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2009: The Year of the Ox (and the Layoff)

So here we are 16 business days into 2009, and already there are over 200,000 massive layoffs (as defined by the US Bureau of Labor Statistics).  CNN is keeping track of all the companies that have announced layoffs in 2009.  The number is ugly and it’s only going to get uglier.

Just today, Pfizer, Caterpillar, Sprint, ING, Deere, Texas Instruments, and Home Depot announced cuts of over 70,000!  Pfizer also happened to announce a $68 billion takeover of Wyeth, which will lead to many of the job cuts.

Keep in mind that 2008 saw the worst shedding of U.S. jobs since 1945.  We lost 2.6 million last year–and that doesn’t take into account the fact that population growth creates a natural demand for more jobs.

2009 is shaping up to be a lot worse than 2008.  I say let’s get the bleeding over with so we can start the healing sooner.  You might think this is a perverse sort of logic, but really if you want to get to a point where we can start seeing solutions we need to have the bad news now.

 

The CNN article can be viewed here.

The Second Great Depression is in full effect.

 

This is Not Your Garden Variety Recession

Now that the cat is out of the bag and everyone is pretty clear on the recession we’re in, maybe more people will take seriously the notion that we’re not in “just another recession” like 2002, 1991, 1981-83, 1972-74, et. al.  No, I think you can pretty much bank (er, maybe not the best use of the word) the fact that 2008 marks the beginning of the Second Great Depression.  This go around, GDII (as I have coined it) will make the First Great Depression seem like a walk in the park.  All you dismissive pollyannish types might want to leave now, because you can’t handle the truth.

Well, even the White House is trying to tamp down expectations of the much vaunted stimulus package they’re peddling on Capitol Hill.

Joe Biden said “it’s going to get worse before it gets better.”

It’s not as if I take everything politicians say at face value, but believe me, this time we’re getting the straight dope.

I’ll present detailed explanations  why in a future post,  but in the meantime here are a few things to consider:

1.  We have an unsustainable level of debt (total private and public)

2.  Our financial system was built on a complex set of unsustainable business practices and is delaminating every minute.

3. Greed, avarice, fraud, and institutionalized theft are endemic and until many of the perpetrators have been put in jail, we cannot move beyond the mistrust and damage that has been done.

4.  Foreign ownership of our debt cannot continue at the level it has, creating a difficult scenario for “Helicopter Ben” and the US Treasury.

5.  The paper wealth created in the last 19 years was largely illusory.

6.  The housing bubble is THE ONLY THING that kept our economy from declining in the post 2001 period.  It has finally burst under its own weight.

7.  Real wages are down over the last 40 years.

8.  Government statistics to track inflation (CPI, core inflation) and unemployment have been changed to reflect policy objectives and do not paint an accurate picture.  They understate the real price of things and the real level of unemployment.  Thus we cannot reassure ourselves that compared to the GD I, it’s not so bad.

9.  Credit and Investment capital are not being put to use; people who have capital are hoarding it.

10.  US Monetary and Fiscal policies of the last 19 years have created conditions that are unescapable.  We cannot, even with the best and brightest minds, clearest sense of purpose, and most aggressive tactics, pull ourselves out of two decades of disastrous policy without a long and painful recovery.

11.  Free (or almost free) markets do not work.  Regulation is essential.

12.  Globalism and corporate capitalism have killed the American century of prosperity, a vacuum exists, and new forms of capitalism (with a more balanced regulated marketplace) are not yet ready to fill the void.

13.  Debt deflation will wreak havoc on our economy in the next 2-5 years.

14.  Massive cuts in consumer and corporate spending will contribute to the downward spiral of our economy and GDP.  Until that bottoms out, we’re still on the downward slope.

15. Layoffs and rising unemployment will be the norm for the next 2-5 years.

16.  Housing price deflation, unsold inventory, and foreclosures will continue to plague the economy and contribute to the superfecta of economic depression: layoffs, housing decline, spending cuts, and capital freeze.

17.  People are afraid of losing their jobs, homes, standard of living.

18.  We are not alone in this crisis.  England, Iceland, the EU, Canada, and many other nations are experiencing many of the same issues, though to varying degrees.

