Michael Maiello's picture

    Obama's New Stimulus, (He's Still Not Getting It)

    I was delighted to see this Bloomberg story about the White House pursuing additional stimulus after the failure of QE2 and the recent rise in unemployment.  But the method he's pursuing -- a temporary holiday for the employer portion of the payroll tax, which funds Social Security, is not going to fix things, even if the Republicans go along with it.

    There seems to be a lot of confusion about why the economic recovery is so anemic.  But it's really simple.  For most people, their home is their largest asset and it is now worth less than it was 4-5 years ago.  On top of their weakened balance sheets comes high unemployment and extremely high worker productivity, which implies that employers are getting more work out of fewer employees for less money.  That means that few people are secure in their jobs and that people aren't getting huge raises (or any raises at all).  Meanwhile, prices for food and energy commodities have been high, cutting into disposable income.  The savings rate is still up around 5%, implying that when people do have extra money, they either sock it away for a rainy day or they use it to pay down debt.  The recent Federal Reserve survey of bank loan officers actually shows that the big banks are loosening credit card standards but that demand for those easier to get credit cards is actually low.  People don't feel secure enough to put purchases on credit.  Americans are doing what everyone says Americans can't do -- they're delaying gratification.

    The consumer is unable to create enough demand to spur a vibrant recovery because the consumer doesn't have enough money.  Obama and Congressional reps from both sides tried to deal with this problem at the end of 2010 by temporarily cutting 2% from the employee portion of the payroll tax.  I argued back in February that a whole lot of people (including me) found that the extra 2% given by the government was quickly snatched away by rising health insurance premiums, utilities costs and food bills.  Such is life.

    So now they're looking at cutting the employer side.  Christina Romer tells Bloomberg that this will work to spur job creation and I can see that it might make some companies holding off on hiring say "may as well do it now, while it's cheaper."  That's the same logic behind Cash For Clunkers, which did work to spur auto sales, partly by giving people who were planning to buy a new car down the road an incentive to accelerate the purchase.

    But I wonder about the quality and longevity of the jobs produced by an employer-side payroll tax cut.  If demand doesn't pick up (and it can't because the consumer doesn't have enough money) then a lot of people hired this year will be laid off when the tax holiday is over and we'll be back where we started.  You basically have to hope that the holiday creates so many jobs that aggregate demand is boosted, companies realize they need all of the people they hired, consumers feel more secure about their income and there's upward pressure on wages.  Does anybody really believe that's going to happen?

    The other problem is... who the Hell is paying for Social Security?  We cut the employee side, then we cut the employer side -- now it really does seem like the government is weakening the program (or the public's perception of it) with an eye towards cutting it later.  I wasn't so worried about the employee-side cut because it's temporary and will no doubt end on schedule.  Regular people don't have lobbyists, even collectively.  But I don't doubt that the Chamber of Commerce will push to make the employer side cuts permanent, especially if it spurs short term job growth, which will allow them to argue that the country will simply have to choose between Social Security and higher unemployment.

    Now, up top, I say Obama's not getting it.  So what would I have him do?  He needs to look at root causes.  The government can't shore up home prices and there are a lot of good reasons why the government shouldn't be trying to make real estate more expensive (it's unfair to people who don't own and would someday like to).  But a mortgage do-over on primary residences seems fair to me and would effectively end a lot of private balance sheet issues.  Mortgage principal should be adjusted to reflect the new value of the underlying assets.  Sorry, but the banks should have known they were lending into a bubble, so they should take the hit here.

    Another idea would be to declare a period, say six months, where any money put to use retiring consumer, auto, student loan or other debt would be tax deductible.  This would, in effect, accelerate the deleveraging of private balance sheets.  When people are more secure in their finances, they will start spending again.

    See, businesses are not refusing to hire because they are overtaxed.  Businesses are refusing to hire because their customers are being frugal.  Their customers will only start shopping again when they feel economically safe.  Every government action should concentrate on putting money in consumer's pockets.  Businesses will not need extra incentives to chase those dollars.

     

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    Comments

    Correct me if I'm wrong, but wouldn't any mortgage do-over on primary residences have to make it through the Republican House if was to see the light of day?  If so, this would be an idea that is DOA until after the 2012 elections.  Seeing how the Repubs stood fast with the banks in their losing battle against retailers, they apparently don't see supporting banks as a particularly losing stance with their constituents.  They might be wrong, and such a legislative battle could create good campaign fodder.  But it would mean getting a number of the Dems to go after the banks which they have shown reluctance to do. 

    Even John Tester of Montana stood against the admendment that favored the banks over the retailers.  His reasoning was that the decrease fees could hurt the small banks and not just the giants.  This would be a common argument against such a mortgage rehaul.  In places like my community, most of the banking is by the little guys and they have been one of the few stable inputs into the local economy during the past decade.  A significant negative economic impact on them would have significant impact on the larger local economy.  Which in turn would decrease local consumer confidence, etc.  Like the payroll tax holiday being balanced by the increase cost of health care, the same balancing act could happen with the local banks vs. local mortgages.


    I didn't say my plan was passable, and that's probably Obama's thinking here -- maybe the Republicans won't block a tax cut for business.  If they try, they'll have the Chamber of Commerce up their behinds.  Fair enough.  He's way better at politics than I am.

    As for local bank balance sheets -- first, the losses should go to the people responsible.  The bank should have done better valuation work on the sole asset it chose to back a major loan.  So, boo-hoo.  Second, banks can appeal to the Fed and the FDIC for help, while people can't, so putting the losses there means putting them to the people who are most resilient to them.  Third, it would really only be bank owners and shareholders hurt by this and, like I said, they have it coming.


    The small local banks in my area kept to the more stringent parameters when it came to handing out home loans.  They weren't responsible for the housing bubble, but are being pulled in because the entire market was impacted.  And if bank owners take a hit, what is going to happen - they're going to look to reduce costs and that means layoffs.  The bank teller didn't have it coming.  And the family depending on that bank teller's income didn't have it coming.  And the local stores and charities that depend on the bank teller having a income didn't have it coming.

    I think there should be adjustments on mortgages in the big scheme of things, but I think it has to done so it doesn't create another hole in the effort to fill the original hole.  Moreover, not all mortgage defaults are equal, just as not all banks are equal in their 'evilness.'  Current administrative efforts to deal with the issue has fallen way short of acceptablity and it needs to be addressed for sure.  At the same time I think we need to try to avoid the urge to punish and squeeze out some sense of justice for the mistakes of some on an entire industry sector.


    Tester was against that amendment--or favored it?  If against is correct, I missed that point. 


    Tester sponsored legislation that would have delayed implementation of the amendment (the amendment was made a part of the financial regulation legislation last year). His legislation failed to pass the Senate yesterday (54-45 I think; missed the 60 required to get an up/down vote).


    Yeah I wrote that wrong.  I was thinking about how he was against acting immediately as I was writing about his stance on the admendment.


    Yes, it would. Which seems to be just about the same level of difficulty as needing to make it through a Democratic controlled house and Senate with a Democrat in the White House. If policy would cost the elite even a penny, it's a no-go for either of the corporate parties.

    "Even John Tester?" ... I take it you don't know much about John Tester and the love Montana's Democratic senators have for out-of-state corporate lucre? His reasoning was that with no banks or large retailers in Montana holding a major stake, the big banks were offering a boat-ton of money to advance their goals. Unfortunately for John, Montana has a lot of *small* retailers who don't have the bribe money to buy his attention (the independent bankers supported his position and thus were given absurd prominence considering their place in Montana's economy). Word is a lot of his constituents are pissed. Interestingly, the republican planning to challenge for his seat in 2012 refused to come out and back the banks on it.

