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Tuesday, November 29, 2011

Economically, Where Do We Go From Here?

Every day I awaken and watch Morning Joe.  It is an entertaining morning show, a mixture of politics and many other topics.  But it is mainly politics and economics.  It is, by necessity, not slanted left or right.  Joe is Joe Scarborough, former Congressman from northern Florida, and Mika Brzezinski, daughter of President Jimmy Carter’s Secretary of State, Zbigniew Brzezinski is his co-host.  Mika is moderate left, and a supporter of our current President, and Joe is fairly right, and takes a conservative, albeit holistic, view of our nation’s appropriate governance.  At any rate, I highly recommend this show for its substantial breadth of commentary and subject matter.  There are other reasons to watch it, and it is nearly always entertaining.  I am also a fan of Huffington Post, believing that it is the closest thing to a truly middle of the road major media publication, as it is extremely inclusive of commentary from nearly every angle.  I also consistently read one of the most cogent of all economic blogs, The Baseline Scenario, published by Simon Johnson, ex Chief Economist of the International Monetary Fund and MIT professor, and his blogmate, James Kwak (see http://en.wikipedia.org/wiki/James_Kwak).  These sources are great sources of stimulating and thoughtful commentary, and I highly recommend them to any who might be inclined to tune in.

I decided to write the following based not only on many recent readings, among them Michael Lewis’s Boomerang, and Naomi Klein’s The Shock Doctrine.  I also decided that it was time to let my readership in on my well-considered view of the dire state of our national and international economic situation.  As a lead in to my conclusion, I simply want to point to the following:

1.      American politics is substantially controlled by the American oligarchy, that is the citizens and corporations (or companies) which control the majority of our national privately held assets (i.e. money and possessions). 

2.      The massive disparity between the haves and have-nots in America, about which many articles have been written, and which is the primary motivating force behind the Occupy Wall Street and “Occupy” movements in general.  In America it is truly the 99% at the bottom vs. the 1% at the top of the economic food chain. 

3.      The total corruption incorporated in the United States Tax Code, fostered and perpetuated by the purchase of our government by the US Oligarchy which exists in our present defacto system of government, most appropriately characterized as a plutocracy.

4.      The desperate straits in which a vast majority of our 50 states find their budgets and fiscal well-being.  Under present circumstances the states are wont to increase taxation, since the massive unemployment and failure of real estate markets has substantially drained the tax base of even potential resources which could serve to support the continuation of basic state governmental services.  They are cutting services continuously on all fronts in an effort, a losing effort, to keep up with their budgetary constraints, remembering that states cannot do deficit spending, by law. 

5.      The failure of the Super Committee to create any kind of legislative resolution to the federal debt problem.  Presently our national debt stands at about $15 trillion dollars or about 100% of GDP.  This is not sustainable in the long run, but, owing to our economy’s essential weakness (I believe that, although we are not now technically in recession, that is running a negative GDP, we are still in actual recession because there is no real estate market, and there are more than 58,000,000 Americans either unemployed or massively under-employed according to BLS calculations.  See http://en.wikipedia.org/wiki/Bureau_of_Labor_Statistics).  It is important to note that America did not emerge from the Great Depression until after WWII, which served as a massive stimulus to the economy, and that, after WWII, America had a debt to GDP ratio of more than 150%.  The way we handled that debt level was to tax at very substantial progressive rates (see http://en.wikipedia.org/wiki/Income_tax_in_the_United_States), with the top rates at or above 90% for more than two decades.  The greater tax collections allowed us to develop massive infrastructure, including the Interstate Highway System, to make massive loans to Europe under the Marshall Plan which allowed for a more rapid recovery and greater growth in exports, and to provide housing and education to veterans of the War from the Veteran’s Administration.  It also led to the development of a very large and stable middle class.  

It is important to understand that nearly every serious independent economist, as well as Ben Bernanke, has stressed the need to do everything possible to encourage and cause growth in our economy, and not to worry about debt reduction in the near term, but to devise a plan to reduce that debt in the long term.  The failure of the Super Committee is completely acceptable, except that it did no arise from a recognition of the relative urgency of its work, but rather from massive political polarity, which is truly deadly and destructive.  The failure of the Super Committee simply points to the massive dysfunctionality of our Congress.  The inability of our Congress to find a solution to creating a level of greater revenues through tax reformation is a key issue.  There needs to be a combination of reformation of our 15,000 page Tax Code, and an adjustment of the present rate structure to recognize the need to redistribute our national income.  I know that income redistribution is a sore subject, seen often as associated with Communism and Socialism, but, when the system is rigged to benefit a very small portion of our society, then it simply must be changed. 

