Stop The Spirit of Zossen 2.0

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With a dysfunctional Duma and Administration, lonely eyes turn to Joe DiMaggio the Fed for economic hope. Krugman advises don’t expect much. We agree. It’s always a comfort to know the Fed sees the same color sky as the rest of us. Still, in practical terms, there’s not much it can do. The easiest course is play to market and consumer psychologies. Which is what this piece in the WaPo is all about. ‘There’s alot we can still do.’ Except there isn’t.

Fed leaders are weighing modest steps that could offer more support for economic activity at a time when their target for short-term interest rates is already near zero. They are still resistant to calls to pull out their big guns — massive infusions of cash, such as those undertaken during the depths of the financial crisis — but would reconsider if conditions worsen.

The main floated idea? It’s a recycle. Even before Bernanke became Fed Chairman, based on his study of Japan’s ‘Lost Decade’, he noted that the Fed could do more than drive short term rates to zero or historic lows re mortgages, etc. The Fed could venture into influencing long term and private debt. How? By ‘signaling’ markets its commitment to keep such rates ‘exceptionally low’ for an ‘extended period’. To be effective this language would require an implicit commitment to embark upon (most likely) a public asset (bond) repurchasing program. This ‘comfort letter’ would in turn stimulate economic activity.

Except that even here, the Fed’s hands are largely tied, despite assurances offered by, say, the President of the St Louis Federal Reserve Bank in the WaPo item. Krugman refers (ironically) to a Goldman analysis as a guesstimate: to achieve our current near zero short term rates would be the equivalent of the Fed embarking on $10 trillion in asset purchases. If the short-lived Fed 2008-2009 actual long term asset purchase program of around $2 trillion is perceived as unprecedented and ‘massive’? So we take Krugman’s point.

Obama’s folly of premature ‘bi-partisan’ surrender to ineffectual tax cut demands gutted the already inadequate stimulus package. The ‘Summer of Jobs’ comes home to roost. ‘Mission Accomplished’, indeed. Wither economic policy now with a radicalized demos? Disturbing data suggests Democrats in power have accomplished the once unthinkable — nudging Boomers generationally to embrace the irrational Rightists. Losing this demographic is more than just a partisan political body blow per supra.

We haven’t seen the generational preference data ourselves. We don’t dismiss it, however. David Winston, while a proud partisan, is deeply committed to the empirical. This from personal experience. We tend to give both his analysis as well as generalized glosses more credence than from others that come to mind.

Go team.

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If one is serious about re-industrializing the United States to create high wage manufacturing jobs, one probably should shun hapless pundits and other ideological purveyors. To be fair the braying comes from all sides: ‘Free Markets’ cant or the tiresome “What Would Hamilton Do Today”? As par for the course, the most visible ‘experts’ provided to us on the cable news wall often can’t read a spreadsheet, think EBITDA is a new social networking site, haven’t actually worked for an industrial company or consistently met a payroll.

Economic development requires a more serious mind. But then, one could say the same about war. And look at that.

Even more than killing dark people, a sustained development concept in Bubble-addicted America is particularly challenging. Americans expect to earn inflated income by performing essentially meaningless and frivolous output. Haven’t we essentially outsourced the wars, too?

Andy Grove laments the decline of the hi-tech industry’s domestic manufacturing. He’s right that it is essentially now a (temporary) branding and marketing channel for Asian manufacturers. “Made in China, Designed By Apple In California”. Our friend comment shared this link from Grove on point: Sadly, one has to ask: where precisely have you been for the last 30 years, Andy? (Let’s overlook the Intel billions invested in India, Malaysia and China along the way.)

Americans we will assert seem generally uninterested in development matters, especially historical economic development. So it’s important to put forth first principles to frame a conversation. Say a president visits a failed state like Michigan. He declares ‘new manufacturing jobs in America’ [cue ritual applause] will come. But before that can happen, we should be clear on what’s the goal of American economic activity? To promote *consumer* welfare measured in the here and now? Or to develop a social and economic infrastructure that maximizes *societal* welfare in the medium to long term? An infrastructure to enable other economic and social expenditures (military, standard of living, life expectancy, etc.)?

The first is America 1960-2010; ‘consumer welfare’ is the metric. The second? Delayed consumption, lower standards of living and capital accumulation for the future. How one answers these questions determines divergent paths.