    There is no apparent cause-effect between the payroll tax holiday and rising costs. Destor listed several categories other than health care that are rising. Food nailed me (I was priced out of health care a while back). The cost increases would have happened regardless. This is simply an easily observable reason the tax holiday didn't really help the real economy (or relieve financial pressure on working Americans). Likewise, all of these banks (including the small ones) already added fees to checking, ATM cash transactions and in some cases even to check cashing (thanks, J.P. Morgan Chase). These were justified based on swipe fee changes which have not even taken effect (mortgages don't really seem to be in the picture on this issue). You think all those new fees would have gone away if this had been delayed? No way in hell.

    The issue small bankers are raising is totally theoretical and unlikely. The banks already charge widely different rates. The merchant only knows exactly what a card cost on the back-end when they get their statement. For certain Visa has already set up a tiered system for dealing with the varying rates and I suspect MasterCard has as well. From a retail side, we're already taking a hit from the expensive ones as a convenience of our customers. All this does is SERIOUSLY reduce the number of expensive cards that get processed through. It defies logic to think we're going to start keeping a list of community banks and refuse to accept visa cards from them. These small banks are just as likely to get a windfall. Many of them have already jacked fees like the big banks and are unlikely to see much of a fall in their swipe-fee revenue in the short/medium term until it becomes a PR issue with retailers (at which point retail will lobby them to reduce their fees or lobby legislature to include them in the fee caps).

    On all things economic, not only do you buy the Republican talking points hook line and sinker - you consistently argue that their frames are totally correct and promote strategy/policy that accommodates their assertions; no matter how absurd. What's up with that?

    So, let's not even try to come up with anything to fix jobs or the middle/working class economy and just keep handing all our monies to the super-wealthy, eh? Well ... that *is* the Obama way.


    By saying even John Tester I was making the point that even Democrats were taking the side of banks over the retailers in an economic environment where bankers are not much loved.  So obviously the politicians in DC are running away from backing the bankers.  I am all for coming up with ideas to fix the economy. But it would make sense to focus on those that have a snowball's chance to become reality. 


    What do you think should and can be done?

    I agree a lot of these ideas don't have much of a chance. Because economic issues are complicated enough that grassroots campaigns are hard to set up. Especially if the campaign involves contradicting the position of a popular democratic president. But the problem is that there is precious little that the administration (a) wants to do, and (b) would actually help. At least as far as I can see.

    So, again, what do you think should and can, given this administration, be done?

    I'm quite seriously curious.


    I know you're not asking me, but what about my "Deleveraging tax exemption?"  For six months only, every dollar you spend paying down a consumer, auto, student or mortgage loan balance is fully deductible.  At least help people fix their balance sheets faster.


    And technically, wouldn't that trickle up and actuall strengthen bank balance sheets?


    Yes, I was going to say upthread that I liked that idea. But (i) it won't feed through to job creation for a while. It's a long-term plan. And (ii) it will help primarily those who don't need it. I'm guessing most households with debt difficulties don't pay much in income tax.

    Better just a blanket Earned Income Tax Credit that even conservatives like.


    Sadly, conservatives don't like the EITC anymore, even though Reagan loved it because it keeps people off welfare.


    Like a lot of people, I'm not a superduper economics expert.  So in terms of coming up with proposals, I wouldn't go as far as say this is what is going to work.  I can look at it try and view it from a political strategist point of view - is it doable? will it play in Perioa?  or look at from the point of view of my local community that has been hammered long before the nation got whacked. 

    From a legislative point of view, not much can be done given the power structure in the House and Senate.    At least not from a progressive, government interventionist approach.  That doesn't mean I don't want those things.  They just aren't going to happen until at least quasi-liberals take back some of the power in 2012.

    So the question is what can the administration do without having to go through the legislator.  I'm open to suggestions.  I am at heart an incrementalist, which is another way of saying that on an economic level, while I prefer heavy socialism - light capitalism system, we need to take easy if at the same time we get people back to work.  As pointed out below, it looks like they're taking the right approach to the mortgage issue with the attorney generals, while at the same time HAMP needs to be seriously retooled. 

    When I look graphs like this, and what insane spike the unemployment went into just before Obama's administration took office, and now see were the general trend is going slowly in the other direction but no slowler than past decades basically, then I tend to think that as much suffering there is, it is at some level a matter of patience.  That the federal government has only so many tools in which to get immediate impact, and one of those - the stimulus infusion - is now effectively off the table because of the R control in the House.


    Okay. so you're happy with what the administration is doing. Fair enough. I disagree of course. But we've been through that.

    That said, if I thought your graph was an accurate representation of the labor market, I'd agree with you. I'm worried because I think the employment/population ratio is more accurate, and the chart looks like this:

    http://delong.typepad.com/.a/6a00e551f080038834015432e165eb970c-pi

    I.e. according to this chart, whatever they're doing, it's not working.

    How do the two graphs differ?

    Yours represents only those actively seeking employment, while mine includes those who have given up. Mine gives the percentage of the population which is has jobs. Yours will be accurate under more or less normal circumstances but during a prolonged slump - over two years now - many people who want jobs will give up actively looking. So the fall in your unemployment statistic doesn't come from job creation, but from people falling off the rolls. This not a good trend.

    That's where our differences on 'urgency' and 'increments' come in. You see an improving situation, and - understandably - think things are on the right track so why sweat it. I see an economy stuck in a ditch, and very vulnerable to shocks, like a temporary debt default or a crash in Europe or China. So something further needs to be done. I don't think a president can go into an election with an EMRATIO of 58% and win.


    My reply box has been tweaking out so it makes it difficult to comment.  I will say that your graph represents things and in part it reflects the "new normal."  Now some believe we can return to the past without using a bubble or two like we have in the past decades.  I think what we are experiencing is in some (but not all) part a more accurate reflection of the economic power of the US which was moving toward a service industry and away from actually producing things.  Which is not to say that we can't recover to some degree.  Anyhow, I have to go now.   And I will try to ponder what any administration can do to facilititate generating those 15 million or so jobs that will get back to where we were.


    I can't get a cursor into the Reply Box here on Firefox; odd.  Can on IE most of the time, but it's limited: can't post videos through it.

    What drives me nuts, with all due respect, is your apparent equanimity in the face of all this, Trope.  Our futures have been looted, and now the Dems are helping.  And seriously, anger is brimming over. and no one in Washington is offering...anything.  Oh; scratch that; Obama will ask for more unemployment extensions...that's a good thing.  Saw this crazy Cafferty video up at washingtonsblog, and I don't the man, but the comments under the transcript (I saw it looking for a way to embed the video here) were The Other Guys.  The Ones Who Make Me Nervous.

    http://www.washingtonsblog.com/2011/06/handling-of-economic-crisis-may-lead-to.html


    Obama 2012:

    "This is my offer: Nothing.

    Not even the campaign funds which I'd appreciate if you'd put up personally"

    great campaign slogan which all Godfather fans should love...


    The first line kinda made me cry a little, Cho.  We're gettin' pretty raggedy-ass out here, and "Nothing'.

    Shit; I gotta go make some dinner.  Thank you for being here; it helps keep me just a little sane.  I'll come back later and leave you a song for a present.


