The Unz Review: An Alternative Media Selection
A Collection of Interesting, Important, and Controversial Perspectives Largely Excluded from the American Mainstream Media
 BlogviewMike Whitney Archive
The Chart That Explains Everything
🔊 Listen RSS
Email This Page to Someone

 Remember My Information



=>

Bookmark Toggle AllToCAdd to LibraryRemove from Library • BShow CommentNext New CommentNext New ReplyRead More
ReplyAgree/Disagree/Etc. More... This Commenter This Thread Hide Thread Display All Comments
AgreeDisagreeLOLTroll
These buttons register your public Agreement, Disagreement, Troll, or LOL with the selected comment. They are ONLY available to recent, frequent commenters who have saved their Name+Email using the 'Remember My Information' checkbox, and may also ONLY be used once per hour.
Ignore Commenter Follow Commenter
Search Text Case Sensitive  Exact Words  Include Comments
List of Bookmarks

Why is the economy barely growing after seven years of zero rates and easy money? Why are wages and incomes sagging when stock and bond prices have gone through the roof? Why are stocks experiencing such extreme volatility when the Fed increased rates by a mere quarter of a percent?

It’s the policy, stupid. And here’s the chart that explains exactly what the policy is.

Screen Shot 2016-01-14 at 12.06.21 PM

(Richard Koo: The ‘struggle between markets and central banks has only just begun’, Business Insider)

What the chart shows is that the vast increase in the monetary base didn’t impact lending or trigger the credit expansion the Fed had predicted. In other words, the Fed’s madcap pump-priming experiment (aka– QE) failed to stimulate growth or put the economy back on the path to recovery. For all practical purposes, the policy was a flop.

QE did, however, touch off an unprecedented 6-year bull market rally that pushed stocks into the stratosphere while the real economy continued to languish in a long-term slump. And the numbers are pretty impressive too. For example, the Dow Jones Industrial Average, which bottomed at 6,507 on March 9, 2009, soared to an eye-popping 18,312 points by May 19, 2015, an 11,805 point-surge in just five years. And the S&P did even better. From its March 9, 2009 bottom of 676 points, the index skyrocketed to a record-high 2,130 points on May 21, 2015, tripling its value at the fastest pace in history.

What the chart shows is that the Fed knew from 2010-on that stuffing the banks with excess reserves was neither lowering unemployment or revving up the economy. The liquidity was merely driving stocks higher.

It’s worth noting, that the Fed knows that credit does not flow into the economy without a transmission mechanism, that is, unless creditworthy borrowers are willing to to take out loans. Absent additional lending, the liquidity remains stuck in the financial system where it eventually creates asset bubbles. And that’s exactly what’s happened. Instead of trickling down into the economy where it would do some good, the Fed’s monetary stimulus has cleared the way for another catastrophic meltdown.

The chart suggests that the Fed’s primary objective was to reflate stock and bond prices to help the banks grow their way out of insolvency and avoid government takeover. Former Treasury Secretary Timothy Geithner alluded to this in an interview with CNBC in 2009 when he said: “We have a financial system that is run by private shareholders, managed by private institutions, and we’re going to do our best to preserve that system.” Unfortunately, the banking system was insolvent at that point in time, a fact that was confirmed in sworn testimony before the Financial Crisis Inquiry Commission by Fed chairman Ben Bernanke. Here’s what he said:

“As a scholar of the Great Depression, I honestly believe that September and October of 2008 was the worst financial crisis in global history, including the Great Depression. If you look at the firms that came under pressure in that period. . . only one . . . was not at serious risk of failure. So out of maybe the 13 of the most important financial institutions in the United States, 12 were at risk of failure within a period of a week or two.”

Think about that for a minute. Not only was the US banking system hopelessly underwater, but also the world’s most lucrative and powerful industry was about to be removed from private hands and “nationalized”. Shareholders would be wiped out, bondholders would take severe haircuts, management would be replaced, and credit production would be returned to the representatives of the American people, US government officials.

Do you think the prospect of nationalization might have scared the hell out of Wall Street? Do you think the banksters might have concocted some crazy plan along with Bernanke and Treasury Secretary Henry Paulson to precipitate a crisis by euthanizing Lehman Brothers so they could extort $700 billion from Congress (TARP) before launching round after round of money printing under the deliberately-opaque moniker, Quantitative Easing?

Of course, they would. These are the same guys who had already stolen trillions of dollars from credulous investors in a fraudulent mortgage laundering scam that crashed the economy and brought the financial system to the brink of ruin. Does anyone seriously think that they’d wince at the prospect of dinging the public a second time by shifting their toxic assets onto the Fed’s balance sheet or by accessing free liquidity to fuel their illicit derivatives trades or their other pernicious high-risk activities?

Keep in mind, the Fed never could have carried off this massive looting operation without the help of both the Congress and the president. This simple fact seems to escape even the most vehement critic of the Fed, that is, that the Fed needed policymakers to strangle the economy while it implemented its plan or it would have had to abandon its reflation strategy.

Why??