For statesmen or serious students of Great Power history (this excludes by definition march of trumpets Boys Life ‘history’ ala Victor Davis Hanson et. al.), there are 4 essential, successful modern development models: (a) the British until 1870s (the end of the mercantalist First Empire and commingling with ‘Wealth of Nations’ and ‘White Man’s Burden’ era); (b) the Germans from 1870-1914; (c) the American from 1880s-1960s; (d) the Soviets 1917-1970s; (e) Japan from 1945-1991; (f) the Four Tigers (copying Japan); and (g) China (1980s-today). The latter three are essentially variations on the Japanese dual economy mercantalist approach. (The BRICs are more notional, still in China’s shadow).

Read more…

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Josh Marshall sums up why Goldman and Wall Street look at Obama and D.C. in general as mosquitos. It’s not about regulation or banking reform but the broader question of ‘who, whom.’ The City has always looked down on D.C. as uncouth, a rustic, non-cosmopolitan do-nothing. As Josh notes it’s about broader sociology; always has been. The latest round of Goldman bonuses just another signal for the hired help to remember who’s upstairs and who’s downstairs.

The City’s economy, however notional in the bubble years, is far more ‘tangible’ than the turgid federales and their politically hamstrung procedure. Sure, many on Wall Street may not understand their own ‘products’ (we loved hearing that for the first time when we were there years ago, along with the notion that mounds of documents were ‘technology’). But then *no one* in D.C. understands the federal economy, budget or even how to run a small business. The most famous and vociferous D.C. bloviators on cable re the ‘miracle’ of American enterprise wouldn’t know a revolving credit agreement from a post office mailbox lease. In the time it took Goldman to overinflate and then rape Greece Congress might have begun organizing a hearing on Athenian financial assistance.

Goldman and the rest intend to survive. Not only Obama but the eclipse of Wal-Mart America. Despite all the political posturing, Dodd’s feckless and weak ‘reform bill’ is almost entirely acceptable to the broader financial services industry. Dodd and Obama put the fear in no one — again, as Josh notes, recall when Goldman blew off meeting the president before. It’s one reason we tune out alot of the current posing on both sides. The congressional and Administration penny stock players in D.C. are like – to switch analogies – concierges who overstep their bounds and attempt familiarity while holding open the door.

D.C. long ago gained the reputation in the City as ‘rubes – we’ve established who you are, we are just haggling price’. So when the strumpets turned up with convenient cash in 2008 all well and good. A steady hand back from self-induced vertigo. Still hired help remains just that. Perhaps a little extra for them year-end for alacrity. In no way did a sociological paradigm change occur in the City, acknowledging D.C.’s primacy over the City’s cosmopolitan captains. AIG’s lock, stock and barrel ownership by the U.S. government really is a side issue – few on Wall Street ever understood AIG, find insurance dreadfully dull, and never liked AIG anyway. Greenberg’s legal travails elicit little sympathy at all.

Wall Street epitomizes the City’s condescension to the poorly paid government street walkers in D.C. But its soft presence permeates its arts, media, industry, cultural icons such as museums, etc. In a way, the U.S. Government may have been too successful in averting a major depression. Slightly humbled, barely chastened and unbowed, Wall Street (and the City) only flirted with real consequences (Lehman, Bear Stearns) of collapse unlike most of America. Isn’t the Dow back? This Goldman saga is a chapter in the ongoing tale of two cities. The book will not end with a character named Obama.

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Henry Blodget (yes, that Henry of the you’re-so-fired-for-a-tech-bubble-scam) is now a cited blogger on business matters. He speculates that the SEC surprise, unannounced suit against Goldman was timed and framed to obscure a scathing internal SEC review of its failure to act or investigate documented ponzi schemes going back to 1997. Speculative. But such craven, self-serving actions are a commonplace in D.C.

Reuters doesn’t go that far but also declares the SEC is using Goldman. They note clumsy efforts to scramble after the meltdown and pursue firms have been swatted down by courts and judges. Some judicial dismissals of SEC’s after-the-act ham fisted enforcement are scathing.

Pundits intone that SEC’s Goldman suit will bolster significantly Dodd’s the toothless and greatly watered down ‘financial reform’ bill. Republicans didn’t get the memo and have better focus group research. There’s always a tension in cynical D.C. between doing something or doing just enough to keep an issue alive for the next campaign. In our current meme environment, it’s even more stark. Actual achievement in any legislation is irrelevant to the perception in hyper-real twit-like consumptions. Thus, the astoundingly weak Dodd bill is already being amped up like a HiWatt stack as radical, massive ‘reform.’