     

    For Cho, in appreciation.


    Ha. The graphics along with Van Morrison made me laugh out loud. Someone got creative.

     


    (my reply box is freaking out too ... I get it to settle down by clicking "Disable rich-text" and then "Enable rich-text")

    I imagine it's easy for someone who has a pretty decent job to say "well, this is just the new normal - live with it." But that is totally bullshit. Do you really think Americans are going to sit here broke while the bankers who stole all of our money rake in record profit after record profit for two decades? Without seeking revenge against the party who declares it "normal" as an excuse for not aggressively (and visibly) attacking the problem? I think you need to get your "how this plays in Peoria" meter checked.

    How does your theory explain the fact that by and large it's American corporations controlling all of the money? This isn't a shift away from American economic power. This is a massive shift of economic power within American society to a specific subgroup; with a systemic economic reorganization being carried out specifically to maximize individual profits for this subgroup by decimating the American workforce and seizing assets that used to reside in the middle class. Other nations are generally not allowing their corporate and financial leaders behave in this fashion.

    The current approach totally ignores the concerns of people in Peoria (and most other American municipalities). But don't worry, the GOP and corporate Democrats have invested a LOT of resources to get it mapped out - American factions have been triangulated like a motherfucker. The big-banker-profit-coddling approach you seem happy with is likely to around until 2016 at least ... which kind of makes the "two decades" estimate seem a bit self-fulfilling. But understand, our pain is because Democrats are an abject and unapologetic failure of proportions on a truly epic scale.

    (and before anyone starts in on the "The GOP is even WORSE!1111" bullshit ... this is what the GOP defines as WINNING .... they are simply kicking Democrat ass).


    Yep, reply box is freaking out a lot. 


    FedEx just called; they say your Reece Witherspoon doll has just arrived.


    First off, I have an only ok job (salary wise) in the nonprofit sector.  Our wages have been frozen for the past three years because of the hit the economy has done on fundraising.  If the trends continue, I might be unemployed in the next year.  And I deal all day with programs and initiatives that aimed at helping those in poverty get out of it and those just above the poverty stay from sliding into it.  At the same time I see the people in this community tromp faithfully every election to send the banker-loving Republicans to go represent them. And I don't see anything that would indicate this is going to change on the local, state, and federal level around here.   The conventional wisdom right now is Pence is going to go for the Governor's spot and the only possible Dem who stands a chance is Bayh, and even that is a long shot.And where I live is pretty dang close to being Perioa. 

    The American nation can stop it.  First we need to real liberals to step forward and run in the primaries (given the need for a squeaky clean past to run for office, I can't do it personally).  And then the people need to go out and vote for them in the primaries and then in general election.  Until that happens, yes it is the new normal.  It sucks. I don't like it.  But being all angry about it and gnashing my teeth isn't going to change it.  At the very least the liberal candidates need to get close enough to winning in order to scare the establishment Dems (and Republicans) to start tilting toward the left. 


    In 2006 and 2008 both, I saw America tramp to the voting booths and turn Republicans out on their ears and elect Democrats to represent them in a sizable majority of congressional districts, an impressive majority in the senate seats ... and in the Presidency of the united states.

    Why aren't they happy with the results?

    Maybe you are right and the answer lies in the Democratic primary process. I was recently corrected on a local Dem blog when I suggested that the Idaho Democratic party should take Minnick firmly establishing the formula "Democrat = Nancy Pelosi" isn't always true and "head left" with some populist policies that people would support. It was pointed out that the party doesn't need to head left at all, it simply needs to better promote and articulate the basic policies in it's platform. And they (Sisyphus, I think) had a point. I've mentioned it before, but I am really impressed with how Schweitzer is approaching the platform in Montana; he's really resonating with the people and remains popular as hell. He never backed off the public option, called the state Republican proposals "Bat Crap Insane" in politico and threatened to veto all their stupid bills until they get serious. He's the most popular politician in Montana. That's what people want from Democrats.

    You know, I don't have a sterling past either (and were I to run for something it should probably be as an independent :) OTOH, I never been in a feature documentary film with a scene where I'm puffing a joint telling kids I only smoke it because it makes you feel really good. Have you? It seems like the bar isn't really all that high for "sterling". Just practice a wide-eyed stare and "Whhhhaaaa? Youthful indiscretion!" If Alvin Grene can win a primary ... and if you *really* want to end up doing the job ... how much does it cost to register? Go for it. Just don't let Bohner and McCaskill sucker you with their earmark scam if you win.


    I’ve been fretting over some of the blasé remarks at this site over the issue, and creating the faux-arguments like ‘what can Obama do to get the economy back to (whenever), and ‘baby steps are good with me’ and the acceptance of the Republican/supply side arguments for Scary Deficits and Debt needing fixed NOW.  My faves, though are the identical answers for many of the proposed progressive solutions: “If you do X to create jobs, prosecute banking fraud, create a financial transaction tax for each trade, etc., you risk a possible cascade effect that will throw us into a true depression!!!

    I was asking earlier about the Fed and monetary policy, and I did poke around this morning reading.  There are some folks who believe that Bernanke is spending too much effort at controlling inflation since it’s best for bondholders, and that for the rest of us, some inflation would be a good thing.  I have no idea, but it doesn’t surprise me to hear that Central Banks all over the planet say the same thing. 

    Krugman has been a bit apologetic lately that he hasn’t been more forceful about economics, and spent too much time on the politics of economics, which is arguably what the White House cares most about.

    I’m not a big Krugman fan, but these paragraphs stood out and nailed some of what seems to be happening now.

    Yet a strange thing has happened to policy discussion: on both sides of the Atlantic, a consensus has emerged among movers and shakers that nothing can or should be done about jobs. Instead of a determination to do something about the ongoing suffering and economic waste, one sees a proliferation of excuses for inaction, garbed in the language of wisdom and responsibility.

    So someone needs to say the obvious: inventing reasons not to put the unemployed back to work is neither wise nor responsible. It is, instead, a grotesque abdication of responsibility.

    What kinds of excuses am I talking about? Well, consider last week’s release of the latest report on the economic outlook by the Organization for Economic Cooperation and Development, or O.E.C.D. The O.E.C.D. is basically an intergovernmental think tank; while it has no direct ability to set policy, what it says reflects the conventional wisdom of Europe’s policy elite.

    So what did the O.E.C.D. have to say about high unemployment in its member countries? “The room for macroeconomic policies to address these complex challenges is largely exhausted,” declared the organization’s secretary general, who called on countries instead to “go structural” — that is, to focus on long-run reforms that would have little impact on the current employment situation.”

    He’s pretty freaked no one is talking about jobs!  He names some solutions, admits they are very unlikely.  But why is no one jumping up and down except Bernie Sanders, making a case for the dire need for government to get a jobs program going for infrastructure and other big national needs (that aren’t more paving highways).  Instead it’s shrugs, and penny-ante tinkering with employee tax holidays.  Huh?

    Krugman calls it ‘Learned Helplessness’; some call it ‘Stockholm Syndrome by Oligarchy’.  Shock Doctrine.  And this from Paul in ‘Rule by Rentiers’:

    “Ask for a coherent theory behind the abandonment of the unemployed and you won’t get an answer. Instead, members of the Pain Caucus seem to be making it up as they go along, inventing ever-changing rationales for their never-changing policy prescriptions.