Well, because if the economy was allowed to rebound, then higher employment would push up wages and raw material costs which in turn would boost inflation. Higher inflation would force the Fed to raise short-term interest rates which would put the kibosh on the cheap money Wall Street needed to buy-back its own shares or engage in other risky speculation. So the real economy had to be sacrificed for Wall Street. Hence, “austerity”.

The fact that Obama’s economics team, led by Lawrence Summers, was trying to lift the economy out of recession without creating conditions for a strong recovery was evident from the very beginning. We know now that chief White House economist Christy Romer wanted a much bigger fiscal stimulus package than the $800 bil that was eventually approved. Here’s the story from the New Republic:

“Romer calculated that it would take an eye-popping $1.7-to-$1.8 trillion to fill the entire hole in the economy—the “output gap,” in economist-speak. “An ambitious goal would be to eliminate the output gap by 2011–Q1 [the first quarter of 2011], returning the economy to full employment by that date,” she wrote. “To achieve that magnitude of effective stimulus using a feasible combination of spending, taxes and transfers to states and localities would require package costing about $1.8 trillion over two years.”
(EXCLUSIVE: The Memo that Larry Summers Didn’t Want Obama to See, New Republic)

Regrettably, Romer’s recommendations “never made it into the memo the president saw.” Obama was not given the option of providing the stimulus the economy needed for a strong recovery because Summers didn’t want a strong recovery. Summers wanted the economy to sputter-along at an abysmal 2 percent GDP like it is today. That would keep a lid on inflation and allow the Fed to pump as much money into the financial markets as it pleased.

Obama has played a big role in this austerity fiasco too. For example, did you know that more government workers lost their jobs under Obama than any other president in history?

It’s true. Since Obama took office in 2008, nearly 500,000 public sector workers have gotten their pink slips. According to economist Joseph Stiglitz, if the economy had experienced a normal expansion, “there would have two million more.”

Of course, Obama never made any attempt to rehire these workers because rehiring them would have put more money in the pockets of people who would spend it which would boost GDP. Typically, economists think that’s a good thing. It’s only a bad thing when the Fed is working at cross-purposes and trying to keep a damper on inflation so it can bail out its crooked Wall Street buddies.

For more on Obama’s belt-tightening crusade, just look at his efforts to cut the budget deficits. Here’s a clip from MSNBC:

“Strong growth in individual tax collection drove the U.S. budget deficit to a fresh Obama-era low in fiscal 2015, the Treasury Department said Thursday…. The deficit is the smallest of Barack Obama’s presidency and the lowest since 2007 in both dollar terms and as a percentage of gross domestic product. (During) the Obama era, the deficit has shrunk by $1 trillion. That’s ‘trillion,’ with a ‘t.’” (MSNBC)

Why would Obama want to cut government spending when the economy was already in distress, capital investment was flagging, and households were still trying to pay down their debts?

Basic economic theory suggests that when private sector can’t spend, then the government must spend to offset deflationary pressures and prevent a major slump. Cutting the deficits removes vital fiscal stimulus from the economy. It’s like applying leeches to a patient with flu symptoms thinking that the blood-loss will hasten his recovery. It’s madness, and yet this is what Obama and the Congress have been doing for the last six years. They’ve kept their hands wrapped firmly around the economy’s neck trying to make sure the patient stays in a permanent state of narcosis.

That’s the goal, to suffocate the economy in order to reward the thieving vipers on Wall Street. And Obama and the Congress are every bit as guilty as the Fed.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at [email protected].

(Republished from Counterpunch by permission of author or representative)
 
• Category: Economics • Tags: Federal Reserve, Wall Street 
Hide 53 CommentsLeave a Comment
Commenters to Ignore...to FollowEndorsed Only
Trim Comments?
    []
  1. AlexT says:

    Assuming Trump is the next president, what could he do to change this? Would it be fairly straightforward? Asking, because econ is not my forte, so curious as to how fixable this is.

    • Replies: @Anonymous
  2. Renoman says:

    Prize for the most obscure geek chart.

  3. “Instead of trickling down into the economy”

    the fact that this has never worked seems to escape everyone AND the fact that the word “trickle” is used is very telling…….EVEN IF IT DID WORK THE REST OF US GET ONLY CRUMBS OFF THE TABLE.

    what a f’ing joke the USA economy has turned into…..serving only 1 segment of society.

    • Replies: @Olorin
  4. “Not only was the US banking system hopelessly underwater, but also the world’s most lucrative and powerful industry was about to be removed from private hands and “nationalized”. Shareholders would be wiped out, bondholders would take severe haircuts, management would be replaced, and credit production would be returned to the representatives of the American people”

    and that my friends is exactly how capitalism is supposed to work…….when you fail, YOU LOSE not the taxpayers. To bad the American economy isn’t based on capitalism.

  5. DCBillS says:

    A very good start Mr. Whitney. The way these things work though, complete knowledge would probably show that you missed at least half of the corruption.

  6. This is the sort of bitter, angry screed I was vomiting onto The Huffington Post before they changed their comment policy. I began looking into such things as Public Banking as is currently being promoted by Helen Brown as well as Modern Monetary Theory (MMT) as has been promoted by Warren Mosler and Randall Wray.

