“Soft despotism is a term coined by Alexis de Tocqueville describing the state into which a country overrun by "a network of small complicated rules" might degrade. Soft despotism is different from despotism (also called 'hard despotism') in the sense that it is not obvious to the people."

Thursday, November 11, 2010

Ireland is on The Brink. Has it Sunk into US What We Face?

I don't think it has, after all this was not supposed to happen.

It was not supposed to happen in Iceland. There was hardly a surprise about Greece, but now Ireland totters.

Has the Fed panicked? What do they know? What do they see?

It seems as the US political class has collapsed and capitulated to the interests of someone from somewhere, but who? Just how bad is this?

In the middle of this, George Bush reappears with a book. There are still believers. His books are selling. People are listening. George Bush is still a nice guy, but that is not the point. The mess we are in was not all the doing of George Bush or Barack Obama. I wish it were so. it would be easy to fix.

Today the papers are talking about Ireland, about China, about the dollar, emerging markets and falling markets. Gold is back on the rise. There is nonsense, palpable nonsense being argued about the entire problem being resolved by extending Bush tax cuts or the entire collapse if they aren't.

Neither side is correct. They are both wrong. Decreasing the taxes on the wealthy will do nothing. They are hedged against a collapse. They are hunkered down for survival and diabolically most will make money whichever way the economy goes. Their wealth is secured. They are not going to go on an investment spree. Job creating investment is starting new, building new, hiring new. The wealthy are out to buy assets at ten cents on the dollar, inventory them and wait till good times return and then exploit their holdings. They can wait and will wait. Only the delusional believe it is different.

There is an immutable law of business; "your first loss is your best loss." We have frittered away so much time in this crisis that it gets more difficult to resolve. There is a tipping point where inaction becomes action and events resolve themselves. We did not take the least expensive first loss. We missed the opportunity. The next loss will be far more expensive and if we miss that opportunity, it will get worse.

What can be done at this stage? Quite a lot, but there is no point in going through the list again, because the politics will not permit much to happen, yet.


How can George W. Bush be 'comfortable' with his appalling economic legacy?

By Jeremy Warner Economics Last updated: November 9th, 2010

President George W Bush says he’s “comfortable” about his legacy in the various interviews he’s given to launch his memoirs, yet I fear he may have to wait several millennia for history to reach a similar verdict. The contrarian thing to say about Bush’s remarks is that he’s right, and I certainly toyed with the idea of trying to string together some sort of defence of his presidency. But in the end, you cannot ignore the evidence in front of your eyes.

Both the foreign affairs and economic policy record speak for themselves – they were in almost every respect utterly disastrous. Nothing good came out of the Bush presidency in economic terms. Only President Bush himself seems blind to this textbook study in economic failure. Not since Herbert Hoover, the man who presided over the Great Crash and its immediate aftermath, has a US president fallen victim to such delusion.

President Hoover, it will be recalled, opened his presidency in 1928 with these immortal words: “We in America today are nearer to the final triumph over poverty than ever before in the history of any land. The poorhouse is vanishing from among us.” In short order there followed the Great Depression.

But the charge against President Bush is much worse than that of delusional thinking. Unfortunately for him – and this is why history will never be comfortable with his legacy – it wasn’t just that he didn’t see the worst banking crisis since the Great Depression coming, he actually created the conditions that made it happen.

But for the fact that the policy response was essentially taken out of his hands, it would almost certainly have led to an economic catastrophe of equal proportions to that of the 1930s. As it is the fallout is quite bad enough, and may mark the end of dollar and wider American economic hegemony in the world.

True enough, the seeds of this crisis were sowed way back when, and were then intensely irrigated and fertilised under President Clinton’s eight year rule. Social policy under Clinton actively encouraged home ownership among those who essentially couldn’t afford it by incentivising the banking system to provide the finance. The Clinton administration also dimantled the last remnants of the banking regulation so painstakingly erected in the 1930s to prevent a similar calamity happening again. No, George Bush did not invent greed-fuelled, turbo charged finance.
Yet his response to 9/11 made eventual disaster inevitable. To revive the economy after this devastating blow to confidence, he allowed a completely reckless degree of monetary and fiscal stimulus. There was more of the same in the lead up to and the immediate aftermath of the invasion of Iraq. Unsustainable government spending was matched by a credit fuelled spending binge of unprecedented proportions. Bush disobeyed one of the cardinal principles of economic management – that you can have guns or butter, but not both.

In Bush’s defence, it might be said that once the seriousness of the crisis had been recognised, he did at least respond in the right way by allowing Government intervention in the financial system in a way which was plainly at odds with his free market principles. The truth is that policy makers at that stage were like rabbits frozen in the headlights of an oncoming car.

It wasn’t until the devastating consequences of allowing Lehman Brothers to go the wall became apparent, that the Administration was forced to change tack, and effectively underwrite the whole financial system with American tax dollars. A more self assured intervention at an earlier stage might have forstalled much subsequent grief.
Can the president really feel “comfortable” with this catalogue of policy failures? It beggars belief.


  1. Here is an example of the madness:

    "China sets dollar-yuan range at new record low as G-20 leaders'..."