19.  If the dollar ceases to be the world’s reserve currency, because our economy has fallen so far and so hard, it will create a vicious downward spiral on all of the factors listed above.

20.  Cycles of prosperity and decline are part of the natural rhythm of capitalism.  We are overdue for a contraction–despite the best attempts by Alan Greenspan and Robert Rubin to prevent it.

 

Bush Shows Good Judgement and Restraint

If you haven’t already noticed, George Bush’s last days in office were atypical compared to his predecessor.  Unlike Clinton, who pardoned almost 500 people–with 140 of them coming in the last hours! of his presidency, Bush 43 pardoned less than 200 people.  I applaud him for showing restraint and not abusing the power of the office (for once).  I am especially encouraged that he did not pardon Scooter Libby–despite Cheney’s clear disagreement.  Though I think History will judge the Bush/Cheney presidency as a colossal failure on virtually all accounts, Bush deserves credit and respect for exercising good judgement with respect to pardons.  If he could have only done that more often throughout his 8 year tenure.

 

Economics is as Bankrupt as the United States Economy

I read Yves Smith’s post on why the field of economics is so poor at forecasting, and poorer still at recognizing its failings and was inspired to write the following:

Can’t we all just get along? Oh, sure variety is the spice of life and all that, but what does it really matter if you can trot out the exception (Larry Elliot, Yves Smith, Nouriel Roubini, Niall Ferguson, Ambrose Evans Pritchard, and some others) that proves the rule (Economics as a field of study is as bankrupt as the US economy), when the facts will out that the United States is in the absolute worst economic crisis EVER? Economics, particularly the branch that espouses neoclassical theories, is useless to try and understand how we got here, where we are, and where we are going.

Try history instead. It’s a hell of a lot more insightful and informative because it gives you a picture of reality (what motivates people, how they act, the forces they react to) and if you’re smart enough you can actually see patterns and begin to apply it to society at large. Unlike economics, which is useful only when you control for all variables and you postulate perfect information, perfect competition, etc, etc.

So as economists reassure us that we’re in a recession and they see it ending sometime in the second half of 2009, maybe early 2010, you should be thinking: BULLSHIT. Sure people will argue and try to point to the contra indicators that say the credit crisis is over, the stock market is stabilized, the USD is still reserve currency of favor, unemployment is in historical normal ranges, people are still buying American cars, Chase had a profit (what a good use of those TARP funds), entrepreneurship thrives in a recession, the housing market has bottomed, mortgage rates are at an all time low, gas is less than $2 a gallon, and so on, and so on.

But all of that is just plain nonsense. A statistician might say it’s all spurious. In reality, the fun (for all you sadists) is just beginning. The post-war American dream of every generation building on the successes of the previous generation is on hold. It’s done. Game over. Time’s up. Music’s stopped. Piper must be paid. Choose your favorite metaphor. But the facts remain, the United States economy is entering an unrecoverable (in the near term 5-10 years…pray tell not longer) slide into massive destabilization. You can forget about doing better than your parents did. And your children can forget about doing better than you did. People need a massive collective reset. Washington needs an even more massive reset.

You can’t print money until the cows come home and expect to sell the guarantees on that money to sovereign wealth funds without them getting mad as hell when they realize they’re holding a bag of shit. Oh but the Fed call that Quantitative Easing. I call it mortgaging our future, or worse.

You can’t sustain consumption when real wages are declining, the savings rate is negative, and the second largest credit issuer in the country is ratejacking. Shouldn’t that be a crime like carjacking? What’s the difference really?

You can’t rebuild an economy laden with $$ trillions in debt, no wage growth, no job growth, extreme concentration of wealth, rampant fraud and mistrust, and no viable long term systemic means of creating long term (100+ years) value. If you subscribe to the labor theory of value instead of marginal utility, look at the facts and quickly you’ll see we’ve created a perfect storm of anti-value creation (is there such a thing? hmm.)

It’s time somebody started listening to historians.   While most are still drinking the neo-classical economic Kool-Aid(TM), it’s time for a great economic awakening. But forget about economists leading us to the promised land. They’re hopeless.

And by the way, I’m not a pessimist…I am a realist, but sometimes the truth hurts.