    While I agree with the major outlines of this article, the question comes down to Evil vs. Ignorance. If you read Mosler’s book “The Seven Deadly Sins of WTF”. You will see that he actually talked to Al Gore as well as Larry Summers. I have ambivalent feelings about Larry Summers. He is at least intelligent enough to know what he doesn’t know. When confronted with the Central Banking part of MMT, he said something like “I don’t understand Central Bank accounting.” A rare admission for a Washington insider. Al Gore, on the other hand, looked at it, (MMT), and decided that he just couldn’t go there, even though he thought it was probably correct.

    Long story short. The Evil vs. Ignorance argument doesn’t really matter, because elected officials have no right to be this ignorant.

  7. Why would Obama want to cut government spending when the economy was already in distress, capital investment was flagging, and households were still trying to pay down their debts?

    Your graph is only germane to recent history.

    To understand what is going on go to the Federal Reserve of St Louis FRED site:

    https://research.stlouisfed.org/fred2/series/TCMDO

    Below the graph find the “add data series” box and type in “GDP”. You can pick real or not, the basic story is the same.

    The government has used ballooning debt to generate “growth” and “prosperity” for 50 years but the debt was growing exponentially and has reached levels that it now takes astronomical amounts of debt to generate even a little “growth”.

    Mr. Whitney would have you believe that we can continue to expand debt at an exponential rate without damage to the economy. Very few agree with him, certainly no one on the Fed Board, but that is the argument.

  8. By the way, there is no way out, it is just a matter of fighting for control of the country after the collapse. I doubt that any regular reader of UNZ.com will have anything to say about that, it is way over our pay grade.

    “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” Von Mises

    We are way past “voluntary abandonment.”

  9. @Si1ver1ock

    Read Cullen Roche’s stuff at Pragmatic Capitalism.

  10. attonn says:

    US economy is not suffering from a flu, Mike. It’s a hideously deformed monstrosity where all productive sectors are being gradually strangled by excessive financialization. To pump this 1000-pound mutant with more stimulus in order to make it run is an impossible fantasy. All it will achieve is larger public debt, and not much else to show for the effort. After the money runs out, you’ll be back to square one.

    • Replies: @another fred
  11. on this terminal issue, the libertarians are correct. There will be a series of increasingly violent deflationary spasms (one going on now, at the moment) followed by even more violent reflationary attempts by the banksters. Finally the currency itself – and all other paper “assets” – will burn away in a hyperinflationary collapse. While physical gold/silver go price asymptotic. In the post-collapse chaos, however, lead will be decisive

  12. Anonymous • Disclaimer says:
    @AlexT

    Assuming Trump is the next president, what could he do to change this? Would it be fairly straightforward? Asking, because econ is not my forte, so curious as to how fixable this is.

    Trump has always expressed suspicion for money-shifting high finance. I remember reading, in The Art of the Deal In the late 1980’s, Trump saying Wall Street was “the world’s largest casino”. He has recently called out the shenanigans of the hedge funders in his campaign. Trump plans to tap Carl Icahn, who is a top finance guy, but maybe this is precisely the kind who knows the shenanigans more than anyone else and what realistic steps can be done.

  13. It seems to me that ideological blindness combined with incompetence is a better explanation than a conspiracy for the last few years.

    • Replies: @Seamus Padraig
  14. @Positive Dennis

    It seems to me that ideological blindness combined with incompetence is a better explanation than a conspiracy for the last few years.

    Oh yeah? Well here’s an exercise for you: follow the money, see where it leads, and then ask yourself whether you still believe that this is all a bunch of random incompetence or blindness.

    • Replies: @interesting
  15. @Seamus Padraig

    both side of the isle are in on the swindle……there’s no way those in charge are stupid.

    • Replies: @another fred
  16. Anonymous • Disclaimer says: • Website

    Upon reading this a second time, I know why I was bothered the first time. Mr Whitney is a KEYNSIAN! His analysis is predicated on demand side theory. He aligns himself with the Stiglizes and god forbid the Krugmans in believing that the stimulus would have worked much better if only it was larger! That hiring more government workers is the key to prosperity because they will spend more money and lift the economy.
    Would have been much better to not bailout anyone and let the big fish flounder.
    The Warren Harding/Calvin Coolidge approach. benign neglect. Cut government (and as the good Republicans should cut the military). Finally declare peace!
    If Obama had done that, there would have possibly been a harsher recession but for much shorter time and a strong recovery.

    • Replies: @tbraton
  17. @interesting

    both side of the isle are in on the swindle……there’s no way those in charge are stupid.

    Have you ever noticed how many politicians, including Tea Partiers, run on doing something about the deficit and debt, but change their tune after getting in office?

    I think that’s because it gets ‘splained to them how ugly the situation really is and that there is no option but to keep kicking the can down the road unless they want to trigger a financial panic that will sweep them all out of office and bring on a depression.

    This crap started with JFK listening to Paul Samuelson and applying Keynesian remedies to a healthy economy, then shifted up a gear with LBJ and the “War on Poverty” when he refused to raise taxes to pay for it and the Vietnam war at the same time (Walter Heller, the father of the “War on Poverty”, later criticized LBJ for this refusal, but too late).

