Pundit School

It's funny because it's true...

For everyone following the economic crisis, I thought this article was important. It's not a partisan article at all. I'm just wondering what other bros with a financial background think of this:


FT.com
COLUMNISTS
MARTIN WOLF

Choices made in 2009 will shape the globe’s destiny
By Martin Wolf
Published: January 6 2009 19:27 | Last updated: January 6 2009 19:27

Welcome to 2009. This is a year in which the fate of the world economy will be determined, maybe for generations. Some entertain hopes that we can restore the globally unbalanced economic growth of the middle years of this decade. They are wrong. Our choice is only over what will replace it. It is between a better balanced world economy and disintegration. That choice cannot be postponed. It must be made this year.

We are in the grip of the most significant global financial crisis for seven decades. As a result, the world has run out of creditworthy, large-scale, willing private borrowers. The alternative of relying on vast US fiscal deficits and expansion of central bank credit is a temporary – albeit necessary – expedient. But it will not deliver a durable return to growth. Fundamental changes are needed.

Already it must be clear even to the most obtuse and complacent that this crisis matches the most serious to have affected advanced countries in the postwar era. In a recent update of a seminal paper, released a year ago, Carmen Reinhart of Maryland University and Kenneth Rogoff of Harvard spell out what this means.* They note the similarities among big financial crises in advanced and emerging countries and, by combining a number of severe cases, reach disturbing conclusions.

Banking crises are protracted, they note, with output declining, on average, for two years. Asset market collapses are deep, with real house prices falling, again on average, by 35 per cent over six years and equity prices declining by 55 per cent over 3½ years. The rate of unemployment rises, on average, by 7 percentage points over four years, while output falls by 9 per cent.

Not least, the real value of government debt jumps, on average, by 86 per cent (see chart). This is only in small part because of the cost of recapitalising banks. It is far more because of collapses in tax revenues.

How far will the present crisis match the worst of the past? The continuing willingness of the world to finance at least the US – though not necessarily the smaller and more peripheral deficit countries, such as the UK – is a reason for optimism. It does allow the US government to mount a vast fiscal and monetary rescue programme.





































Yet, as Profs Reinhart and Rogoff note in another paper, this is a global crisis, not a regional one (see chart).** It has reminded us that the US is still, for good or ill, the core of the world economy. In the big crises of recent decades, US demand has rescued the world. This was true during the 1990s, after the Asian crisis, and again after the stock market crash of 2000. But who, apart from its government, will rescue the US? And on what scale must it act?

This issue is addressed in another seminal paper, the latest in the series co-written by Wynne Godley and two others for the Levy Economics Institute of Bard College.*** The underlying argument is one with which readers of this column should, by now, be all too familiar.

What makes rescue so difficult is the force that drove the crisis: the interplay between persistent external and internal imbalances in the US and the rest of the world. The US and a number of other chronic deficit countries have, at present, structurally deficient capacity to produce tradable goods and services. The rest of the world or, more precisely, a limited number of big surplus countries – particularly China – have the opposite. So demand consistently leaks from the deficit countries to surplus ones.

In times of buoyant demand, this is no problem. In times of collapsing private spending, as now, it is a huge one. It means that US rescue efforts need to be big enough not only to raise demand for US output but also to raise demand for the surplus output of much of the rest of the world. This was a burden that crisis-hit Japan did not have to bear.

What has happened to US private spending follows from the collapse in borrowing: between the third quarter of 2007 and the third quarter of 2008 net lending to the US private sector fell by about 13 per cent of gross domestic product – by far the steepest fall in the history of the series (see chart). With borrowing out of the picture, private net saving – the difference between income and expenditure – is likely to remain positive for years, as households pay down debt, willingly or not.

Given the persistent structural current account deficit, how large does the fiscal deficit need to be to balance the economy at something close to full employment? Assuming, for the moment, that the private sector runs a financial surplus of 6 per cent of GDP and the structural current account deficit is 4 per cent of GDP, the fiscal deficit must be 10 per cent of GDP, indefinitely.

And to get to this point the fiscal boost must be huge. A discretionary boost of $760bn (€570bn, £520bn) or 5.3 per cent of GDP is not enough. The authors argue that “even with the application of almost unbelievably large fiscal stimuli, output will not increase enough to prevent unemployment from continuing to rise through the next two years”.