6.      Lastly, unless we can reform our political system such that those voted to public office consider their primary obligation in governance to be the general public weal, nothing will change.  There are lots of movements and suggestions to this end in many quarters these days, and I see many as favorable potentially.  I am certain of only one thing, and that is that whatever is done must be done by Constitutional Amendment.  The Supreme Court rulings in both Vallejo and Citizens United, which recognized money as speech and corporations having rights equal to individuals, are utterly contrary to sanity in government.  Hence the need for a Constitutional Amendment.
Considering all of the above factors (and others unmentioned here), as well as the fact that Europe is suffering from many of the very same problems in governance, and general economic malaise and weakness, the European economic union is about to collapse.  It has no meaningful path forward to maintain its unity.  Once German bonds began not to sell last week, the writing was on the wall (see this article:  http://www.bloomberg.com/news/2011-11-28/the-euro-area-is-coming-to-an-end-peter-boone-and-simon-johnson.html, which is only the latest written by Simon Johnson of The Baseline Scenario and his friend and fellow economist Peter Boone, both of whom are recognised experts in international and, specifically, European, economic issues).  We live in a truly globally connected world, and its most major international connections are banks.  Owing mainly to massive political power, the banks are in horrible shape.  They are not appropriately regulated, especially with respect to the related issues of capitalization and leverage.  They are all heavily invested in international bond holdings.  They are all massive participants in the substantially under-collateralized world of derivatives (much of the nearly $600 trillion dollars of which are in credit default swaps, or hedges against the upcoming collapse).  This bank problem, of course, is where the real peril is, and the single greatest reason why the various European Union members have not been able to come to a consensus regarding fixing their economic crises, that is owing to the fact that all of their resources are essentially directed at saving the massively corrupted mega-banks, which are all closely affiliated with the big six in the US.

Of course, the ultimate upshot of the massive corruptions of the international financial world is that the next crash, when, not if, it comes, will take down all of the world’s economies, large and small, since they all are so closely tied.  The coming crash will be an order of magnitude larger than the one which occurred almost exactly three years ago, since it will result also in an untold magnitude of political and cultural upheaval.  You see, it is quite different when we are talking financial losses for the 99%, and when we are talking about the destruction of all wealth, including most of that held by the 1%, and the upcoming crash will take all of us, even the wealthiest.  In the new world which emerges, if we can maintain social sanity,  things will get massively better, but it will take a fair amount of time and patience for this to happen.

Be prepared, it’s only a matter of time.

Monday, November 21, 2011

Iranian Nukes and Terrorism

Last Friday I had the pleasure of watching an amazing debate on Morning Joe.  I watch all of that show nearly every day.  It is massively educational, and fascinating to listen to the discussions led by Mika Brzezinski and Joe Scarborough.  Mika is essentially progressive/liberal and Joe is essentially progressive/conservative.  Notably, Joe was a member of the House of Representatives (Republican from Florida who served from 1995 to 2001) and Mika’s father Zbigniew, was Secretary of State under Jimmy Carter.  These are bright, interesting  people, and, although I kind of get tired of many of a regular cast of characters on their show, they have a wonderfully wide selection of guests.

Last Friday, they had on Richard Haass, President of the Council on Foreign Relations, a council comprised of many of the most powerful and politically connected in America.  Also amongst their guests was Mohammed Larijani, the Secretary General of the Iranian High Council on Human Rights.  Most of us might think of Larijani’s position as essentially oxymoronic, however I actually believe that not only is he serious, but also that, sadly, since Iran has been substantially criticized in this country, is viewed by our leadership as part and parcel of a nation of leaders who are pariahs in human culture.  Before I go any further I want to make clear that I am not Iranian, that I do not wish them to be a nuclear power, and that I find their theocratic leadership to be somewhat of a sad political farce.  That having been said, I will now go on to defend both Larijani and Iran’s right to exist amongst nations and be respected as any other nation.  If we start from that point, we can engage is serious conversation and sort out facts from lies.

