Renegade Economists Show 55

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Trauma
Creative Commons License photo credit: h.koppdelaney

Shock Doctrine of Bankers Bailout

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Show Notes – 24/9/2008

Karl & Andrew cover the US financial woes amidst the shock of proposed US electoral roll reforms in Michigan, where voters will be struck off if their house is foreclosed!

The property boom-bust cycle is explained with a prominent local example, also Earth Overshoot Day, Speed Renting & upcoming Economics for Activists course. All this and more can be seen in our show notes, which we promise will improve on the permalinks front:

R55

Right now, with every single penny you spend, the community already pays its ground rent, straight into the well-lined pockets of the select band who, quite simply, are charging you the entrance fee to life on planet earth.

Wars used to be fought for land, now they buy & sell it according to tax breaks their lobbyists garner for them.

Don’t ever invite the Fed governor, Ben Bernanke, to play Monopoly against you, he knows the rules better than anyone:

“The Bank never goes broke™. If the Bank runs out of money
it may issue as much more as may be needed by merely writing
on any ordinary paper.”

From the˜Rules of Monopoly’™, by Parker Brothers.

Bailout brings US Hegemony to its knees
Can someone please write in their diary June 2024? Because that’s when we are going to start warning about the next big bailout for bankers. If we do not learn from the horrors of this downturn and collect the economic rent that accrues to land, then the next 18 year cycle will be chugging along by 2024 and another asset boom-bust will be underway.

It is almost beyond belief that the $870 billion bailout equates to the entire spending of the US Department of Defence, Education, Health and Human Services.

Of greatest concern with the $870bn bailout is whether the thousands of mortgages acquired by the government will be drip fed to the market. This will put the government in direct opposition to the community.

What will Chinese investor’s be telling them to do? With a low US dollar making US assets dirt cheap, will Chinese investors sell US bonds (pushing the dollar even lower) to finance the purchase of American assets?

Can the US Treasury learn from mistakes?

The $840bn bailout of US banks provides the US Treasury with a unique opportunity. Will the as yet unnamed new Federal agency (which we will call the Bailout Agency), charged with the responsibility for selling off the bad debts of risk-bending bankers, use this money to reduce the chance of future boom-busts to occur?

– switch the 3 million odd sub-prime borrowers over to a Community Land Trust model of land ownership.

Pumped Money Supply – No Wonder Oil Peaks

With oil surging $15 overnight to record levels for a single day’s trading, one wonders if economic theory is understood by Paulson’s panickers.

Speculators see such pumping within the economic framework as inflationary. Commodities are typically a safe haven when inflationary expectations rise as consumers will always need that certain commodity – be it oil, barley or wheat.

However, with nearly 1 million US sub-prime borrowers about to switch over to higher rates under their Adjustable Rate Mortgages, we’ve only just entered the sub-prime meltdown.

‘Earth Overshoot Day’ to mark overuse of resources (AFP)

PARIS (AFP) — Green groups will stage “Earth Overshoot Day” on Tuesday to draw attention to estimates that people are gobbling up 40 percent more in resources than the planet can currently replenish.

Over-population (malthusian critique from R.E’s) and gluttonous lifestyles are driving destruction of forests, fisheries, biodiversity and soil quality, while climate change is inflicting droughts and flooding that stress water supplies and agriculture, according to campaign organisers Global Footprint Network (GFN) (www.footprintnetwork.org).

“Earth Overshoot Day” is determined by the last date in the year at which the planet’s 6.7 billion people are living in balance with the planet’s biocapacity.

In 2007, “Earth Overshoot Day” — also called “Ecological Debt Day” — was set at October 6.

The United States is the biggest ecological deficit spender, according to the campaign.

If all people adopted the American lifestyle, with its emphasis on large homes, mobility and voracious use of energy, the world’s population would need 5.4 “Earths” to meet its needs, according to GFN figures for 2006.

Canada (with a lifestyle of 4.2 “Earths”), Britain (3.1), Germany (2.5) are also singled out as huge consumers of resources.

We’ll bail out Wall St, but let’s leave climate change to the market via Crikey

Jeff Sparrow, editor of Overland writes:

A few months back, The Australian gave the weekly column it allocates to climate denialists to the Czech Republic’s Vaclav Klaus. Klaus explained that “climate alarmists” needed “to learn the uncompromising lesson from the inevitable collapse of communism 18 years ago. It is not about climatology. It is about freedom.”

This was simply a reiteration, in slightly more trenchant tones, of the consensus dominating Western politics for the last two decades. The NYT’s Thomas Friedman coined the splendidly incoherent metaphor of the Golden Straitjacket to describe the neo-liberal orthodoxy he and everyone else saw as both desirable and inevitable. The Market gives. The Market takes away. Blessed be the name of the Market.