Now think what will happen if, after two or more years of monstrous fiscal deficits, the US is still mired in unemployment and slow growth. People will ask why the country is exporting so much of its demand to sustain jobs abroad. They will want their demand back. The last time this sort of thing happened – in the 1930s – the outcome was a devastating round of beggar-my-neighbour devaluations, plus protectionism. Can we be confident we can avoid such dangers? On the contrary, the danger is extreme. Once the integration of the world economy starts to reverse and unemployment soars, the demons of our past – above all, nationalism – will return. Achievements of decades may collapse almost overnight.

Yet we have a golden opportunity to turn away from such a course. We know better now. The US has, in Barack Obama, a president with vast political capital. His administration is determined to do whatever it can. But the US is not strong enough to rescue the world economy on its own. It needs helpers, particularly in the surplus countries. The US and a few other advanced countries can no longer absorb the world’s surpluses of savings and goods. This crisis is the proof. The world has changed and so must policy. It must do so now.

* The Aftermath of Financial Crises, December 2008; www.economics. harvard.edu/faculty/rogoff/files/ Aftermath.pdf; ** Banking Crises, December 2008, National Bureau of Economic Research Working Paper 14587, December 2008, www.nber.org; *** Prospects for the US and the World, December 2008, www.levy.org

martin.wolf@ft.com

This is seriously funny. And before 'storyteller' (yes I know it's you, JVP) goes apeshit, let's keep in mind that it's satire...

Big 3 Debate

Anyone out there still oppose the "loan?" I personally have come full circle, starting out "let them fail" but now understand that it will cost us more to let them fail than to give them a "loan," not only due to the unemployment issue (another 1% of the entire population) but also all the lost tax revenue that we're accustomed to but everyone is forgetting about. When you toss in the fact that other countries subsidize their auto manufacturers, I'm really not understanding how this bill is not passing. Sorry to send a blog in a blog (see link below), but the auther makes some good points - and the "let them fail" comments from the opposition are starting to sound old-fashioned and unrealistic to me. Thoughts?

Especially curious to know what y'all are hearing (and think) in different parts of the country. Here in Chicago, it's pretty harsh and extremely unbalanced. All anyone cares about (on the news, etc.) are the "private jets" story. That is so silly...corporate jets are not just for "luxury" and are also not just used executives - they're actually very useful tools and are often used by engineers flying out to plants to troubleshoot issues. Not defending the Big 3, just trying to keep things balanced...

http://blog.mlive.com/capitolchronicles/2008/12/a_death_sentence_for_detroit.html

Know Thy Enemy?

Obviously suicide attacks (in the name of Islamic extremism and anti-capitalism) have been hot news items since 9/11. Western cultures (and the vicitim in the article below) see these acts as despicable, monstrous, and cowardly, and maybe even insane. W was the poster boy for dismissing the attackers at face value, and most of the country agreed, especially right after 9/11. At that time and still partly now I was 100% behind bulldozing the Taliban and anyone associated with al-Qaeda, and asking questions later.

Murdering innocent people is horrible, and inexcusable. But why don't we ask "why" more often? --This is not the liberal "we must deserve it" theory.-- I recently raised the question of "how can we ever beat them if we don't understand their motives?" to my stepmother in Iowa, and she said "who cares, they're evil and that's all that matters. We need to blow them all up." Hearing her say that, without ANY interest in knowing ANYTHING about these people, just felt, well, incomplete. Something is missing. To beat cockroaches, don't we study them first to understand their motives? We can never negotiate with them, but we can know more about them, and hopefully minimize their actions. "Understanding" is not the same as "condoning."

As the war drags on and the suicide attacks continue, I am wondering more and more, what the HELL is motivating these people (other than insanity because I don't really believe that anymore.) Are they just killer cockroaches, or something smarter than that? Is there any sense in reasoning with them, or not? Why doesn't anyone know this? Last I heard Obama wants to try it, with a lot of hoots and hollers from people like my stepmother. Or, are our cultures SO vastly different, that we'll never agree? Kind of like the movie Independence Day where the aliens just wanted to kill everyone for no reason? I guess it's possibly but I kind of doubt that. They're not Nazis that want to invade the world...we're not our grandfathers stopping the spread of communism. It seems like this version of Nazi keeps to themselves, at least as far as I know. They're just mad at western culture, right? (Really, desperately, insanely mad.)