 

Free Markets Do Not Work

You probably think I’m against capitalism or am just saying this for effect.  You’d be wrong on both accounts. First, there is no such thing as monolithic capitalism.  Capitalism is a form of market economics that has evolved significantly over the past 400 years and has mutated into varied forms (industrial capitalism, financial capitalism, laissez-faire capitalism, globalization, corporatism).  The basic tenets of capitalism–property rights, free markets–are essential to ensuring a democratic political economy. But it can be taken too far, as we are seeing firsthand today.  Classical and neo-classical economics, which provide a narrow view of economic causality, are not sufficient theoretical constructs on which to build a capitalist democracy that ensures the rights and abilities of citizens to enjoy “life, liberty and the pursuit of happiness.”   Despite Adam Smith’s desire to believe it so, the narrow profit-maximizing self interest of individual economic actors does not create a greater social good.  At the extreme, such behavior yields greed, avarice, and gluttony.  While I firmly believe that the fundamentals of capitalism as an economic engine–as opposed to feudalism, socialism, mercantilism, communism, or agrarianism–are the most relevant and reliable form of economic activity for a democratic and open society, they must be nurtured, managed, and enforced by the same political institutions that preserve the common good, social order, and defense of the realm.  Because in Smith’s world, there is no incentive to do otherwise.

Though The Wealth of Nations is a seminal work of defining capitalism,  we’ve come a long long way from 1776 and Adam Smith’s day.  Back in Smith’s day, he was concerned about “real price of every thing” which he described as “the toil and trouble of acquiring it.”  Most importantly we need to remember he was reacting to the conventional wisdom of the times–that agricultural activity was the only way to create surplus value.  After all, let’s remember that in 1776 not only were the colonies in the “new world” seeking independence from Britain, but the First Industrial Revolution changed the entire social order of things.  Smith was reacting to and commenting on these massive changes in his world.  His goal was to explain how Land, Labour, and Capital interact.  Smith’s The Wealth of Nations gave us the concepts of the “labor theory of value”, “marginal productivity”, “profit maximization” and the “invisible hand.”

In our modern society free markets have become the playground of what Smith feared the most: factions, or what we refer to as special interests in today’s parlance.  (Smith was not alone in fearing factions. Hamilton, Madison and Jay wrote extensively on the subject in the Federalist Papers).  The temptation for greed is too great for individual rational economic actors to keep in check.  If by forming factions individual actors can leverage their self interest and gain even greater profits, they will.  Furthermore, factionalism and greed are the ultimate extensions of the capitalist’s “profit maximization” objective.  It’s why free markets need regulation and intervention by government.  Not because government is better equipped at generating surplus value, or because government should provide the goods and services of a capitalist economy.  Far from it!  No, government intervention is necessary because regulation is the only thing that counterbalances the tendency of factionalism to grow like a cancer in a free market economy.

If you don’t believe me just look at the mortgage crisis.

 

The Republican Party is Bankrupt

I was watching the Big Idea with Donnie Deutsch this evening.  They had Senator Orrin Hatch call in.  Nothing Orrin Hatch said answered any of the questions Deutsch and his guests (Joe Kernan and Becky Quick) posed of the looming economic crisis.  Hatch couldn’t answer the question.  He kept talking about the goals of employment, home ownership and lower taxes.  It’s amazing…why don’t we push politicians to give straight answers?  He kept referring to the problem of Washington spending.  But he had nothing to say that was constructive.

Where has the fiscal conservatism of the Republican party gone?

We need a bigger shock to the system before we get back on track.

This is just the precursor.

 

Capitalism, Socialism, and Democracy

It’s the title of a book published in 1942 by Joseph Schumpeter.  I’m not going to get into what Schumpeter argues–that entrepreneurial spirit is at the heart of capitalism–or whether Schumpeter really supports Marxism and Socialism.  No, I bring it up because so much political hay is being made over the “socialist” policy recommendations of the Obama campaign.

Hogwash!

This is just political rhetoric and fearmongering on the part of uneducated, cynical, fearful Republican candidates and talking heads.

There is no socialism. It’s just a ear-catching soundbite to make out the Obama positions as fostering socialism.

We’re living with the effects of massive financial deregulation and the tendency of greed to overpower the market when regulatory curbs have been removed.  The fact that government regulation is now needed will not harken an era of socialism.