    While the ostensible reasons for inflicting pain keep changing, however, the policy prescriptions of the Pain Caucus all have one thing in common: They protect the interests of creditors, no matter the cost. Deficit spending could put the unemployed to work — but it might hurt the interests of existing bondholders. More aggressive action by the Fed could help boost us out of this slump — in fact, even Republican economists have argued that a bit of inflation might be exactly what the doctor ordered — but deflation, not inflation, serves the interests of creditors. And, of course, there’s fierce opposition to anything smacking of debt relief.”  [snip]

    But the reality is just the opposite: creditor-friendly policies are crippling the economy. This is a negative-sum game, in which the attempt to protect the rentiers from any losses is inflicting much larger losses on everyone else. And the only way to get a real recovery is to stop playing that game.

    We.Are.So.Screwed.

     


    “If you do X to create jobs, prosecute banking fraud, create a financial transaction tax for each trade, etc., you risk a possible cascade effect that will throw us into a true depression!!!

    Since you didn't associate me with such an assertion, I'm not assuming you are implying that I have.  Which is a good thing because I haven't.  What I would say is that it is possible that unemployment in the short-term could stay the same or go up a few percentage points.  And this is said in the context of people saying that unemployment at 9% right now is unacceptable.  And following this logic, unemployment dipping back to 10.5% would be really really unacceptable.  So the political fears isn't this or that will throw us into a true depression, but will undermine or balance out whatever growth in the economy is happening - which would lead to continued unemployment rates or slightly worse, which is what everyone is saying is unacceptable. 

    Now if people are saying, hey do those things which in the intermediate and long run will help the economy and we'll look the other way if by chance things don't immediately improve, we won't be upset.  We won't like it it, but we won't take it out on the politicans at the voting booth.  I just don't see that sentiment out there.


    no response by Cho, Stardust, Quinn et al. - well we all know what assumption the defeatist-liberal, post structuralist such as myself weill make of that. or do we?


    Bonfire, beer and s'mores?


     or do we?

    No we don't. Seriously, I have no idea what you mean. Care to elaborate?


    I hadn't seen this until this morning, but especially that middle paragraph confuses the dickens outta me; just can't take your meaning.  And I don't know which fix in which of the several areas I mentioned you're addressing.  So...  And who 'people' are is unclear to me.

    Can't say who said what in my list of alarmist responses to any of this, but you seem to divide your responses, when asked/challenged, into categories of 'the pragmatic others say or will say' and then almost in parentheses, what avenues you prefer, but since they are impossible, forget them.

    It might be better for your communicating and clarity if you went with Authentic Trope, and ignored the Imaginary Pragmatists or whomever in your mind, IMO.


    The thing that gets me with Bernake and this whole inflation thing is that just, what, four/five months ago we were taking aggressive moves to *create* inflation because we were at risk of a deflationary vortex of death or some shit. Now, magically, when their policy results in the predictable inflation - they must tame the massive monster of inflation lest it kill us all. We can't just fix the real economy with all these threats to our very survival at hand - DO YOU WANT A DEPRESSION?!?!1111one!1!!!eleventy@!1!

    I'm calling bullshit. They are just making moves in the economy on purpose and calling them death incarnate so we have to keep letting them do what they are doing. Panic worked so amazingly well for them in '08 that they are just going to keep beating this pony until the national capacity to produce adrenalin is tapped ... boy howdy are they going to have a bad day whenever that happens.


    LOL!  You forgot 'stagflation'; the arguments raged over which of the three were a) occurring and b) to be fought against.  I still have this memory of Nouriel Roubini going on and on about Stagflation; he made it sound like a heretofore unmentionable STD.  His nostrils would flare.

    Poking around yesterday I found a speech the head of the Philly Fed gave some group trying to spin for a Fed position that could be interpreted as 'helping maintain full employment' or whatever that second Fed mission is.  It was clear he didn't give a flying burrito except for protecting Wall Street (might even have said that strength would kinda trickle down to the jobs sector....

    But as Cho said yesterday, now even Bernanke is to the Left of Dems in Congress.  Whoa, Nellie!  Dear Tom Harkin wants a jobs bill; some others kinda/sorta do, but by golly, keep it small enough not to work.  And for what?  That blurry catch-all vanilla flavored 'infrastructure'.  Last time Obama touted all those Shovel-ready projects, didn't most of it go to paving highways?  Maybe an infrastructure bank would be the thing, though at this point more layers of bureaucracy would be too time-consuming. 

    But god; put it work weatherizing and making stuff energy-effiicient; low-tech stuff even Everyman/woman could do with minimal training, not just millions to companies spreading asphalt.  There are probably plenty of small new companies in the field that could make the money work well.


    Look at Obama's economic team: Daley from JPMorgan, Sperling from Goldman, Immelt from GE Capital, and Geithner from the NY Fed - literally a subsidiary of the Wall Street conglomerate.

    The only stimulus you can expect from these guys is some kind of corporate tax cut.

    I'm trying to imagine a republican administration with a worse economic team, ... and I just can't. (I'd choose Mankiw over Sperling, Card over Daley, Paulson over Geithner and O'Neill over Immelt).


    Whoa; did you lose some weight, Cho?  Or ain't ya glad to see us anymore?   ;o)

    Nope; his economic team is the very definition of MOTU Highjackers of the Economy.  I can't remember what happened some months before the Midterms that prompted me to say that if there were any progressive moves on the economy they'd have to come from Congress doing an end run around the White House.  By now it would take balls and belief now, and a hell of a push from citizens; Oct. 6 might be too late.  But as Bilbo Baggins said: "Need brooks no delay, yet better late than never."

    People blog about refusing out loud to give to CREEP, but the thing is, Obama's funding is largely in place now; the little guy's money would be just gravy.


    A full court press on mortgage do-overs would be so popular it might blow over Republican intransigence. Opposing it might become like dismantling Medicare.

    But...

    Whose mortgages do we do over? Isn't that the challenge with this proposal? As I recall, this was sort of Santelli's gripe when his cri de coeur on the stock exchange floor kinda sorta gave the teabaggers their first rallying point.

    We could define a somewhat arbitrary point: If a mortgage is X% above local home values, it qualifies for a do-over. But I could still that having some strange repercussions in the market. Plus what about them guys who just miss the cut-off, but are struggling with their mortgage.

    Or they could try to fix HAMP so that it works...

    I'm not necessarily against this proposal, because I agree with your analysis about the debt overhang and the delevering going on. The vicious, rather than virtuous, cycle.

    Pumping money into the economy is another way--but how? Zakaria had a piece today on the infrastructure bank idea that strikes me as promising as a layperson. If you put people back to work with good infrastructure jobs, then they can pay their mortgages and buy, etc.

    If Romney gets the nod, I bet he goes for something like this. Obama should pre-empt, not just for his political skin, but of course for the sake of the country.


    No cut off.  If the mortgage is underwater, the principal would be reset.  Period.  If you live in a resilient area and you only need a 2% adjustment, fine.  If you're down 20%, then that's what you get.  The originator of the mortgage should have done better valuation work on the underlying asset before lending.


    the principal would be reset

    By whom? who pays for the haircut? The lender? The investor who bought the securitized loan? The tax-payer?

    I think an indirect approach would be easier and more equitable. Just instruct servicers that they have to produce the mortgage documents in any case where they charge penalty fees, hike rates or foreclose. Since apparently they don't have the documents for most loans from the bubble period due to the generalized fraudulent practices, they will be forced to renegotiate loans and principal with borrowers.