Hence Klaus’ denunciation of climate advocates. By trying to impose environmental regulations, they were, he said, bucking the market and its wisdom, arrogantly assuming they were better judges than “millions of rationally behaving men and women what is right or wrong.”

Silly them.

But one wonders what Klaus makes of that communist George Bush as he embarks upon what The San Francisco Chronicle calls “the biggest socialization of private assets in U.S. history”.

At first glance, the scheme to outlay a dizzying $700 billion on illiquid mortgage assets seems like the deal that Jack might have embarked upon just after trading the family cow for some magic beans.

But it all depends on your perspective.

If you’re Richard Fuld, the chairman of Lehman Brothers, what’s not to like? You get to keep your Greenwich mansion, your Park Avenue co-op, your estate on Jupiter Island and the $40 million you earned in the last year alone. Not only do you face no penalties or recriminations, the government whisks away all the losses for which you and your pals are responsible, and dumps them squarely on the laps of everyone else.

The Calculated Risk blog puts it like this:

Unless there is a dramatic change, there will be no upside participation in the financial companies for taxpayers, and the taxpayers will recapitalize the banks by, in Krugman’s words, ‘having taxpayers pay premium prices for lousy assets’.

We’re talking, in other words, about a huge transfer of the liabilities from some of the world’s richest people to ordinary American workers, who will be handed something like a $20,000 debt each. Despite the Chronicle, this is not a nationalisation in any traditional sense, since the population doesn’t actually receive anything for their money.

Rather than becoming more transparent, the financial sector seems about to become less so. As Newsweek says, “The prospect of unelected officials putting massive amounts of taxpayer resources to work without transparency or approval from Congress, and without a clear process at work, is indeed troubling.”

Really? But it worked so well in Iraq!

Speaking of which, the $700 billion this little bailout will cost is, as many commentators have noted, roughly the same as the more conservative estimates of the bill for the Iraq war.

So that’s where we are. President Bush and his supporters can find $700 billion to spend on a war of choice. Almost overnight, they can stump up an equivalent amount to stop Adam Smith’s invisible hand from throttling their shonky cronies in the banking sector. Such extraordinary sums, if devoted to public transport or alternative energies or scores of other socially useful outlays, would go a long way to ending America’s dependence on carbon fuels.

Yet, when it comes to climate change — which, like, only threatens the viability of the one planet we have — there’s no option but to let market forces do their work.

Future generations (if indeed there are any) won’t know whether to laugh or to cry.

Lost Homes, Lost Votes: Are Republicans Trying to Block Foreclosed Homeowners from Voting in Michigan?

The Democratic National Committee and the Obama campaign have filed a federal lawsuit to block a controversial voter suppression tactic in Michigan. The Michigan Messenger reported this week that the chairman of the Republican Party in Macomb County is planning to use a list of foreclosed homes to block people from voting in the upcoming election as part of a Republican effort to challenge some voters on Election Day.

Debt – Keen

Good luck. Last year, the growth in private debt added US$4.5 trillion in spending power to the USA’s $14 trillion GDP — a whopping 27 percent of America’s aggregate demand. Now the private sector (including the “conservatored” Fannie and Freddie) is going to try to reduce debt? Then aggregate demand will fall by more than 30 percent. That is the recipe for a Depression, not a rescue.

Government debt is already 53% of US GDP, but that’s trivial beside business debt at 72%, household debt at 98%, and — most toxic of all — financial sector at 112%. Not all of that private sector debt is toxic, but even if half of it were, a government attempt to paper over the crisis would triple its accumulated debt.
Bank of America – bought  Countrywide, now Merrill Lynch. How can it handle the 2?

The Age:

Paulson’s plan, sent to Congress September 20, would mark an unprecedented government intrusion into markets and increase the nation’s debt ceiling by 6.6% to $US11.315 trillion. Officials may also start a $US400 billion Federal Deposit Insurance pool to insure investors in money-market funds.

Another drawback for the dollar is that the Fed’s key rate is 3.4% percentage points less than the rate of inflation, the most since 1980, so investors lose money by investing in short- term US fixed-income assets.

Catherine Deveny – Welcome to this year’s blockbuster (ahh the stuff we dont get to cover!)

Sarah Palin – she should be filed under dangerous white trash fuelled by fear, propelled by power and supported by halfwits.

I have two long-held beliefs. First, people should have to pass an intelligence test before they’re allowed to vote and second, that the rest of the world should be able to vote in the US elections because the outcome affects us as much as them. If not more.

Like most people, I believe in democracy. As long as everybody else votes the same way I do. The problems with democracy are that a) not everyone makes an informed choice and b) if they do, what informs that choice. We’re at the mercy of the morons. People who vote for race, gender, class and politicians who massage people’s prejudices and reinforce beliefs fertilised by fear.

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