So I guess the question is, are these extremists pure tools of Satanic evil, with whom we'll never be able to negotiate, and the only way to beat them is to kill them one by one, and also hope to somehow stop the education of future extremists? It's definitely possible, but my western logic tells me otherwise. These people are just way too pissed off at something that we're doing, or that our leaders are doing, and I just feel like we should be looking at that a little closer. Wow, never thought I'd be writing something like this, but then again I never thought we'd still be in Iraq 7 years later, with bin Laden still on the loose, and my trust in W all but gone.

If a guy on the street punches another guy, is it the victim's fault because he must have done something wrong to piss off the puncher? No. Is it ever right to hit? No. But I do think the motive is something to consider, is all, before completely dismissing it as insanity.

I also must disclose that I read the book Confessions of an Economic Hit Man recently, in which a retired secret agent describes the US's hidden agenda behind its foreign aid since WWII and the Marshall Plan - basically we loan other countries huge sums of money (or infrastructure projects) that we know they can never pay back, and then we control them forever. If the leader of that country smells a rat and rejects the offer, we find a way to replace the leader. (He uses Saddam as an example - which is a reach I know.) It's definitely conspiracy theory, and has been rejected by most experts as purely fiction. But if any of it's true, yikes.

Article mentioned in 1st paragraph-
http://news.yahoo.com/s/ap/20081114/ap_on_re_as/as_afghanistan
Taliban kill mullah critical of suicide attacksBy RAHIM FAIEZ, Associated Press Writer Rahim Faiez, Associated Press Writer Fri Nov 14, 8:05 am ET
KABUL, Afghanistan – Suspected Taliban militants killed a religious leader in western Afghanistan after he criticized the use of suicide attacks as a weapon of war in the country, an Afghan official said Friday.
Militants kidnapped Shamsudin Agha in Farah province's Anar Dara district on Tuesday, days after he led prayers condemning the practice of using suicide attacks, said provincial police Chief Abdul Ghafar Watandar.
Suicide attacks are one of the Taliban's preferred tactics in their assaults against Afghan and foreign troops. Most of the victims of such attacks have been civilians.
Authorities recovered Agha's body on Wednesday night, Watandar said.
Violence by the Taliban and other insurgent groups has spiked this year to record levels. Attacks are up 30 percent from 2007, military officials say.
On Thursday, another suicide car bomber struck a U.S. patrol, killing eight Afghan civilians and one U.S. soldier and wounding 74 civilians, Afghan officials said.
Nearly 1,000 civilians are among the approximately 5,400 people killed in insurgency-related violence this year, according to a tally by The Associated Press of figures provided by Afghan and international officials. Most of the reported dead have been militants.
Elsewhere, U.S. troops killed four al-Qaida-linked militants during a raid in eastern Afghanistan on Thursday.
The troops were targeting militants who helped local Taliban leaders bring Arab and other foreign fighters into Afghanistan, the U.S. military said in a statement Friday.
None of the militants killed was identified.

A president who can comprehend complex situations is a bad thing?

You are seriously arguing that a dumb president is better than a smart one? That one who is intellectually lazy is better than one who actually does his homework on important issues?

Well we just had 8 years of a case study in anti-intellectualism and I will still wager some serious beer that history will view the bush administration as an overall failure.

Also, who is really supporting our troops? Those who send them into battle without armored humvees, up-to-date body armor and a well thought out plan for victory, or those who question why these wrongs aren't corrected?

The answer is everyone respects our troops so stop with this pathetic faux patriotism argument.

Here is an example of the intellectual disaster that was the Bush administration. Where ridiculous statements like "no one could have anticipated sectarian violence in Iraq" became the norm.

Bill Ayers, Intellectual

From David Horowitz' Radical Son, p. 117:

When Lyndon Johnson announced that he would not run for reelection, many activists concluded that they had the power to topple presidents. Hayden's riot at the Democratic Convention was almost an inevitable hubris of these events.

