and that is the culpability of the Treasury and Fed to foresee the bubble of credit that has since popped and put us in the position we are in.

"The U.S. conceit that its financial and regulatory system could withstand massive capital inflows on a sustained basis without any problems arguably laid the foundations for the global financial crisis of the late 2000s. The thinking that "this time is different" – because this time the U.S. had a superior system – once again proved false. Outsized financial market returns were in fact greatly exaggerated by capital inflows, just as would be the case in emerging markets. What could in retrospect be recognized as huge regulatory mistakes, including the deregulation of the subprime mortgage market and the 2004 decision of the Securities and Exchange Commission to allow investment banks to triple their leverage ratios (that is, the ratio measuring the amount of risk to capital), appeared benign at the time. Capital inflows pushed up borrowing and asset prices while reducing spreads on all sorts of risky assets, leading the International Monetary Fund to conclude in April 2007, in its twice-annual World Economic Outlook, that risks to the global economy had become extremely low and that, for the moment, there were no great worries. When the international agency charged with being the global watchdog declares that there are no risks, there is no surer sign that this time is different. [By that they mean that the attitude of the market in general and central bankers in particular was that "this time is different" and so we did not need to worry about the warning signs. The entire point of the book is that it is never different. We just somehow believe we are in a special situation.]"

"The most significant hurdle in establishing an effective and credible early warning system, however, is not the design of a systematic framework that is capable of producing relatively reliable signals of distress from the various indicators in a timely manner. The greatest barrier to success is the well-entrenched tendency of policy makers and market participants to treat the signals as irrelevant archaic residuals of an outdated framework, assuming that old rules of valuation no longer apply. If the past we have studied in this book is any guide, these signals will be dismissed more often that not. That is why we also need to think about improving institutions.

"… Second, policy makers must recognize that banking crises tend to be protracted affairs. Some crisis episodes (such as those of Japan in 1992 and Spain in 1977) were stretched out even longer by the authorities by a lengthy period of denial."

The evidence is there. So why did the Fed miss it?

From here.

And that ‘special situation’ and ‘well-entrenched tendency of policy makers and market participants’ is directly related to the idea that the U.S. and it’s citizens are ‘exceptional’ (relate that to being the ‘chosen people’ and you see the synchronicity currently being displayed). And, as this points out, when you have a 150 year history of a general rise in the mass populations wages and therefore standard of living, it’s completely understandable that such a sense of ‘exceptionalism’ would gain traction.

BUT all that ended in the 1970’s and the resultant substitution of wage increases for debt availability is spelled out in the previous link which I’ll post here as well.

Now here are some numbers from the very first link in this diary.

"While there will be many economists touting today’s report as some inflection point, and it could well be argued that we are entering some sort of healing phase in the jobs market just by mere virtue of inertia, the reality is that the level of employment today, at 129.5 million, is the exact same level it was in 1999. And, during this 11-year span of Japanese-like labour market stagnation, the working-age population has risen 29 million. Contemplate that for a moment; fully 29 million people competing for the same number of jobs that existed more than a decade ago. That sounds like pretty deflationary stuff from our standpoint.

"Not only that, but consideration must be taken that in 2009, we had a zero policy rate, a $2.2 trillion Fed balance sheet and an epic 10% deficit-to-GDP ratio. You could not have asked for more government stimulus. Yet employment tumbled nearly 5 million in 2009."

Those in the 25-54 year-old male category have seen their total number of jobs fall back to the level it was in 1996. Fourteen years later, and the "breadwinners" who are supposedly in their prime have seen an almost 10% drop in employment."

This was a point I was trying to make to Leo Gerard awhile back in a diary he wrote. And no one is talking about this fact which will have a major impact upon both funding of government -and it’s expenditures- AND governance.

And let’s see what all the talk about lending and tax credits to small business means.

"Not when the National Federation of Independent Business says 71% of small businesses do not plan to hire this year.

The Fed is taking away quantitative easing. Stimulus spending is exiting in the last half of the year. States and communities are having to either raise taxes or cut spending by $350 billion! I heard on the radio coming back from the gym that there are now 55,000 fewer teachers than a few years ago.