    That way the government is (i) not deciding who does or does not get a haircut, (ii) not paying for haircuts, and most importantly (iii) the mortgage market gets put back on its feet.


    The lender or loan owner would take the haircut.  It's the risk they took (and they were mostly well compensated to take that risk).

    Which brings up another issue -- that of aftermarket buyers for the loans... they probably didn't pay 100 cents on the dollar in the first place.  So it's possible to make them take a haircut without causing them undue pain.


    I was thinking more in terms of pragmatics. I don't see how legally or politically they can force haircuts on underwater mortgages that are current. Yours is a pie-in-the-sky proposal (which is not a criticism), mine is just the same but along the lines of 'what the administration can actually do' in this area.

    I think it's harder for the mortgage industry to oppose a measure which just says "prove they owe you the money before you charge late fees or foreclose". Its common sense - you can't get a refund or get your appliance fixed without proof of purchase or a warrantee. The same thing should be true of mortgage products.


    Yeah, mine would definitely be up for legal challenge, though there is a long history of debt reorganization behind it.  While I wholly agree that the mortgage industry should be forced to show all of its paperwork, it seems like that's been brushed under the rug and that the industry is getting something of a pass.  My problem with it is that it only deals with homes in foreclosure, and that's only part of the problem.  Worse, it only deals with homes in foreclosure where the documentation is incomplete.  So if they got the docs you get no help but if they lost them, you win.  It would help, but it won't help enough people.


    Okay. Not perfect. But (i) they mostly don't have the docs. And (ii) the more people see that they don't have the docs, the more they will pressure for a loan restructuring even if they are current. And knowing their servicer probably doesn't have the docs improves their negotiating position.


    In order for such a measure to have a chance of seeing the light of day, one would have to show that the negative economic ripple that would flow out from the economic hit taken by the lender industry wouldn't outweigh the positive economic impact of the mortgage bailout.  Mortgage bailouts as a policy approach has always had trouble getting a strong majority of the public behind it (too many i-paid-mine-they-can-pay-theirs folks).  Since it never was much of a priority issue until the collapse, ie before the collapse people weren't trying to rally support for the people in default - just as the unemployed during times of 5% unemployment do seem to warrant the same sense of crisis as when it is at 9%), the primary motivation for such an approach would be that it would help improve the economy and thus benefit everyone. 

     


    My proposal isn't a mortgage bailout. It's ensuring that foreclosures and servicing fees are conducted legally.

    If you are saying the whole mortgage industry is a scam and will thus go bankrupt if obliged to obey the law, and that therefore we should let them continue to profit from that scam, that's your right. Free country.

    If you're saying that, after causing the worst financial crisis in a few generations by scamming homeowners and investors, we should keep these criminals in the driver's seat because ....they are so important to the economy... that's hilarious.

    Still your right though.


    I was as you might say talking pragmatics, which has nothing to do with how I personally see the mortgage industry.  And this blog is focused on jobs, and creating more in a more healthy economy. And now you're taking off on the issue of whether the law should be applied, economic impact be damned.  What I am saying is that the argument will be made, whether the person who is making it believes or not, that holding the mortgage industry to the letter of the law would have a negative (or even catastrophic) impact on the current weak economy.   Such an argument would lead to the assertion that in end, holding the mortgage industry's feet to the fire would lead to more unemployed and underemployed folks who would then end up defaulting on their homes, most likely in a housing market with even more depressed prices.  So justice will be served, but the suffering taken as a whole nationally if not the same would be worse. 

    I'm no economist.  It would seem to me there is a certain logic to such an argument given the role housing industry (and the corresponding mortgage industry) plays in the economy.  So what I'm saying is that you are talking to folks who want the economy to improve and people to get back to work, and you start talking about going after the mortgage industry, you'll probably going to have to show that this will improve the situation overall if you want them on your side. 

    Just saying.


    I'm not saying 'economic impacts be damned'. I'm saying there is a negative economic impact to maximizing financial sector profits at the cost of homeowners and investors and despite the law.

    The mortgage market is broken because no one will buy houses where the property rights are doubtful by borrowing money from banks who will abuse the law through unwarranted rate hikes, fines, and random foreclosures. Investors won't buy securitized mortgages because of the same worries concerning collateral, unethical trustees and servicers.

    The idea that the banks as they stand are good for the economy has no merit. They gouge consumers and small businesses on transaction fees and loans. They gouge new businesses on capital raising. Their addiction to highly volatile capital and commodity markets throw price-signals out of whack. Their immense political clout - reinforced by their illegal profits - prevents these things from being corrected.

    And if they are as corrupt as the evidence from the mortgage market suggests, and abiding by the law does force the government to nationalize them and break them up, that won't hurt lending. Outstanding loans and credit lines won't be cut. And it's not like they are making new loans even now with their massive profits. Last I checked their balance sheets were shrinking.


    The problem here seems to be that you're trying to convince me.  What I'm saying is that from a practical point of view, there is a long road to haul before you could get some workable majority in this nation to go along with something like nationalizing the banks.  Personally, I'd be all for it, in fact I would prefer it.

    The question is can you convince someone out there that breaking up the banks will in the short run lower unemployment.  This seems to be the sticking point.  On one hand, we want unemployment to go down.  On the other hand, we want a restructuring and overhaul of not only the banking system, but the larger economic system.  Personally, I'd be for a little increase pain (but not a lot of increased pain) in order to get these systems more aligned with our values. 

    It seems that the general approach that will be taken is how do we fix the mortgage crisis without that fixing in any way bog down the economy.  That is the approach to any of the systems that need to be fixed which involved with the economy.  Because as this blog and so many others make clear, people want unemployment to go down now, not two years from now.


    Unemployment goes down as soon as the mortgage market gets fixed (i.e. trust in property rights reinstated) and debt gets restructured. Households given a haircut have more money, others have the security that comes from knowing prices won't fall further. That leads to more aggregate demand, which leads to more jobs. 

    Banks being solvent or insolvent is neither here nor there. They'll lend just as much under public tutelage as they are now.


    And I'm not saying - don't fix the system and don't restructure debt.  The system was broken, partly due to malintent and partly due to incompetence. But given the sensitivities of the situation, there does need to be some negotiatons as it is happening right now in order to minimize potential negative ripples.  Negotiations that seem to be happening:

    Associate U.S. Attorney General Tom Perrelli told a bipartisan group of state attorneys general during a conference call that he believes the banks have accepted the realization that a wide-ranging settlement to the months-long probes will cost them much more than the $5 billion offer they floated last month [closer to $20 billion], according to officials with direct knowledge of the call. Perrelli said he's basing his belief on his recent conversations with representatives of the five targeted firms: Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.

    Three unresolved issues remain, these people said. State and federal officials have not agreed on the scope of banks' release from liability that would accompany such a deal; negotiators continue to hammer out how much of the money pot will be split between restructuring borrowers' mortgages and bank fines, and officials are not yet near an agreement on how the coalition of state and federal government agencies will monitor and enforce bank behavior in the wake of a settlement agreement.

     


    Now I can't tell. Are you trying to convince me? Or are you trying to convince the skeptical masses that a fine amounting to one month's wall street profit is going to 'fix' anything or turn around the economy.

    you fix it by enforcing the rules - if you want to fine or foreclose on a borrower, show the IOU. And you turn around the economy by restructuring debt. It just so happens that the right thing to do is also the best thing for the economy: they don't have the IOUs so they will restructure. 

    simple. convincing. effective.