    As the distortions to the economy took hold Nixon closed the gold window rather than defend the dollar because there was no doubt that to do so would bring on a severe recession and the repudiation of the Republican Party. Two years later the passage of the Humphrey-Hawkins Act shifted us into overdrive and sealed our fate – the only question being when, not if the collapse would come.

    Reagan ran on a promise to reverse the situation, but when the economy was on the brink he relented and the FED opened the spigots. I don’t know who ‘splained it to him, but it was not hard with the economic situation that existed before the deal was made and the hogs allowed to feed again at the trough (per Stockman).

    The demographic changes in this country in the last 70 years have created a situation where the wheels of commerce must turn at a high rate in order for the vast majority of the population to eat. There is no turning back. Distortions like the “sub-prime” housing crisis are simply the result of desperate attempts to keep the economy from slowing to stall speed.

    When the inevitable consequences of the debt burden finally bring the economy to stall speed and a crash we will resort to a command economy much like that of Germany in 1933-1938, there being no other viable option.

    The only people to blame are the people who elected the politicians.

    • Replies: @Randy
  18. @attonn

    After the money runs out, you’ll be back to square one.

    The problem is that demographic changes have made a return to square one impossible – too many hungry, marginally productive, urban mouths to feed.

    • Replies: @Stan D Mute
  19. Svigor says:

    People throw around the word “collapse” a lot, but that word leaves a lot of room for interpretation. When a house of cards collapses, it’s destroyed. But America isn’t a house of cards, it’s a country, full of zillions of dollars in real assets. When a mountain collapses, you get a hill. If crapholes like Brazil and Mexico can (pretty much) hold it together, then America’s not going to collapse like a house of cards.

    When the inevitable consequences of the debt burden finally bring the economy to stall speed and a crash we will resort to a command economy much like that of Germany in 1933-1938, there being no other viable option.

    That, I find plausible.

    The only people to blame are the people who elected the politicians.

    Nonsense. You don’t get to run psyops on hundreds of millions of people for the better part of a century, then walk away blameless when it results in disaster. The Media Masters have much to answer for. Everybody gnashes teeth and rends sackcloth over Nukes. They…got…shit on the power of the Mass Media. And everybody acts like its fuzzy and cute.

    Trump plans to tap Carl Icahn, who is a top finance guy, but maybe this is precisely the kind who knows the shenanigans more than anyone else and what realistic steps can be done.

    IIRC, my quick G**gle for dirt on Icahn came up pretty much empty. Nothing juicy. But it was pretty quick.

    Cut government (and as the good Republicans should cut the military). Finally declare peace!
    If Obama had done that, there would have possibly been a harsher recession but for much shorter time and a strong recovery.

    It occurs that a gov’t at or moving toward oppression would be well-served by keeping a large, well-trained, and experienced military.

    Well, sort of. Veteran soldiers do have a habit of coming home from campaigns with ideas in their heads, and the balls and know-how to see them through. Best not to let those hands idle.

    Have you ever noticed how many politicians, including Tea Partiers, run on doing something about the deficit and debt, but change their tune after getting in office?

    I think that’s because it gets ‘splained to them how ugly the situation really is and that there is no option but to keep kicking the can down the road unless they want to trigger a financial panic that will sweep them all out of office and bring on a depression.

    The effect you describe seems very real, but your explanation is speculative. We could put it down to lots of stuff. Corruption and inertia are big. The media is huge.

  20. […] chart that explains why stocks and bonds have grown while wages and employment levels have […]

  21. Nonsense. You don’t get to run psyops on hundreds of millions of people for the better part of a century, then walk away blameless when it results in disaster. The Media Masters have much to answer for.

    Like collapse, “blame” can have wide meanings.

    I had roommate in college back in the ’60s whose father was on the Democrat National Committee. He was a true believer in the neo-Keynesian nonsense and I was subjected to some of his rehearsals for class presentations he made in economics. It was not my impression that he was capable of deceit on the matter except that he had deceived himself first. I blame him for being gullible (and not very bright) and I blame the people who voted for this horseshit for being gullible (even some who are quite bright and of whom I am quite fond). To believe the Great Society BS (and the “Blank Slate,” behaviorist garbage it was founded on) one had to suspend rational belief and to me they are responsible for their self deceit.

    Corruption and inertia are big.

    I completely agree and do not doubt that they play an enormous role. It is especially easy for one to be convinced that that the “right thing” is being done if there is profit to be had and “that’s just the way things are done.”

  22. Mike Whitney is just another Keynsian fool, completely ignorant of real world economics.

  23. OutWest says:

    While the feds can foul up the economy they can’t actually improve it. They don’t produce anything. At best they can provide a nonobstructive environment for those that are productive. Once the obstructions are removed it’s up to the nongovernment types to actually make something happen. They usually do.

    Unfortunately the feds can juice the economy short term for political favorites with the price plus economic entropy to be paid later by the broad population. The technical term is kicking the can down the road.