And again from the NFIB, small businesses see very tight credit conditions, which makes it hard for them to expand (see chart below). The headlines this week from the Fed banking survey said that banks were prone to be less tight, but the NFIB writers went deep into the report. What they found is that very large banks are willing to be less tight in their lending standards. Smaller banks were in fact not as easy. Loan demand is falling. Consumer credit actually declined slightly in December, after plunging in November. If you can’t count on Americans to buy during Christmas, the world is in fact moving to the New Frugal."
(Again from the first link in this diary which I repost here.)

So the attempts to restart a overly debt filled economy aren’t working and meeting resistance from the very consumers the policies are trying to sucker back in, mortgages, especially the situations regarding second mortgages -see here- are not being effectively modified(meaning reflecting true market value), there are way too many people for the number of workers needed to maintain or increase productivity (especially when U.S. citizens have already increased their working hours by 20 per cent while addressing their employers demands for more productivity with less people), and the system structure of restraining wages in favor of credit(debt) availability remains in place and those who supposedly represent the public are doing their best to maintain that system structure.

I wish I had all the answers to the above issues -besides a revolution- but I don’t. Here are two ideas that might be useful.

One is an effective anti-war, pro-peace movement. So much of our taxes and resources are consumed by a militaristic foreign policy that really only serves big business interests. Not to say what it is doing to our sense of morality.

What would an effective peace movement look like?
* Broad based. The anti-war movement needs to be a reflection of not just the left but of Middle America and traditional conservatives who oppose war. A majority of Americans oppose war and escalation of current wars but that is not reflected in the peace movement.

* Patriotic. The anti-war peace movement needs to bring Americans in, rather than repel them. Too often it is seen as anti-American rather than making patriotic criticism of current militarist policies. The anti-war movement needs to be a place where a retired general or admiral can speak without fear of being called a traitor by either anti-war advocates or people outside the movement.

* Organized ongoing outreach. Key groups (military, clergy, business leaders, teachers, nurses, doctors, …) need to be educated and organized so that there is an anti-war, pro-peace agenda in every congressional district including those currently favoring Republicans (another reason for working with anti-war conservatives). We need to keep building the anti-war, pro-peace base.

* New tactics. The 1960s tactics of big marches and congressional demonstrations have their role but they are not sufficient. The media and government have adjusted to them. We need to use tools like voter initiatives and referenda to break through and put our issues before the voters. And, we need to learn from around the world what has worked; for example, general strikes, whether of a few hours or few days, have shown unified opposition to government policy. Also effective in other countries are efforts to shut down their nation’s capitol to prevent business as usual when the government is working in the wrong direction. Voters for Peace Project Board member Cindy Sheehan is moving in this direction with Peace of the Action this spring.

* Link war to the economy. Make war relevant to Americans’ day-to-day lives by constantly linking the cost of war to their communities, incomes, and bank accounts. People need to learn that Empire is not good for the U.S. economy. With one soldier in Afghanistan costing $1 million per year it should be an obvious case to make. We need to make it, over and over.

* Politically independent. Both parties are dominated by pro-militarist elected officials. The anti-war movement needs to be strong in criticizing candidates who call for a larger military, escalation of war, or other militarist policies. It needs to make all candidates earn the peace vote.

* Long-term commitment. Organizing and advocacy are needed for the long haul. Eisenhower warned of the military-industrial complex fifty years ago and American Empire has existed since the 1890s. Militarism is deeply embedded in government and industry. We have a lot to do to change course.

And if you want to read more about the idea, go here. and send your ideas to action at votersforpeace.org

Another idea is the fielding of ‘citizen candidates’.

"Utah Democratic incumbent Congress member Jim Matheson is facing a challenge from a coalition of progressives who have formed a grassroots effort called “The Citizens’ Candidate” to unseat him. The initiative is using Craigslist to find applicants willing to run against Matheson."

From here.

Bottomline is we’re in deep shit and we better keep at the shovels.

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