    We have a so-called free trade regime with a country, to which we have ceded much of our manufacturing, and they are setting the dollar-yuan range.

    Setting the range? I thought the market did that. Silly me.

  2. Tax Receipts are up about 7%, YOY. Not enough, but a start.

    If the nutters in Congress will just cut 10% we might walk out of this deal.

    The Euro, though, I have to think is starting to look a lot like "toast."

  3. If the nutters in Congress will just cut 10% we might walk out of this deal.

    Exactly what my wife was saying today. Across the board.

  4. Simpson, and Bowles have given them a "starting point."

    Simpson said, "there you have it; we've harpooned every whale in the ocean, and some of the minnows."

    I'm not a big Simpson fan, but I believe that, at this point, that's the only approach that can work.

    As that Greatest of all American Philosophers put it: "Everybody's gotta get Stoned."

  5. You all work it out; I'm going to get some sleep.

  6. The target should be to balance the Federal Budget by 2016. Six years is enough time and we will go through every election cycle, Congress, Senate, Executive. Any politician who is not onboard and wholeheartedly committed can be sent packing.

    Nothing will be backloaded beyond the six years and along the way, we'll get started on a Constitutional Balanced Budget Amendment.

  7. The Bowles/Simpson group has come up with this:
    The plan would gradually increase the retirement age for full Social Security benefits -- to 69 by 2075 -- and current recipients would receive smaller-than-anticipated annual increases. Equally controversial, it would eliminate the current tax deduction that homeowners receive for the interest they pay on their mortgages.

    69 by 2075? Get serious. We're only going to raise it by three years and it's going to take 65 years to do it? Honestly, that's embarassing.

    Re: the mortgage interest deduction. You better take 30 years to phase it out because for the last 30 years the entire construction industry has depended on people "moving up". Now that the moving up is curtailed for an indefinite time, suddenly taxing people on their 'mortgage interest' might only drive up the number of defaults.

  8. Instead of giving any more money to the banks and you want to QE, drop ALL mortgages to 3% and eliminate the deduction at the same time.

  9. From an AP article on the Deficit Reduction Commission report:

    Current deficits require the government to borrow 37 cents out of every dollar it spends.

    There's the most immediate target. First, we have to stop the bleeding. We can do this by cutting spending and raising revenues. We have to figure how this is going to happen without unduly aggravating our current financial distress.

    We can make some painful decisions or we can be like California.

  10. Let people work after 65 to defer their own retirement, but allow anyone to make $100,000 after 65 with no federal income tax.

  11. .
    Debt Commission calls for Tax Rate Decreases along with Major Cuts

    I expect the GOP will go along with it. The Dems not so much.

    I saw little that suggested corporate welfare would be cut. Of course, it is only a draft.


  12. I wonder what the average home mortgage interest rate is. Rates have been low for so long that I suspect the number is not far away from 3% already.

    Dropping the mortgage interest deduction is the easy part.That's all Federal policy. "What the govt gives, the govt can take away."

    For the Federal government to mandate the maximum interest rate on all mortgages is probably unconstitutional.

  13. Here is one for you. Do a reverse Davis-Bacon Act. Reduce all federal pensions to the prevailing pension and benefits of those in the private sector in that state.

    Allow one federal pension per person. You choose which one you keep and the other one or two go "poof".

    Bring back the draft.

  14. They mandate the interest rates banks have to pay for the privilege of borrowing money from the fed.

  15. Privatize broadcast licenses. Right now they are free. Sell them off at auction, no more than three to a customer.

  16. Veteran: someone, who at one point in their life, wrote a blank check payable to the United States of America for an amount up to, and including, their life. That is beyond honor and there are way too many people in
    This country who no longer remember that fact.

    My prayers to all the veterans, current enlisted and their families. Thank you for you selfless love.

  17. I hate this part:

    Better-off beneficiaries would receive smaller Social Security payments than those in lower earning brackets under the proposal, and the amount of income subject to Social Security taxes would be increased

    If you want welfare get it from another area of the budget.

  18. Sell the interstate highway system.

  19. Sell the interstate highway system to social security in exchange for all the bullshit bonds in the lock box. Social Security could set up semi-public corporations to run them and collect the fees.

    All the corporations' board of directors would be retirees, mandadted to run their operation to the stockholders, social security recipients.

  20. They mandate the interest rates banks have to pay for the privilege of borrowing money from the fed.

    But do they hold a gun to the banks' heads and force them to borrow from the Fed.

    The Fed is obstensibly a separate entity from the Federal Government.

    We'll got some structural problems, one of which is the Fed and the banking system.

  21. Do the same thing with federal mineral and timber rights.
    Do it right and you may not need social security taxes.

  22. If the banks were loaning their own money as they saw fit, we never would have had this crisis.

    The Fed manipulates rates so that savers get screwed and wealthy individuals can borrow from the US banks and invest in foreign carry trade deals.

  23. Start cutting with 6% across the board in budgets and positions. Reduce all salaries by at least 3% a year.

  24. Today, I could but a bank in Paduk the size of a car wash. The Carwash National Bank, hereafter know as CNB.

    CNB goes on the internet and takes deposits paying 1.6% interest, backing it up with an FDIC guarantee up to $250,000 and loan shark with credit cards at 15-30% interest.