  24. Why is the economy barely growing after seven years of zero rates and easy money? Why are wages and incomes sagging when stock and bond prices have gone through the roof? Why are stocks experiencing such extreme volatility when the Fed increased rates by a mere quarter of a percent?

    It’s the policy, stupid.

    The analogous experience of Japan (which had a decade’s head start on this problem) suggests that the issue isn’t policy but structural. So does the fact that the Mediterranean countries which lost their “easy money” have fallen into outright recessions/depressions with unemployment soaring to 20%+.

    Technological growth has slowed down massively – even IT is no longer an obvious exception. Flynn Effect has stopped, so eking out further increases in labor productivity is very hard. Where else do we find per capita growth?

    I suspect we’ll just to reconcile ourselves to a potentially long and perhaps indefinite period of stagnant output. This needn’t be horrific, since $53,000 GDP per capita is still a very respectable number.

    • Replies: @Stan D Mute
  25. Leftist conservative [AKA "bow down before me"] says:

    nobody but me seems to remember it, but during his campaign announcement speech, trump said that the stock market is too high and the interest rates were too low.

    Trump for the win!

  26. War for Blair Mountain [AKA "Groovy Battle for Blair Mountain"] says:

    Post-Trump politics:

    1)start thinking about post-Trump politics

    2)hard-core racial xenophobia

    3)More hardcore racial xenophobia

    4)A highly-racialized xenophobic hardcore Native Born White American Working Class economically progressive Populist Labor Revolt against White Liberal Greeding Cheating Male MEGA-CEOs who are the force behind the open and deliberate policy of wage slavery and the promotion of homosexual social and cultural filth!!!!(the former MEGA-WHITE MALE CEO of Verizon…last name Smith….comes to mind).

    5)Stripping the MEGA-CORPORATIONS of any legal standing in US Courts.

    6) A hardcore-anti-interventionist foreign policy

    7)Denouncing Evangelical Christianity as a repellant Christian Heresy!!!

    8)Severe punishment…with extreme depravity….of all the vile SATANIC Greedy-Cheating Liberal White Male MEGA-CEOS for crimes against The Historic Native Born White American Working Class and for the promotion of homosexual social and cultural filth.

    9)A recognition that Conservative Orthodox Christian Russia is the Social,Cultural. and Spiritual Leader of all European People!!!!

    1-9 is the only viable game in town for The Historic Native Born White America Working Class!!!!

    Oh yeah, I forgot this one:All European People should listen to hours of Irish-Celtic music!!!…especially those Irish Rebel ballads!!!!…and don’t forget the Uilean Pipes!!!!

    • Agree: Seamus Padraig
  27. Randy says:
    @another fred

    I rarely see mentioned that 1964, the same year as the beginning of the “war on poverty,” was the last year that our money (dimes, quarters, half dollars, and dollars) was 90% silver. You can’t run a never ending welfare-warfare state on real money.

  28. tbraton says:
    @Anonymous

    “Finally declare peace!
    If Obama had done that, there would have possibly been a harsher recession but for much shorter time and a strong recovery.”

    Well, the 2007-09 recession began in December 2007 and ended by June 2009, according to the nonpartisan NBER, the “official” arbiter of business cycles. (Thus, the “Great Recession” lasted 17 months, as compared to the 17.5 months of all recessions since the mid-19th century.) Obama assumed office on January 20, 2009, less than six months before the recession ended. In my opinion, his actions had no influence on when the recession ended. I fail to see how he could have done anything to end it earlier than it did. As a matter of fact, Christine Romer of U-Cal.-Berkely, his first appointee to head the Council of Economic Advisers, whose academic specialty was business cycles, said in an op-ed piece in the NY Times 10 days before Obama assumed office that, if the stimulus program that Congress adopted wasn’t enacted into law, the unemployment rate might go slightly higher and the recovery take slightly longer but that by 2014 the economy would be at the same point with the stimulus package passed. http://otrans.3cdn.net/45593e8ecbd339d074_l3m6bt1te.pdf (see chart on page 5)

    • Replies: @tbraton
  29. @another fred

    The problem is that demographic changes have made a return to square one impossible – too many hungry, marginally productive, urban mouths to feed.

    No, that should be “too many hungry, counter-productive violent and illiterate, urban mouths to feed.”

    America is now a first world country with virtually every urban center a third world hellhole kept from complete chaos (think Liberia or Haiti) only by dumping massive sums of money (all borrowed) and imposing strict police state tactics. Within 24hrs of cessation of that money pipeline (both direct as welfare and housing along with indirect as government “jobs”), those urban areas will look exactly like New Orleans after Katrina, Liberia under the cannibal generals, or Haiti under Papa-Doc.

    Furthermore, there is no segment of society uncorrupted and productive. Manufacturing is gone to Mexico and China. Farming is a cesspool of welfare with no idea how to function in a free economy. Healthcare is a foul sty of Medicare and Medicaid corruption teetering while importing third world incompetents masquerading as “doctors” and “nurses.” The rot has infiltrated everything!

  30. @Anatoly Karlin

    I suspect we’ll just to reconcile ourselves to a potentially long and perhaps indefinite period of stagnant output. This needn’t be horrific, since $53,000 GDP per capita is still a very respectable number.