    Except of course, Obama likes wall street money.

    So, right. It's unrealistic. But let's be clear about the stumbling blocks here.


    Hmmm. But I don't know how widespread the lack of title is. It's true in some cases, but I don't know how many cases it applies to.

    Not sure it's good cover what you intend as a policy prescription or as a disguised programmatic solution to a problem.


    This may be the eleventh time I've put this up here, but A. @ washingtonsblog keeps a list of (the best) economists plus a few extra maybe, who assert that the economy will never recover, nor will trust be restored until the mortgage fraud is prosecuted.

    And imagine wanting to buy a house now, and finding that its deed isn't likely registered at your local county clerk and recorder's office.  (MERS).   Hmmm.


    This may be a start - from a couple of days ago.

    The United States Attorney General is going after the banks, with a vengeance. Attorney General Tom Perelli arranged a conference call with a bipartisan group of state attorney generals from across the country to discuss avenues of prosecution for a target group of five banks that were pinned as major facilitators of the financial crisis.


    Yeah, but Shahien also says that Eric is against it, and wants to proceed with investigations/prosecutions; that Levin report dug some dirt!  ;o)

    New York’s top law enforcer, Eric Schneiderman, wants to conduct a complete investigation into all facets of mortgage banking, from fraudulent lending to defective securitization practices to faulty foreclosure documents and illegal home seizures. Delaware recently sent Mortgage Electronic Registration Systems Inc., which runs an electronic registry of mortgages, a subpoena demanding answers to 75 questions.


    Yay, I voted for that Schneiderman fellow.


    I didn't; didn't like the dude's tie.  Or his wife.  And he didn't invite me to his barbeque.  Wow; have you seen the clips available at youtube of Too Big to Fail?  Zounds; what a cast!!!!

    And crap; how easy is it for the banks to make all money they can shovel in?  Gaack!  Wm. Black makes such a good case for the realtive ease of prosecutions; even restructuring, while the banks continue to operate....

    Hope nobody 'Eliott-Spitzers' Schneiderman....


    Obama should pre-empt, not just for his political skin, but of course for the sake of the country.

    I agree with that.  Obama has left himself vulnerable on his handling of the economy--too cozy with the big banks at the expense of taxpayers, non-big banks, and pretty much everyone else;  not enough jobs, plus the continuing mess in the mortgage market.  The public doesn't see things getting better any time soon, even as Obama says no double-dip recession looms.  What the public sees is passivity on the economy at a time which demands a more aggressive approach.  If he continues to play not to lose, banking on some complete nutjob--not Romney--getting the GOP nomination--and Romney does get it, he increases his risk of losing, although he will still have some time to adjust if it looks as though Romney will get it.

    Romney I see is now in trouble with many in his party for his belief that global warming is real.  If he keeps saying credible things like this and takes the nomination against a pathetic weak field, Obama could find a way to lose this election on account of his shaky handling of the economy.  Even with likely no forseeable national security liability--perhaps even a national security plus following OBL--as Democrats have sometimes faced in the past.

    Which of the suggestions from destor and others in this thread would require the House to act, versus which can be done through regulatory policy or administrative decisions, is a good question.  But if Obama's reason for not pursuing actions he thinks necessary is "the House will block it" that is a dangerous strategy which the public is unlikely in the end to respect.  If he thinks some step is necessary, he needs to say that and fight for it.  If the House blocks it (or the Senate, for that matter), he can ask the public for a more supportive Congress.  If he doesn't even identify and ask for steps he may think (perhaps entirely correctly) he can't get now, what does he say then when Romney or someone else whacks him during the campaign for not doing x?  If he says he didn't think he could get it done with a Republican House, that just looks weak.  It looks weak because it is weak. 

    Of course, I don't happen to feel very reassured that this White House perceives a need for further steps on the economy.  I'm not aware of words or actions suggesting otherwise.  It instead appears to be in full-scale, play-it-safe, run-out-the-clock re-election mode--a stance which courts, and may yet earn, a rebuke at the polls. 

    When it comes to the economy, take the ball to the rim, Mr. President.  Stop settling for the 25 foot jumpshot. 

    Excellent post, destor--much food for thought.


    I think you're right about the danger's of Romney, btw.  If moderate Republicans get him through the primary and a third party challenger doesn't emerge to steal the extremist right vote in the general, then you could see Romney appealing to independents if the economy is still weak.


    Destor, you will continue to ponder why Obama still doesn't get it as long as you don't understand that basically he is a Republicana and agrees with the Republican point of view on the economy.  All his actions demonstrate the truth of this unfortunate reality.

    As Bill Maher has pointed out: Obama is a moderate Republican from the 70's.  Today, we call that being a corporate Democrat... some would say more accurately a complete sellout.  But whatever you want to call Obama's true political point of view, the bottom line is that like the rest of the Republicans he believes in the mystical power of tax cuts and cutting social security taxes are one easy way of him getting his foot in the door to dismantling that bulward of financial stability for us peons out in the hinterlands. 

    I think if you'll rework the angle you're coming at this from you will start to realize the truth which is that Obama doesn't get it because Obama doesn't believe in the sort of Democratic, people oriented solutions you and many others keep hoping he'll suddenly adopt.  He isn't going to do that.  Not now.  Not in a second term.  Not ever.  The reason he isn't going to do that is because it flies in the face of his faith in the magic of tax cutting and the mysterious, all powerful correctness of the marketplace run by and rigged in favor of the wealthy, powerful and corrupt corporate leaders he identifies with.


    Nah, I'm with you.  I'm 100% sure that if I were magically given a one hour meeting with Obama to discuss whatever I wanted with him and to get his frank and honest answers on everything that he would tell me that he doesn't believe that people's mortgages should be modified, or that their consumer debts should be renegotiated or that American wages are too low.


    I think he would say he is for those things as long as the solution to achieve those things doesn't end up making the situation worse.  This is at the crux of a lot of debate when it comes to the administration's economic decisions.  It started with the bank bailouts and has gone on from there.  Obama would probbably say - If the ripple effect of renegotiating consumer debts leads to an undermining of the what little economic recovery there is, then in a short while you will have new consumers with similiar debts that need to be renegotiated and worse economy.  There were those who felt we could let the banks fail and still do okay.  Others like Obama believe, I think, the economy (nationally and globally) is much more of a house of cards and one wrong move will lead to something far worse than what we have and are going through now.  Which is not say he is flaming liberal who doesn't want to make a mistake.  He believes in the general economic system that has been in place since WWII.  American wages need to be higher, but that it cannot be mandated but rather created in just-right-regulated marketplace. Etc.


    At least the Keynesians have a theory that suggests a range of possible actions.  This President doesn't appear to have one.  He seems like a mix-and-mash kind of guy, a little of this, a little of that, try to give everyone at least something.  A purely political (in that sense), analytically impoverished approach to economic policymaking.  And the results of that approach show.

    The other most plausible interpretation--that he thinks this *is* an economy that is working as well as it can or could work--is even more depressing. 


    I think he is operating on the economic equivalent of Friedman units. Geithner-units are six month periods at the end of which the massive corporate profits will magically transform themselves into a jobs recovery. Last august it was supposed to happen in winter. This winter it was supposed to happen by summer. This summer ...

    In the meantime he clutches his Reagan biography and reminds himself of what true economic leadership is :

    "don't just do something, stand there."


