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Now that the stock market is going up and down by three or four hundred points a day, it’s time to introduce our financial adviser, Chicken Little. That’s Mr. Little over there on the left, watching the sky fall. Chicken Little has a good memory for market behavior over the past hundred years, has studied the Great Depression and is thoroughly familiar with the writings of economists such as John Maynard Keynes, Friedrich Hayek, Martin Feldstein, and Paul Krugman.
About the current market situation, our adviser tells us “The market is highly volatile,” and “Traders are worried about the Euro-zone economies, especially the status of European banks, and the debts of some European nations, such as Greece, Ireland, Spain, Italy and now, possibly, France. Also, the downgrading of the United States’ credit from AAA to AA+ doesn’t inspire confidence.”
Mr Little tries to agree with politicians who say that we are suffering from a lack of confidence and nothing more. As he phrased it, “The market is down because people won’t buy stocks when they have no confidence that business will improve. After all, 14,000,000 people don’t have jobs to earn money and buy things. So it’s really just a lack of confidence, nothing more.”
According to Chicken Little, “The market hates uncertainty and currently things are very uncertain, and that’s why the market is so hateful. If you keep in mind that past performance is no indication of future results, you’ll do fine.”
First the bad news — the ultra conservative Tea Party faction has effectively manipulated the Republican majority in the House of Representative. Now for the really, really bad news — policies espoused by Republicans and Tea Party reactionaries are going to make matters worse, much worse.
Here are two ugly facts. One: We are in a recessionary period caused by the near collapse of our financial system. Two: Financial recessions generally take a long while to resolve themselves (think five or ten years) and employment tends to improve even more slowly than the economy. A lot of economists have pointed this out. Harvard economist Kenneth Rogoff, along with Carmen Reinhart, published a big thick book back in 2009, This Time Is Different, surveying eight centuries of financial crises. Century after century the story has been about the same, but each generation of fools thought their own financial recession was different.
Now Tea Party people and other reactionaries apparently don’t know this. Rogoff’s book is heavy with statistics, which may explain why no one in the Republican party seems to have read it. On the other hand, they may understand economics, but want to make sure that things stay bad enough to assure a Republican candidate wins the next election for President.
If you haven’t been driven mad by endless shouting about the deficit, you may recall that most of the new Republican House members swept into Congress with cries of, “Jobs! Jobs! Jobs!” But after taking their oath of office, those same new congressmen and congresswomen cried, “Cut the deficit!” They claimed “the people” had sent them to Washington “to put our fiscal house in order.” No poll ever found that “the people” believed cutting the deficit was more important and creating jobs. But Republicans got their way.
Cutting the deficit does absolutely nothing for creating jobs now. On the contrary, cutting the deficit cuts jobs.
Our last-minute Budget Control Act of 2011 requires $917 billion in initial deficit reductions over 10 years, including $350 billion from the base defense budget. The slicing is spread all around for a decade, but it starts right away. Fiscal 2012 begins in less than two months, which means that agencies of government from the Pentagon to the Environmental Protection Agency are now scrambling to find where they can cut.
Here’s a gruesomely relevant page from history. In 1937, as the United States began to emerge from the Great Depression, President Roosevelt’s advisors convinced him to cut spending and balance the budget. So the government cut workers from the Works Progress Administration, and Public Works Administration projects were brought to a halt. Republicans rejoiced that the nation was putting its fiscal house in order. Manufacturing collapsed 37 percent, and from 1937 to 1938 unemployment rocketed from 14 percent to 19 percent. Consumers cut back on their spending and in response production fell even further. (more…)
Unless you’re a banker, you probably haven’t noticed that some banks are getting another helping hand from tax payers. A couple of years ago we citizens gave loans to bankrupt banks so that they could look solvent. That was called the Troubled Asset Relief Program. (Troubled Asset sounds so much nicer than flat-broke or busted.)
Nowadays those same banks, having been to the brink of insolvency, won’t lend unless they’re very, very, very sure they’ll get it all back with interest. As a result, small business are justifiably complaining that banks aren’t lending money, even when it’s a safe bet they’ll get repaid. Small businesses create the bulk of our employment, so when they’re not getting the money they need, our economy moves at a crawl.
To fix this, Republican Sam Graves (he chairs the House Small Business Committee) came up with a plan to help banks make loans to small businesses. The Graves plan is simple: give money to banks at almost no cost to the banks. But wait! That means banks can take these new low-cost loans and use the money to pay off their Troubled Asset Relief Program debt!
The Boston Globe reported that a Boston bank “has applied for more than $4 million in funding from the new program to replace the $3.5 million it received through TARP. The bank said it expects the funds to cost just 1 percent a year under the new small business lending program, compared to the 5 percent it pays now (and 9 percent in 2014) under TARP.” Now that’s banking! And that Boston bank is not alone in knowing a good thing when they see it. The Treasury Department said has received 847 applications, including 315 from banks still holding TARP money. Oh, mercy!
Speaking of libraries, as we were in the post below this, we report the sad fact that the publishers HaperCollins has decided not to sell e-books to libraries but to rent them out. The publisher allows libraries to let an e-book circulate only 26 times before the library must again pay to rent it for another 26 times. If it were a conventional book, the library would buy it and allow it to circulate among library patrons until it needed to be replaced, at which point the library would buy a fresh copy. Now HaperCollins wants to sell a lot of copies to libraries, so it has decided, arbitrarily and whimsically, that the e-book wears out after it’s been read 26 times. Libraries, which are publically funded and never rich, have complained about this. One example —the Upper Hudson Library System, a consortium of libraries in New York State — has sent a public letter to HaperCollins protesting this whacky arrangement and “will no longer purchase any e-content published by HarperCollins or any of its subsidiary publishers.” You can check out the letter sent to HarperCollins by clicking on this link http://www.uhls.org/new/open_letter_HarperCollins.pdf
The US recovery from the recession has stalled and Congress seems not to have noticed. Maybe you noticed, because you’re one of the unemployed. If so, it’s doubtless cold comfort for you to know there are more than 13.9 million other men and women in the same dump.
Almost half the unemployed have been looking for a job for more than six
months, and about a third have been looking for work for more than a year. And if you’ve been looking for more than a year, the chances are you’ll be among the last to be hired. That’s the way it goes in today’s cruel labor market. Because so many workers are idle, employers can pick an choose and they prefer workers whose skills haven’t gotten rusty.
Meanwhile, the Republican dominated House of Representatives is calling loudly for cuts in government spending and in taxes. This is the same Republican party that took over the House a few months ago, saying that “Jobs! Jobs! Jobs!” were their top priority. It’s strange that lawmakers who say they want to provide jobs should be crying to amputate the federal budget and slash taxes. In fact, it’s bizarre, because doing that will bring not jobs but more unemployment while at the same time reducing the ability of the government to provide for the unemployed.
Municipalities and states cannot perform the kind of deficit spending carried out by the federal government. As a consequence, the recession has compelled cities and states to lay off workers – clerks, firemen, policemen, engineers, school teachers, and so forth. To immediately slash federal spending means that the US would reduce the already reduced flow of money to the already impoverished states, and at the same time fire US government workers, adding even more to the number of unemployed. (more…)