    What is that GDP without the mountains of debt and interest, without the oceans of “stimulus” like QE, without the insanely bloated payrolls of government “workers”?

  31. nickels says:

    So how did the monetary base enter into the economy (if not through loans)?

    And, also, by what mechanism did it increase the stock market?

    Because the government was buying junk bonds or such?

    Trying to understand…

  32. tbraton says:
    @tbraton

    ” (Thus, the “Great Recession” lasted 17 months, as compared to the 17.5 months of all recessions since the mid-19th century.)”

    Just to avoid confusion, I meant to say the “average of” 17.5 months of all recessions since the mid-19th century. Obviously some were longer than 17.5 months, and some were shorter. The fact that the recession was less than the average length indicates to me that an awful lot of hype was going on to convince the American public that the situation was much worse than it actually was. We saw the same thing back in 1992 when Bill Clinton ran on the slogan “it’s the economy, stupid.” That was despite the fact that the recession had ended in March 1991, after one of the shortest and mildest downturns since WWII. That was nearly two years before Clinton became President in January 1993 and started pushing his economic program “to get the economy going again.”

    • Replies: @utu
  33. CanSpeccy says: • Website

    Whitney offers the correct Keynesian analysis. But Keynes addressed the problems of a different age, when the US economy was largely self-contained with external trade amounting to less than 5% of GDP.

    Globalization with input factor mobility, i.e., free movement of labor from the Third World to the First World, free movement of capital and technology from the First World to the Third World, and free movement of the products of sweatshop labor from the Third World to the First World means lower wages and higher unemployment in the First World, which in turn shrink aggregate demand resulting in even lower wages and higher unemployment.

    The Keynesian solution to shrinking demand and rising unemployment was deficit spending to raise aggregate demand and hence employment and wages. But today, the effect of deficit spending is primarily to suck in more cheap Chinese shoes and shirts, computers and car parts, all of which Americans and others in the First World used to make for one another. Add in the effects of computerization, automation, robotization and insane student debt and the economic outlook for ordinary folks becomes, as is now apparent, bleak indeed.

    There are two measures to improve the welfare of the proletariat. One is massive infrastructure spending, since this generates work that cannot be outsourced and is still largely beyond the scope of automation and robotization. The other is a return to free trade without input factor mobility, which as David Ricardo explained in his 1817 classic, “On the Principles of Political Economy and Taxation” yields the benefit of “Comparative Cost”, or “Comparative Advantage” as it is now known, i.e., the benefit of increased total output and lower costs than if each nation tried to produce in isolation.

    These, as I explained in a post on my own blog that was rejected for publication by the Unz Review, are the economic policies espoused by Donald Trump, i.e., restoration of the border to limit influx of labor from the Third World, and the imposition of tariffs to restrict influx of products of foreign sweatshops financed with First World capital and technology, thereby achieving the benefits of comparative advantage through international trade, and last but not least a massive infrastructure renewal project.

  34. TG says:

    Well said. Kudos.

  35. Your take makes great sense. Wall Street is the obvious winner, as they make the really obscene money on the over inflation of asset prices, and the debt that props them up. The game continues, for without the game, Wall Street is reduced to mere service providers, and has to earn every nickel it keeps, just like the rest of us.

    A less obvious winner are the politicians, not to be confused as the selfless public servants they make themselves out to be. More like a den of wipers who would sell the world into slavery if it would generate a little fame and fortune in their ego-driven lives. Living testament to Rahm Emanuel’s pre- 2008 candid observation about a crisis being a terrible thing to waste for a politician, one and all.

    Wall Street should have been wiped out. Instead, the politicians delivered us to them as tribute for some pats on the back and attaboys in the form of campaign contributions, speaking fees, book deals, and other sweet deals that only go to those who do their bidding.

    What makes no sense is the premise that an even more costly dose of Keynesian economics could have worked to right the economy, except that’s not the memo that Obama got. That is truly wishful thinking, and shows little understanding of economic reality, and even less of human frailty.

  36. utu says:
    @CanSpeccy

    What do you mean by “input factor mobility”? Financing with First World capital and technology?

    • Replies: @CanSpeccy
  37. utu says:
    @tbraton

    All this “it’s the economy, stupid” is pure nonsense. Clinton won because Bush was not supposed to win after when he attempted to stop money flow to Israel by making the condition about new settlements (Fall 1991). After the Desert Storm he had the highest popularity any president ever had. He could pull it off but he lost his nerve. The bad economy was invented by NYT and WaPo till the election. Safire and Friedman were writing weekly negative op-eds about Bush. And there was Ross Perot. Ross Perot did to Bush what Teddy Roosevelt did to Taft.

  38. @CanSpeccy

    You’re absolutely right. The original Keynsians back in the 30’s and 40’s usually referred to imports and immigration as ‘leakage’, bleeding wealth from the system. Although they weren’t necessarily fans of tariff wars, they usually also stopped well short of an open-borders approach.

    • Replies: @CanSpeccy
  39. CanSpeccy says: • Website
    @utu

    What do you mean by “input factor mobility”? Financing with First World capital and technology?