So was the election of the new leadership of SDS. Until then, the organization had incarnated the ethos of the New Left--spontaneous and antiauthoritarian. But the new SDS president, Bernadine Dohrn, announced on taking office that she was "a revolutionary Communist," while with calculated and (to me) repellent pride, her vice president, Billy Ayers, declared that he had not read a book in a year. Learning from the past seemed to me the only way progress was possible. I had read through shelves of books in an effort to find out why previous revolutions had gone wrong. Now, the anti-intellectualism already present in the Movement had become a revolutionary badge of honor.

(emphasis mine)

Reply to "Amen"

From one of my favorite African American Intellectuals, Thomas Sowell:


November 11, 2008, 0:00 a.m.

‘Intellectuals’
Ignorance has consequences.

By Thomas Sowell


Among the many wonders to be expected from an Obama administration, if Nicholas D. Kristof of the New York Times is to be believed, is ending “the anti-intellectualism that has long been a strain in American life.”

He cited Adlai Stevenson, the suave and debonair governor of Illinois, who twice ran for president against Eisenhower in the 1950s, as an example of an intellectual in politics.

Intellectuals, according to Mr. Kristof, are people who are “interested in ideas and comfortable with complexity,” people who “read the classics.”

It is hard to know whether to laugh or cry.

Adlai Stevenson was certainly regarded as an intellectual by intellectuals in the 1950s. But, half a century later, facts paint a very different picture.

Historian Michael Beschloss, among others, has noted that Stevenson “could go quite happily for months or years without picking up a book.” But Stevenson had the airs of an intellectual — the form, rather than the substance.

What is more telling, form was enough to impress the intellectuals, not only then but even now, years after the facts have been revealed, though apparently not to Mr. Kristof.

That is one of many reasons why intellectuals are not taken as seriously by others as they take themselves.

As for reading the classics, President Harry Truman, whom no one thought of as an intellectual, was a voracious reader of heavyweight stuff like Thucydides and read Cicero in the original Latin. When Chief Justice Carl Vinson quoted in Latin, Truman was able to correct him.

Yet intellectuals tended to think of the unpretentious and plain-spoken Truman as little more than a country bumpkin.

Similarly, no one ever thought of President Calvin Coolidge as an intellectual. Yet Coolidge also read the classics in the White House. He read both Latin and Greek, and read Dante in the original Italian, since he spoke several languages. It was said that the taciturn Coolidge could be silent in five different languages.

The intellectual levels of politicians are just one of the many things that intellectuals have grossly misjudged for years on end.

During the 1930s, some of the leading intellectuals in America condemned our economic system and pointed to the centrally planned Soviet economy as a model — all this at a time when literally millions of people were starving to death in the Soviet Union, from a famine in a country with some of the richest farmland in Europe and historically a large exporter of food.

New York Times Moscow correspondent Walter Duranty won a Pulitzer Prize for telling the intelligentsia what they wanted to hear — that claims of starvation in the Ukraine were false.

After British journalist Malcolm Muggeridge reported from the Ukraine on the massive deaths from starvation there, he was ostracized after returning to England and unable to find a job.

More than half a century later, when the archives of the Soviet Union were finally opened up under Mikhail Gorbachev, it turned out that about six million people had died in that famine — about the same number as the people killed in Hitler’s Holocaust.

In the 1930s, it was the intellectuals who pooh-poohed the dangers from the rise of Hitler and urged Western disarmament.

It would be no feat to fill a big book with all the things on which intellectuals were grossly mistaken, just in the 20th century — far more so than ordinary people.

History fully vindicates the late William F. Buckley’s view that he would rather be ruled by people represented by the first 100 names in the Boston phone book than by the faculty of Harvard.

How have intellectuals managed to be so wrong, so often? By thinking that because they are knowledgeable — or even expert — within some narrow band out of the vast spectrum of human concerns, that makes them wise guides to the masses and to the rulers of the nation.

But the ignorance of Ph.D.s is still ignorance and high-IQ groupthink is still groupthink, which is the antithesis of real thinking.

© 2008 CREATORS SYNDICATE, INC.


—
COPYRIGHT 2007 CREATORS SYNDICATE, INC.

Amen

Preach it brother Kristof

"real Americans" can't relate to this

Nothing screams elitism like spending $150,000 on new clothes in one month

Privatized Profit, Socialized Loss

I am an entrepreneur and big believer in capitalism (with oversight). Of course, Reagan, W, and McCain believe that oversight is a terrible thing because then all their major campaign contributors can't pull off stunts like this

Who care about cutting spending a few million dollars here or there when we will spend over one trillion dollars in Iraq and another trillion in bail outs for wall street.