    What does that produce?

  25. Why build a factory when you can do that?

  26. Get the fuck out of Afghanistan, promising the next time you are forced to return it will be from 40,000 feet with some very bright and big bombs.

  27. Of course, being from California, Pelosi Galore has this to say:

    Still, the plan was rejected as "simply unacceptable" by House Speaker Nancy Pelosi, D-Calif., a top Obama ally.

    And the midwest socialist,
    "This is not a proposal I could support," said panel member Rep. Jan Schakowsky, D-Ill. "On Medicare and Social Security in particular, there are proposals that I could not support."

  28. You want to stimulate the economy. License immediately 500 nuclear power plants to be sited on federal lands, One size fits all. Every license goes with a new corporation authorizing an immediate stock issue and attached with 25% preferred stock owned by Social Security.

  29. Eliminate all corporate taxes and institute a 10% corporate VAT.

  30. Want some more QE. Take $500B, or $10B per state to be used to fund new manufacturing orupgrades in each state. Put the money out at 5% interest, the states keep the interest.

  31. Don't subsidize logging on federal lands. Cut farm payments to zero for anyone worth over 3 million.

  32. How about an interest rate revolt?

    What if everyone stopped making payments on those usury rate credit cards?

  33. The entire mess is a structural mess caused by Washington. Want a target for creative destruction?

    "Ready on the left."

    "Ready on the right."

    "Ready on the firing line."

    "Fire at will."

  34. That's a good idea. We used to have usury laws in this country. Idaho had 'em.

  35. License immediately 500 nuclear power plants

    I like this.

    We need it desperately and it is a great midrange stimulus and longterm energy solution. It will create jobs and build the foundation for energy independence.

  36. The President has the power to cut through the EPA and other bureaucratic roadblocks and impediments. Just as he had the power to bring in international skimmers for the Macondo oil spill.

  37. License immediately 500 nuclear power plants

    Been advocating that forever myself.

  38. Just woke up to Melody's post.

    Today is Veteran's Day.

    Thank you all Veterans.

  39. You can thank your fellow farmers for breaking usury laws.

    it was 1980, South Dakota's economy was a mess, and suspicion was an instinct that Janklow could not afford. "We were in the poor house,'' he recalled. "It cost 42 cents a bushel in 1980 to haul wheat. When something's only selling for $2.20 a bushel, you certainly can't afford to be paying almost 50 cents a bushel to ship it.''

    The calls were from Citibank, which was having a serious problem of its own. "It was very simple,'' said Walter Wriston, then the chairman of Citibank. "We were going broke.''

    The bank had lost more than $1 billion on its audacious foray into the credit card business, and the future looked even worse. The trouble, simply put, was that the rate of inflation exceeded the amount of interest Citibank was allowed to charge its credit card customers under New York usury laws.

    But the bankers saw opportunity and salvation in the plains of South Dakota. Within days of those first phone calls, a team of top executives arrived from New York with a proposal for Mr. Janklow: If South Dakota would quickly pass legislation that would enable Citibank to move its credit card operations to the state, they would bring hundreds of high-paying white collar jobs to the state.

    The unlikely alliance would clear the way for Citibank to turn a money-losing credit card operation into a vastly profitable business. "All of their senior people used to say it,'' Mr. Janklow said. "That South Dakota saved Citibank. I believe it did. That South Dakota saved Citibank.''

    The ascendancy of the credit card industry

  40. Our flag is now up. It's cold out there this morning, 34 degrees.

    I personally plead not guilty to the credit card business. I thought everything was done from Delaware.

  41. Yes, we had usury laws and we had blue laws and we had a lot more dry counties.

    But then, we learned that "you can't legislate morality."

  42. OT Idaho plays Boise State this weekend. A slaughter impending. Boise State is #4 in the nation last I heard, and has won its last 22 games.
    Feel sorry for Idaho this weekend, a lamb to the sacrifice.

  43. We've legislated the whore houses out of Idaho. Used to be all over, now not even Wallace has one.

  44. Result of the Mormon influence.

  45. Slash The Salaries of All Government Workers

    Who can be against that, other than the government workers.

  46. One more--get rid of the Department of Education

  47. whit said...
    I wonder what the average home mortgage interest rate is. Rates have been low for so long that I suspect the number is not far away from 3% already.

    I have 8.9% I have a 785 credit score, 18% equity in the house (lived 4.5 years) never been late, never bounced a check..

    if i want to refie I can if i want to add 24k to my loan as fees...

    all to lower my payment about 800 a month...

  48. 650 MILLION in DIRECT aid to the Palestinians...

    how about that folks...

    now add in aid to the egyptians 3 BILLION a year for DOING nothing...

    dont forget the Lebanese aid 200 million and the aid to the Jordanians...

    how much does it cost us to protect those shipping lanes in the gulf?

    how much have we spent on NON-allies aid?

    sure I am for assistance to Israel.

    I can argue that all day long...

    but why do we GIVE aid to those that cheer the murder of AMERICANS?