    I do wonder about the latter.  Because I could see Geithner telling him that.  And remember, Geithner's going for a replay of the 90s where somehow reducing deficits causes confidence ponies to emerge and fixes everything.


    The nineties were a miracle decade because IT came into its own in a big way.  To cite only one of a myriad of impacts, just-in-time delivery pretty much erased the old inventory cycle (until the Fukushima effect made warehouses look good again...)

    Broadly, the productivity goosing effect of IT and the internet (serious monetary velocity enhancer, with some major downside risks, as we now know) changed the entire business world.

    That only happens once.


    O/T, reports from the softball league speak of a boa clad batter with white-blond hair who  powered the Daily's team past the Bonghitters and the WSJ defending champs...anyone we know?


    Ha.  No. I just freelance for The Daily, they don't invite me to play their reindeer games.  Good point, re: IT, BTW.


    If he were honest I do believe that is what he would say.  His actions demonstrate that is what he believes.  His tepid public statements on behalf of the plight of the common citizen and the middle class that has been devastated prove he not only thinks the government does not and should not have to do much to alleviate those problems, but complete lack of pushing for any of these things in Congress seals it.  If he doesn't care enough to actually do anything about these problems, that's pretty definitive proof that he doesn't think they are important.  What is important is making war on Libya, Yemen, Iraq, Afghanistan and Somalia, as well as on whistleblowers and others who might leak the truth about what his government is up to, maintaining corporate tax priveleges and protecting Wall Street.  I think he's every bit as out of touch with the reality of most Americans as Bush, but just in a different and perhaps even more sickening way.


    This Pew poll from two days ago (I know, a poll is almost always a push-poll to some degree) says that 60% of Americans surveyed blame the wars for the national debt 'a great deal', and 24% think social programs are to blame.  Things get a little more complucated after that.  But this is pretty interesting:

    "However, several deficit-reduction proposals attract majority support, aside from the traditionally popular idea of reducing U.S. assistance to foreign countries (72% approve of this proposal. Two-thirds (67%) approve of making more of high earners’ income subject to Social Security tax, and nearly as many approve of raising taxes on incomes of over $250,000 (66%), reducing military commitments overseas (65%) and limiting tax deductions for large corporations (62%).

    Notably, Republicans (62% approve) are as likely as Democrats (58%) to approve of limiting corporate tax deductions; while 63% of Democrats approve of reducing foreign military commitments, 56% of Republicans agree."

    Americans always believe that foreign aid is about a thousand times higher than it actually is, but I forget how the numbers go...

    So: a majority of Americans favor pretty progressive thinking on deficit/debt reduction.  ;o)

     


    I wonder why, then, in the only poll that counts, they don't say all those things?

    For example, in 2010, they had the chance to vote for increasing taxes on those earning 250K and above and yet voted for folks who overtly said they disapproved of that policy and similar like.

    And they voted overwhelmingly for folks who say, every day, that we need to reduce corporate taxes because they are the highest in the world.

    And they voted overwhelmingly for folks who, if they said anything clearly, said they opposed ALL new taxes on anyone.

    Maybe they tell the pollsters one thing, then vote another thing. Or maybe they don't understand what they're being asked. Or they don't understand whom they're voting for and can't understand complex sentences like, "I'm against raising taxes on anyone, period."

    Or maybe, when they answer poll questions, they are in their right mind, but when they go to the voting booth, their minds are overwhelmed by all the Republican propaganda they've heard and that's all they can think about.


    Did they vote overwhelmingly that way?  Or just in lots of House districts?  I don't even remember the numbers really.  Do they have Right Minds, LOL?  Paraphrasing: "15 minutes with the average American voter...makes you want to put your head in the oven and breathe..."

    I don't know what they know, or how they choose a candidate, but lots do based on teevee ads I think.  And I won't use the CD term for the ability to hold two conflicting thoughts at one time.  ;o)

    Yeah, and the Grover Norquist voters don't get how corporate subsidies ARE in fact a tax, yada, yada, la la la.  But as for polls: if they are good in determining anything about voting (except for direct support for Joe Blow) a pollster would need to ask 'how much do you care about this issue?' I think.  Like in 2010, the exit polls were marginally interesting.  The one I remember was on war as an issue: it said about 7% considered the wars in their votes.  A plurality of Americans now wants us OUT or major drawdowns (lame, IMO.)

    Also, 2010 was not 2011; the old adage about suffering sharpening the mind may make a difference; beats me.  Reams has been written postulating about the degree to which voters vote against their self-interest, but do they even realize it ?  Lotta ignorance out there...and not much debate in Congress with the theatrics afoot giving plenty of cover for more heists of any remaining revenue stream as one of the best (only) dagblog economists used to say.

    Oh: plus about the deficit fixes: no one seems to be promoting the Progressive ones; so there's that.  Well, except for Bernie; he has a plan...and it's good.

    Gotta get in the garden.  Might need food this fall.   ;o)


    Did they vote overwhelmingly that way?  Or just in lots of House districts?

    It's in the districts that races are decided. So I guess they voted enough--and we didn't--in a lot of races and 80 or so seats turned.

    The total number of people may not be a lot compared to the total voting public, but they had a huge impact.


    If he were honest I do believe that is what he would say.

    Stunning how two-faced this guy is. Have we ever had a more two-faced guy in the WH in our entire history? I can't think of another president who lied about EVERYTHING he said he was going to do and why he was going to do it.

    Forget presidents. I can't think of another person who has lied this consistently.

    Okay, I admit, there are some things he didn't lie about, like being for the war in Afghanistan. But those are things we didn't like him for, but overlooked when we voted for him anyway.

     


    The other problem is... who the Hell is paying for Social Security?


    The tax payer in the year that the benefits are paid. If the benefits in, say 2030 are  e.g. $30 bn  the tax payer will have to provide that $30 bn.

    Let us assume that in 2012  the withholding taxes yield $25bn of debits to the ss trust fund. Come 2030 the tax payers will have to provide  $30 bn to fund the 2030 ss benefits

    Or let us assume that in 2012  the withholding taxes yield $90bn of debits to the ss trust fund.Come 2030 the tax payers will have to provide..........$30 bn to fund the  2030 ss benefits.

    It doesn't make any difference whatsoever what amount has been prviously withheld.

    When it's withheld it's spent.Probably the next afternoon . The debits to the trust fund are a mirage  accounting convention Fuggedaboutit. When the money has to be provided for the greedy geezers , we have to cough it up.


    Having trouble reading this with the underlines.  Dave Dayen has the math this way, with an extendion of the employee tax holiday, and a new employer tax holiday (guessing 2%?), he says just in 2010 it cost the fund $112 billion; so double it?  Arrggh!  Apparently the White House has said that the shortfall would come out of general funds.  So in two years, you may be looking at close to half a trillion bucks, no?  How might that be spent better directly and with far higher muliplier effect? 

    And why would businesses/corps hire more people as long as there's no increase in demand?  I think the polls said most employees were unaware that they had less taken out of their checks anyway.  Dayen:

    "We’ve done hiring tax credits, we’ve done “16 small business tax cuts,” we’ve done a number of measures over the past two years aimed at getting businesses to hire, most of which made the cost of hiring cheaper. These have not worked appreciably. The payroll tax cut in question may (or may not) be better than nothing, and their macroeconomic impact would depend on size. The two-point reduction in the employee side of the payroll tax from December 2010 cost roughly $112 billion. It was effectively a two percent raise on the first $100,000 of income. The employer-side would cost the government a similar amount if it were, say, two points, but it’s unclear where that money would go. Would businesses pocket it or use it as an incentive to hire more? Economists think the latter, but given all the other inducements tried I’m skeptical. It’s just as possible that the money will go to keeping people hired, not hiring anyone new. That’s not a bad thing but it won’t necessarily improve the employment situation.