    Input factor mobility refers to international transfer of the factors of economic production: e.g., labor, capital and technology.

    Examples are:

    Labor migration, e.g., Mass migration into the US across the Mexico/US border;

    Offshore investment of capital from the First World in facilities for the production of goods or the provision of services to be sold in the country or countries from which the capital originated, e.g., capital invested in a Ford Motors manufacturing plant in Mexico to produce vehicles and car parts for export to the United States;

    Offshore application of technologies developed in the First World to the production of goods or the provision of services to be sold in the country or countries from which the technology originated; e.g., the Manufacture of Apple iPhones in China for export to the United States.

  40. CanSpeccy says: • Website
    @Seamus Padraig

    You make an important point.

    Keynes and other economists of his generations took it for granted that the objective of national economic policy was to promote national prosperity. Today, however, virtually all prominent economists are employed either by globalist financial institutions, or universities of which most if not all serve as a fount of anti-nationalist, globalist propaganda and politically correct brainwashing (That is why the bureaucratic nullities that head most universities are paid as though they were running a major business organization. They are paid for their loyalty to the Treason Party). Moreover, the ideas of today’s economists are published almost exclusively by cuckservative newspapers such as the New York Times, globalist publishers such as NewsCrap (Poop Murdoch, Prop.), Axel Springer, etc., or transnational scholarly journal and textbook publishers such as Pearson PLC. Naturally, therefore, what they promote are ideas that maximize the return to the globalized Money Power, to use a term coined by Bill Clinton’s Geogetown University History mentor, Carrol Quigley.

    And that, in brief, is why Paul Krugman and almost all other prominent present-day economists misrepresent what Ricardo had to say about the conditions necessary for mutually beneficial international trade.

    • Agree: Seamus Padraig
    • Replies: @utu
  41. @CanSpeccy

    From your blog:

    “The only real complication is how such changes would affect the price of the dollar.”

    While I believe that the kind of steps you outline lie in our future (tariffs, the return of manufacturing jobs), the complications could be far more severe. One of the ideas behind “globalization” has been that trade and interdependancy will “reduce conflict”. The main thing is the intention to get people to resort to international organizations to resolve disputes.

    As international “cooperation” (such as it is) breaks down war is likely to follow.

    • Replies: @CanSpeccy
  42. utu says:
    @CanSpeccy

    More about representation of what Ricardo…, pls?

    • Replies: @CanSpeccy
  43. CanSpeccy says: • Website
    @another fred

    While I believe that the kind of steps you outline lie in our future (tariffs, the return of manufacturing jobs), the complications could be far more severe.

    Creating conditions under which Western nations, as opposed to Western plutocracies, can prosper in the modern world requires, first, a restriction on the flow of immigrants from the Third World to the First World, and second, a restriction on the outflow of capital and technology from the First World to the Third World.

    The first objective requires policed national borders and a restrictive immigration law such as all Western countries had until the onset of the recent mania for globalization. The alternative is the genocide of the Western nations, as is already well advanced in Britain where, for example, the English in London and a growing list of other urban centers are now a rapidly dying minority. Among elementary school children in Birmingham, England’s second city, English children are not even the largest minority. Within a generation the English will be a minority in the country as a whole and Islam will be the dominant religion.

    The second objective, restricting outflows of capital and technology, can also be accomplished without resort to extraordinary measures. The first step should be to eliminate the corporation tax, an insane impost in an era of international trade competition, since it provides a huge incentive for Western-based corporations to invest in low or zero tax off-shore jurisdictions such as China. Instead, corporate profits should be taxed as other income when received as dividends by shareholders.

    Additionally, an across the board import tariff may be desirable, and is permitted under WTO rules. And non-tariff barriers to Western exports, such as have been widely used in Asia need to be eliminated by tough political negotiation.

    One of the ideas behind “globalization” has been that trade and interdependancy will “reduce conflict”. The main thing is the intention to get people to resort to international organizations to resolve disputes.

    When the options for the Western nations are, on the one hand, racial and cultural genocide, as has been imposed on the English by the Blair-Cameron duo and is being imposed on the rest of Europe by Frau Merkel and other leaders of the Treason Party, or on the other hand, the risk of international conflict among democratic nation states, I’d rather go with the nation state. Living in a Hellish world such as London has become, a world of criminal oligarchs, internationally trafficked child prostitutes, near slave labor and a dying and demoralized native population has no charm for me.

  44. CanSpeccy says: • Website
    @utu

    More about representation of what Ricardo…, pls?

    I a not sure what you are asking here, but if you want clarification of the lie about Ricardo’s theory of “comparative cost” that is propagated by economists such as Jeff Rubin, Joseph Stiglitz and many others it is this:

    That international trade with input factor mobility, i.e., international migration of labor and transfer of capital and technology, contributes to the prosperity of both the importing and exporting nations. In fact, such trade adds greatly to the profits of the international corporations that off-shore manufacturing and services from the West to the Rest, but they impoverish Western workers in the process.

    What Ricardo, in fact, demonstrated was that for two nations without input factor mobility, specialization and trade could result in increased total output and lower costs than if each nation tried to produce in isolation.