Where have all the fiscal conservatives gone?

The Ultimate Faith-Based Initiative.

I belong to a fringe sect of Christianity.  It's clearly outside of mainstream Christianity, and while it agrees with the four founding principles of fundamentalism (try Googling them if you're curious), it's diametrically opposed to what the public face of Christianity has become. My small band believes in a faith that starts on the inside (the soul), and that behaviors, right or wrong, are an outward projection of what's going on inside.  I call it "inside out" Christianity.  My group of wingnuts finds many biblical references that support this not-so-widely-held set of beliefs.  A few quick ones:

• Salvation by faith and not works ..  "...that whosoever believes in him shall have everlasting..."
  
• The woman at the synagogue whose penny offering (all she had) was the greater gift.
  
• Valuing he who prays in the quiet upper room over the proud man who prays loudly in public.  Could this be characterized as "listen to the still small voice, not the shrill Fall(well) voice"
  

Jesus had only a few conflicts during his earthly life.  The most significant was a running disagreement with a group whose Judaism was "outside-in", insisting that salvation required specific outward behaviors (and its complement, prohibitions against others), that somehow percolate into the soul, saving it.  The ultimate expression of this errant (to us, but not to most of today's politically active Christians) "outside in" philosophy is to harness political processes and the power of government to enforce outside behaviors when guilt trips alone fail.  It is what ultimately allowed the Pharisees to kill him.  When Jesus said "render unto Caesar what is Caesar's", he wasn't only talking about paying taxes, he was reinforcing that a true faith is beyond the reach of governments.   "Mine is a not a kingdom of this earth" was telling us all that government is beyond the reach of true religion.    

Perhaps this is what the founders of our country realized when they separated church and state.   They realized that true faith is difficult, challenging, introspective work, and that compulsory acts, enforced behaviors, edicts from this religious leader or that, and using government powers to enforce beliefs is counter to true faith, and is ultimately only a lazy alternative to genuine soul-by-soul missionary work.  They realized that outside-in Christianity is a stumbling block to the faith of others (Google what happens to those who put stumbling blocks in the path of their Christian brothers).

Perhaps the ultimate "Judeo-Christian value" upon which our country was founded is to keep religious zealotry out of the political arena altogether.

FPT

Sarah Palin

An excerpt from an interview in Reason magazine with an Alaska Democrat about Sarah Palin.

I don't know if this will hurt or help her with this group.  I suspect it will cut both ways:

Q: I was just talking to someone who claimed to have knowledge of Alaska to some degree, and they say where Sarah Palin comes from it's the equivalent of Humboldt or Chico in California, like, of course, you know, she'd have a Girls Gone Wild phase, and smoking pot. Is this just wishcasting, or what can you tell us about her geographical background?

A: So the Mat-Su Valley, you know, Matanuska-Susitna Valley, otherwise known as Upper Wingnuttia, is full of right-wing libertarian militia fundamendalist Christian gun-toting, pot-growing dope-heads.

Q: Awesome.

A: Yeah. If Jerry Falwell rolled his own, you would have the Mat-Su Valley. I live in South Anchorage, and my raspberry plants, courtesy of 22 hours of daylight in the summer, grow eight and a half foot high. That's a raspberry bush. Can you imagine what a single pot plant would turn into? [...]

--DB

Wind and Solar

Maybe this is why congress has an approval rating of 18%

Nothing like standing in the way of vital progress just because you can.

Logic, Reason and Paris Hilton?

I agree that our political system is broken from both sides of the spectrum but you can't make a serious case that the GOP has a more solid foundation in logic and reason than the Democrats.

This is the party of George W. Bush after all. You will never see a Democrat who's that much of a simpleton on the national stage, ever, because the base wouldn't allow that to happen. That shit stain on American history and the rule of logic and reason is all on you, GOP.

If we truly had an informed and educated electorate then both parties would be forced to raise their dialog to a higher level but that doesn't seem to be happening any time soon.

In case anyone has been living under a rock, Paris Hilton responded to McCain's ad with this.