The conversation on Morning Joe last Friday, November 18, centered on Iran’s nuclear program.  Larijani claimed that Iran was not attempting to fabricate nuclear weapons, and that their entire program was about electricity production.  This month, the International Atomic Energy Agency issued a report indicating a reasonable probability that Iran is working on developing nuclear weaponry.  There is no absolute proof, only information on their atomic project which points toward the probability.  It is not an established fact, and, I would argue, based upon our Saddam WMD error, that we should not jump the gun on this one.  We should certainly press for answers, so we could actually know, rather than make an intelligent guess.  So, my view, at this moment is that we would be loathe engaging in any serious saber rattling, but rather should be restrained.  In this vein, I believe that two of our major allies, who have much closer ties to Iran, could prove amazingly useful in making a more certain determination, that is both Russian and China.  Each has a very close relationship as a trading partner.  Each has different views on sanctions sponsored by us against Iran through the UN.  Their views, incidentally, are more than a little supportable, but that’s another discussion.

Also, during the conversation, much to the consternation of the other conversation’s participants made the statement that the United States is a sponsor of terrorism.  I truly think that this is not just an amazing statement, but is thoroughly and completely supportable, and this is where we American’s like to ignore history in favor of myth.  At this point, I would point the reader to Iranian history, with specific reference to the late Shah, and our role, through CIA intervention, in restoring him to power in 1953.  The Shah was a brutal dynast.  He was our friend.  We sponsored his power, and he vastly abused the Iranian populace.  Needless to say, in 1979, in a revolution essentially sponsored by Iran’s Shi’a clerisy, the Shah was deposed and exiled (to the United States), and the Ayatollah Khomeini took over the leadership of the theocratic Islamic government.  This historical summary hopefully explains, at least in part, not only the Iranian leadership’s antipathy toward the US, but also just how an Iranian could see the US as a sponsor of terror (they see the Shah as visiting terror on the populace).  I would argue that not just in this matter, but glaringly in our putting Saddam Hussein (even worse than the Shah as a brutal dictator) in office, but also by our arming of the Mujahedeen during the ouster of the USSR from Afghanistan, and subsequent abandonment under the infamous Charley Wilson’s War also did the terrorism sponsorship trick.  After all, by backing the Mujahedeen (and Taliban) and then abandoning them, we had a direct hand in the rationale for the existence of Al Qaida, which would never have existed had it not been for this episode.

There is much more history to know, but it is important to understand how Mohammad Larijani could make such statements.  To the casual, ignorant, observer, this seems absurd.  To the educated it makes perfect sense.

Back to the nukes.  I am not concerned about Iran gaining nuclear weapons, any more than I am concerned with the existence of these demonic destructive human constructs.  I am in favor of complete disarmament, however that is purely impossible.  Once they became part of reality and were a part of the world’s weaponry, getting them to go away entirely is a pipe dream.  We had a chance for a brief moment during the Khrushchev-Reagan disarmament conference in Reykjavik, Iceland in October of 1986, the Soviets offered full disarmament.  In order to get this, President Reagan had to agree to scrap his Star Wars antimissile defense program.  Reagan would not agree, end of story (from the memoirs of George Shultz).  The most essential reason for my attitude is that there is a substantial proliferation of these weapons, with nine nations presently openly possessing atomic weaponry (US, Russia, China, England, France, India, Israel, North Korea, and Pakistan).  It would seem obvious, even to the casual observer that there are two nations whom we should be most concerned with, namely Pakistan, a nominal ally, and North Korea, a sworn enemy.  I find it inconceivable that we should be more concerned with Iranian nukes than those two countries.  It is important to remember that, although Iran probably possesses the strongest military in the Middle East next to Israel, it makes no sense for that nation to be interested in producing its own nukes, since, if it ever considered using one, the other nine countries would make that country into a very large smoking hole.  But, even if they do, I certainly don’t consider them to be any greater threat to us and our allies than North Korea.  The country which really scares me is Pakistan, where there are direct ties between elements of the Taliban and the Pakistani military and intelligence.  Now, that is scary, for everyone.