    Things get more complicated when there are many nations trading in various ways among themselves, but the fact remains that global free trade with input factor mobility does not conduce to the prosperity of the Western nations, as is evident from the massive rise in the number of Americans of working age who are not working and the long-term downward trend in real wages in the US and EU.

    A useful article about Ricardo and international trade here.

    • Replies: @utu
    , @tbraton
  45. woodNfish says:

    The government caused the mortgage crisis by requiring lenders to give loans to people who couldn’t afford them or be sued for discrimination. lenders had no choice. If the ship is sinking and you are told to put more water in the boat, you might as well enjoy yourself while you can.

    Sure bankers and wall street are crooks, but so is the government, and THE GOVERNMENT caused the mortgage crisis.

  46. Olorin says:
    @interesting

    Yeah. Those who understand basic math.

  47. tbraton says:
    @CanSpeccy

    Well said. Even though I majored in economics in college and learned Keynesian economics, I still had reservations during the Reagan Administration (despite voting for Reagan twice) about opening up our economy to foreign producers. It was hard for me to understand how the U.S. could compete with China and India, with their vastly cheaper labor. It turns out that we can’t. Plus the insane decision to admit millions of third worlders as we were exporting our industries to China made no sense at all and worked to depress the wages of American workers. I have since come around to Pat Buchanan’s view that we should go back to our old policies of erecting barriers to foreign goods and restricting immigration just as we did from the 1920’s until 1965. (The second part did not require any essential rethinking of my intellectual framework.) As a nation of 330 million people, we don’t need a substantial number of immigrants. As the largest economy in the world, we can largely exist on our own, apart from bananas and coffee. Will things cost more? Obviously yes, but there are more important things than the GNP.

    • Replies: @Seamus Padraig
  48. @tbraton

    Will things cost more? Obviously yes, but there are more important things than the GNP.

    And if wages are higher too, the costs will not be very noticeable.

    • Replies: @tbraton
  49. tbraton says:
    @Seamus Padraig

    I have joked from time to time when I see someone raising the cost issue, especially in connection to labor costs, that we’ve reached the point where Americans cannot afford to hire Americans any more. It’s rather silly. Once you limit mass immigration, the free market will determine which wages have to go up to satisfy demand for which services. Supply and demand. It’s like the old joke when the plumber submitted his hefty bill to his customer, who happened to be a lawyer. “Why that’s more than I charge as a lawyer.” “I know,” came the response. “That’s why I decided to stop practicing law and become a plumber.” If Michael Bloomberg wants well maintained golf courses, he may have to substantially raise the wages paid to groundskeepers to get the job done, or else get accustomed to playing on less well-maintained golf courses. It’s as simple as that.

    • Replies: @CanSpeccy
  50. CanSpeccy says: • Website
    @tbraton

    It was interesting to hear JEB Bush during the last but one GOP presidential candidates’ debate object to the idea of an import tariff because, as he declared in a tone of contempt, that would raise prices. The implication, clearly, being that most Americans would rather see 50 million of their compatriots forced out of work than that they be denied access to dirt cheap products of Third-Word sweatshop labor sold at rock bottom prices by big box stores employing a part-time, minimum-wage workforce.

    However, not only most of the 90 odd million Americans of working age who cannot find work of any kind, but also most of those doing minimum-wage or part-time work, would gladly see another ten or twenty bucks added to the price of a dress shirt or a pair of leather shoes — the kind of thing they probably only wear, if ever, to a funeral or a wedding — if it meant better employment opportunity and wages.

    And so, yes, you are right, the well-to-do, who consume more than the poor, would pay a disproportionate share of the increased costs resulting from a tariff or other measures that resulted in Americans once again making stuff for one another. They would pay in two ways. First, through an increase in the price of shoes and shirts, computers and car parts, second in reduced dividends on their corporate share holdings, as the opportunity for international companies to engage in global wage arbitrage is reduced or eliminated.

    The beneficiaries, naturally, would be those of below median income, the 81 million Americans with earned income of less than $13,000 dollars a year, who spend most of their income on essentials such as food, gasoline, and rent, the costs of which are almost totally unaffected by global wage arbitrage.

    • Replies: @tbraton
  51. tbraton says:
    @CanSpeccy

    I agree. My message should have made it clearer that limiting or eliminating mass immigration and restoring barriers to foreign goods would largely benefit those Americans most hurt by those two economic trends. I have made the point several times in the past that the Black Death of the 14th century played a great role in dealing the death blow to feudalism by sharply reducing the labor force, resulting in the raising of income to the working class. Supply and demand. Unfortunately, that simple economic rule is being misapplied by the ruling elites by unfairly making Americans compete with cheap foreign labor (through mass immigration) and cheap foreign goods (through the elimination of trade barriers).

Current Commenter
says:

Leave a Reply - Comments on articles more than two weeks old will be judged much more strictly on quality and tone


 Remember My InformationWhy?
 Email Replies to my Comment
Submitted comments become the property of The Unz Review and may be republished elsewhere at the sole discretion of the latter
Subscribe to This Comment Thread via RSS Subscribe to All Mike Whitney Comments via RSS