    There’s also the danger of continually cannibalizing the payroll tax cut and threatening the Social Security Trust Fund, even if there are assurances that the trust fund would be repaid out of general revenue. Once these reductions start they’re very hard to stop.

    What is clear is that this is a matter of political self-preservation for the White House, and they’re thinking of ideas that can a) possibly improve the employment picture and b) pass Congress. But they may have to also think of what CAN’T pass right now as well. AS Mark Weisbrot told the New York Times, “I think Obama himself is going to have to move or he’s going to risk losing the next election. He’s going to have to say clearly that the federal government has to step in when the economy is so weak.”

    (Well, they might be hard to stop for the employers, at any rate.


    Sorry about the underlines. They  were a mistake.

    As to the payroll tax cut that was not a mistake First it put some more demand into the economy.

    Second  it must reflect understanding within the administration that the social security trust fund is not reality based.

    There is none.

    Whatever benefits are payable in the future will have to be funded by  taxes at that time. That is true whether

    "the social security trust fund has a trillion dollars in it."

    or

     

     " zero" . 

    There is probably an historical account of why the fiction was floated during the New Deal. Perhaps I'll try and research it.


    Ah, hell; your shorthand is sometimes Greek to me.  Here; have some fun before sleep.  ;o)

     


    Flavius is saying this worry is baseless:

    There’s also the danger of continually cannibalizing the payroll tax cut and threatening the Social Security Trust Fund, even if there are assurances that the trust fund would be repaid out of general revenue. Once these reductions start they’re very hard to stop.

    The reason it's a fiction is the trust fund is an accounting fiction. The money we pay into SS, FICA, goes into the general fund where it's spent almost immediately. As a result, SS pay outs are taken from then-current taxes, not some fund.


    Somebody should tell the Washington elite that it's a fiction. Because if it's not real, then the US has another 5 trillion dollars to go before it hits the legal 14 trillion dollar debt ceiling.

    Interesting - according to you guys there is no debt ceiling problem. They're just making that up too. And if they wrote down this fictional 5 trillion dollar liability down to zero, that shouldn't count as a sovereign default. wow. someone should tell the Rating agencies.

    I like this world you guys live in...


    It depends on how real you want to say the books are.

    But the point is, the money isn't saved up in a piggy bank for the day when it will be paid out.

    The debt ceiling problem is different because it concerns debt service that has to be paid now--and much of it to non-US creditors.


    No, the point is the money is saved up in a piggy bank. The SS trust fund holds (non-tradable) paper equivalent to treasury bonds. So it is exactly like anyone else with government bonds in their account.

    The debt ceiling problem is not different. The SS liabilities are included in the 14 trillion dollar figure which the debt is about to reach.

    Of course you can wax philosophical about how money as such is fictional to the extent that we all have to pretend paper has the value of x amount of food or x ipods. But there is nothing especially fictional about the SS trust fund.


    In the meantime at least we got to watch Shakira....    ;o) 

    p.s. I want my money back.


    Yes, but when they come due, they still have to be paid with then-current revenues.


    And if there is insufficient money to pay them, there is insufficient money.

    Or, since it's the government paying out, you can say the government always has enough money to pay whatever it owes, no matter how much it owes. In which case, the debt ceiling is also a fiction. Obama could simply keep on paying what the government owes and blow past the "debt ceiling."


    And if there is insufficient money to pay them, there is insufficient money.

    Right. That's called a default. But no more and no less than is the case for the 3 trillion the Chinese hold. The SS trust fund and the Chinese investment funds hold paper of the same quality. If you don't pay your debts you don't pay your debts.

    So now you're saying all US sovereign debt is a fiction. Which is just nonsense.


    Yes, but that default occurs not because there is insufficient money saved in the piggy bank, but because the government decides it isn't going to pay its bills.

    It's not as though the government has this account stuffed with past revenues that it can then draw on--the way a person saves his dimes and can then withdraw them at a later date.

    When the government goes to pay its SS obligations, it will pay them out of money it is collecting then. Or, perhaps more accurately, it will just pay them, regardless of how much it's collecting.


    You're just denying Social security has a designated revenue stream and its own financial holdings. In short you're just adopting the right wing talking point that Social Security isn't a stand-alone institution where you pay in for retirement income insurance, but just a wasteful set of welfare benefits for the undeserving poor.

    Knock yourself out, but you're being economical with the truth. And not in a good way.


    Oh Cho...must we arrive at this dreary point so soon?

    I'm discussing...what are you doing? Shadow boxing? Tilting at ideological windmills?

    MIssing Chubby?

    Just as a small answer, there is NOTHING I've said that even remotely supports your assertion that I'm saying SS income is a "wasteful set of welfare benefits for the undeserving poor."


    too soon...? okay, I'll try again later.

    I'm saying you're wrong AND playing into the GOP frame. If you join them in saying the Social Security system is a fiction, all you have is a fat chunk of general revenue going to benefits for poor retirees. Of course you'd never actually say that, but that is all there is left when you elide the facts of the trust fund and designated payroll tax.

    Whereas we all know that the trust fund represents the Reagan-era deal whereby the working class boomers took a tax hike in order to finance their own retirement. The deal was supposed to involve using the money to invest in the economy - ergo deficit spending - so that the boomers' children would have higher incomes in the later decades and able to finance that debt. If you deny the existence of the trust fund, you're denying that deal - explicit and implicit - between workers and the government. All you have left is a big entry on the spending side that just needs to face cuts like everything else.


    Zounds, Peter; some kinda man-crush ya got on Cho, eh?  "Missing Chubby"?  "Don't leave me!"  Wanna talk about it dude?   Cool


    YO Cho, I hate to break it to you but those IOU's, left by the crooks who would rather owe you than beat you out of it stole the REAL Money, They claimed YOU gave them authority to leverage the asset. you subrogated your rights.

    They left the bill to the kids and the kids have said they never  authorized the transfer.

    Those IOU's  are like Confederate money.

    The Supreme Court refuses to hear the case,


    So you agree with Charles Krauthammer?  Or is the Modern Monetary Theory I don't grasp, even though I've tried reading many pieces about it?


    Never Krauthammer. I won't read your CK link, because Chuck just makes me too angry. I've sworn off him. BUT...as I understand him, he makes a somewhat different argument from what I'm saying.

    He says, the trust fund is filled with a bunch of worthless paper AND THEREFORE future SS payments are in jeopardy. We thought we were depositing all this money for later us, but every time we put in a dollar, someone (the government) took it and spent and left a worthless piece of paper in its place. Therefore, there will be no money for us when we get to retirement.

    I'm semi-agreeing with this, but saying we WILL receive payments and that only depends on the government deciding to pay us, which it will. Moreover, its ability to pay us doesn't have that much to do with how much was paid into the trust fund.

    More like MMT. Is MMT true? Don't know, but it makes a certain amount of sense to me.


    See Cho above, I guess.  A friend sent me this site for an MMT primer; can't say I know enough to grasp it all, and guess I don't want to spend the time it would require.  The folks at www.correntewire.com seem to be adherents, too.


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