Lastly, to watch and hear this wonderful “debate” on Morning Joe, go to:

http://www.youtube.com/watch?v=Unby99wa9gA

Sunday, November 20, 2011

The Super Committee Farce

I am, and always have been, from my earliest memories, a student of the English language, and, in fact, of language generally.  There are lots of reasons for this, among them, the love of language expressed by my parents and made obvious by their speech and reading habits, also, what I will call genetic predisposition (it’s baked in my cake).  In today’s world, I am aghast at what passes for English, whether in written form, or spoken.  I watch a lot of “educational” television shows, and, even there, I find that the writing is appalling, with massive numbers of errors.  I find that disturbing.  What I really find disturbing, since I am an intent observer of all things political, is the ways in which the political class has co-opted and corrupted our language.  It’s one thing to engage in political hyperbole, which has been done since the days of Tom Jefferson and Ben Franklin, but to corrupt our language in the ways politicians do for the purpose of creating a special coded hyperbole which enables the production of shorter and shorter, more efficient sound bites is disgusting to a fare thee well.  A great example of this comes to mind in the creation of the new definition for the term “personhood” which is now used to describe fertilized human embryos.  Any good semioticist will understand the value of special terms which change language and discussions.  They do this constantly in the advertisements that they design to persuade potential customers of value.

Let’s face it, the “Super” committee is definitely not super.  In fact, the super committee in Congress, convened to propose ways to reduce our national debt, is a committee which could have been designed by a combination of Aesop, Alfred E. Newman, Salvador Dali, and Edward Albee.  It is a charade, a kabuki farce, and obfuscation of serious politics.  It is emblematic of what our Congress has become, which is a governing body fully separated in thought and action from its constituencies.  On the Democrat’s side, we have a group which suffers from the idea that government is the answer to all problems social (as though it is on a holy crusade to protect those who they claim are helpless (but only by their definition), they are small minded, self-serving cry babies who really are, by using their special ideology, protecting those, not who elect them, but who sponsor them.  Then we have the other side of the same ideological coin that is the Democrats, who espouse Friedmanomics to support the idea that taxation is, de facto, morally and practically wrong.   And, therefore, it is by the simple act of continuously using inflated, unrealistic, absurd rhetoric, that both parties have painted themselves into ideological corners, and actually seem to believe that if they betray, even in the smallest way, their rhetorically enforced philosophical positions, they will lose their popularity (which, right now, is at about 9% nationally).  In fact, what the real risk is, is that they may lose the support of the wealthy constituents who sponsor their office holding by paying for their elections.

All language aside, it is phenomenally easy to find many trillions of dollars in combinations of revenue and cuts in government spending over the next ten years.  And, it do mean that it is so easy that, if I were in Congress, I would just come out and tell that story.  In revenues, I would start with completely eliminating the Code of Federal Regulations as it relates to taxes (affectionately, The Tax Code).  Then I would simply adopt the same rate structure which was in when Ronald Reagan took office in 1981 (70% top bracket).  I would cut corporate taxation to 20% (obviously all exemptions would be off the table).  I would tax capital gains and interest at the regular bracketed rates as regular income.  I would cut military spending by at least 40% (which includes the 15 national security agencies).  I would make the payroll (Social Security) tax effective without income limits (it now stops at about $108K), or, alternatively, means test who gets the benefit.  I would toss out the present absurd health care system and opt for the Canadian model (effectively Medicare for All).  I would reinstate Glass-Steagall, break up all of the TBTF banks, make all meetings of the Federal Reserve public on C-Span, and require that all “derivatives” be listed on a public exchange and be fully collateralized.  I would institute a .5% transaction tax on all investment trading on all national exchanges and use the proceeds of this tax to sponsor enforcement of regulations.  I would close nearly all of the more than 800 military bases located in other nations, and stop utilizing foreign aid to control corrupt foreign leadership to our purposes (the single biggest reason for the existence of terrorists).   Obviously the Super Committee can’t do half of these things, but it can make $4 to $6 trillion in cuts and revenue increases over a ten year period quite easily.  They won’t do this.  After the failure, Congress will vote to kill the enabling legislation for this committee, including the “sequestration” which would cut into Defiance and Medicare, and they will, in effect, vote to continue to obfuscate their responsibilities in favor of continuing to kick the can down the road.  Sadly, our current political system, recently made tragically far worse by the Citizens United decision, is fully broken, and is now a full throated plutocracy, in which our democracy has been completely high jacked by the wealthy elite.