The fact that Barack Obama is telling Americans they need to swallow a hard pill–increased taxes on the rich–is NOT SOCIALISM.

We’ve been living too long like a drunken sailor on payday.  We have to own up to the realities of what we are facing.

Increasing taxes on the middle and working classes (those who earn less than $250,000 HHI) would be disastrous.  But, that’s not what Barack Obama is proposing.

If you look at the facts, you’d realize that Obama’s proposed affects less than 3% of Americans.  Let me say it again–less than 3% of Americans.  In 2005 (the last year for which I have IRS data) there were 134,372,678 personal tax returns filed.  Of those, 130,806,555 had adjusted gross household income of less than $200,000!  That means 97% of American households would not see their taxes increase.

But the right wing has jumped all over the Obama plan because it’s a great scare tactic.

Folks, if you fall for that bullshit you deserve what you get.

 

The Deepening Recession

So it turns out Alan Greenspan is on Capitol Hill testifying about the financial crisis.  Seems that Mr. Greenspan is “shocked and awed” by the fact that the markets didn’t self-regulate and the credit crisis of September flared up to Panic proportions.  http://www.cnbc.com/id/27337369.  Well pity him.  Maybe if he was more of student of History he wouldn’t be so shocked.

 

And, Mr. Greenspan is in good company it seems.  CNBC’s Steve Liesman is similarly dismayed by what’s happening in the credit and equity markets.  This morning on Squawk Box, Liesman opined “I’m the Free Marketer here” when arguing that the situation will correct itself because, by gosh, that’s what Capitalism and Democracy are all about. http://www.cnbc.com/id/15840232?video=900956700&play=1.

Come on guys!  Wake up.  Free Markets lead to crises like we are seeing.  The fact that Greenspan and Rubin decimated the banking protections of the 1930s (like Glass-Steagall) only accelerated our return to the days of the Robber Barons.  Regulation is a necessary part of a capitalist democracy.  It is not socialism.  The reason the financial markets collapsed was due to greed and the tendency of the greedy to obfuscate their intentions. As a result, we have a banking meltdown and the government’s hand has been forced.  Temporary government injections and ownership will not send us on a path toward socialism.  Those who protest because they are “pure free marketeers” are as dangerous to society as any fanatic.

 

Whomever The Next President Is, He Will Inherit A Colossal Mess

Whether John McCain or Barack Obama is our next president, it won’t matter much in one respect.  Either will face the most serious set of problems ever experienced in American History.  The Second Great Depression, the continued spread of Islamic terrorism, a resurgent Russia,  a beleaguered and demoralized military, a crumbling housing market, environmental issues, healthcare, education, decaying infrastructure, and a global current account deficit of staggering proportions are just some of the critical arenas of concern.

Thus I am completely shocked and dismayed that John McCain, in response to Joe Biden’s comment about Obama being tested, said he wouldn’t be tested and that “American know…they know me, I’ve been tested.”

Pardon my outrage, but this is absolutely unbelievable.  This guy is off the goddam reservation.  Are you kidding me? If you have an IQ half your age you should be teeming with anger.  That is the most reckless, arrogant, dissonant remark I can imagine a presidential candidate making.  He thinks there’s nothing this world can throw at him that will test him because he was in a fighter jet on alert during the Cuban Missile Crisis?

You want to talk about being unfit for command?  You want to talk about not being ready to lead?  I don’t care that this guy has been in the US Senate for almost 30 years.  I don’t care he’s a Vietnam War hero and spent time at the Hanoi Hilton, facing torture at the hands of the North Vietnamese.  The John McCain of 2008 is not the John McCain of 2000, or 1980, or 1962 for that matter.  I thought his selection of Sarah Palin was reckless, this latest comment just reinforces that.

If John McCain is elected the next president of the United States, the American civilization will crumble faster than anyone could ever imagine.

Wake up America! Forget about party lines.  I don’t know how intelligent Republicans bite their collective tongues.  

We need more Christopher Buckleys, David Brooks, and Peggy Noonans, raising the alarm. Google search what they’ve recently said about McCain/Palin–and they are CONSERVATIVE REPUBLICAN commentators.

We cannot let John McCain and Sarah Palin win this election.