Of all the people forced to chow down on that thin gruel, how bitter it must taste to the Left [sic], Progressives and Others Who Know Better. Again.

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We’ve analyzed here together the Agency’s [sic] diminished ethos, culture and identity across a decades long, tortiously slow march to ever deeper mediocrity. We spoke today with one of the New Breed, very cutters upper, forward leaning. (Yes, the only Ivy he’s seen is in his back yard). Nice, a good barbecue guest, supremely confident of ‘victory’. Still very much un self aware – who says without irony ‘Where I go blood follows?’

The usual issues are glaring – no foreign language skills except fragments ala airport signs leading to the head. There’s a clear ‘I belong to a club’ vibe, but unfortunately it’s Sams Club. The mindset confirms same old, same old – ‘victory’ is *obvious* – have we not taken down Al Qaeda’s No.3 at least 35 times? And their top military so-and-so 67 times? As Tim the Sorcerer said to the Monty Python entourage staring at a rabbit ‘Looook at the boooooones!’

One has to concede one thing. Leon is much better at PR than Hayden, Goss, or Mr. Slam Dunk.

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This week, aside from the horror and hope in Haiti and Conan O’Brien’s defenstration, a little soon to be forgotten group called the Financial Crisis Inquiry Commission held ‘hearings’. Eliot Spitzer et al. assure us that a lackluster dog and pony show with Wall Street CEOs smiling like Cheshire Cats is a good thing.

FCIC should use this first public hearing for two quiet purposes. The primary goal should be to develop information. The subsidiary goal is to put the CEOs on record as to what went catastrophically wrong, which will allow the FCIC to judge their candor as the facts are developed. The FCIC, and the nation, need the utmost candor. The CEOs must testify under oath, as is the norm now for witnesses testifying before the House Financial Services Committee. Precisely because it is the norm it does not impute any wrongdoing to any witness.

Spitzer helpfully provided 10 questions. Krugman was unimpressed.

Well, if you were hoping for a Perry Mason moment — a scene in which the witness blurts out: “Yes! I admit it! I did it! And I’m glad!” — the hearing was disappointing. What you got, instead, was witnesses blurting out: “Yes! I admit it! I’m clueless!”

O.K., not in so many words. But the bankers’ testimony showed a stunning failure, even now, to grasp the nature and extent of the current crisis. And that’s important: It tells us that as Congress and the administration try to reform the financial system, they should ignore advice coming from the supposed wise men of Wall Street, who have no wisdom to offer.

Quelle suprise. Do Spitzer and company really expect Wall Street CEOs to be forthcoming beyond a gee whiz, who knew? Everything Krugman rants about — millions of families damaged or destroyed, mass unemployment, lives devastated. And no one really cares. As long as they have a job. They have health insurance. The Dow is back above 10,000. They’re still in their McMansions driving their Land Rover two blocks to the Food Lion or Safeway. And their unemployed friends are let go and become invisible unless they have the bad form to ask for help.

That’s why Barney Frank’s limp financial reform bill is toothless. He’s got no mojo and everyone knows it. The public is still angry. Polls tell us so. But they’re focused on practical things. Sliding to the ranks of the permanent 10% unemployed is something that can be avoided like the H1N1 virus. Naturally the usual forms will be obeyed. The financial lobbysists (many whom the Stiftung dealt with and back in the day crushed once in a gloriously satisfying victory on House suspension) will scream and holler. We predict they will roll back Frank’s lame bill even further in the Senate. But in truth considering the scale of carnage since 2008 Frank doesn’t even slap their wrists. All this talk about Geithner’s head on a stick re AIG is so, er, bush league. How cheaply the masses are appeased.

Who here takes Obama’s stamping of his feet over a ‘tax’ as an actionable threat? Doesn’t he need to find out what Max Baucus and Oympia Snowe think? Given what he’s done to date from Afghanistan to State Secrets to torture to health insurance, do we really want Obama getting involved at all?

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Many have predicted that Obama’s fiscal recklessness squandered finite, borrowed time and money. Sprinkled across hollow facades. Under this appraisal, Obama deficits, woefully inadequate stimulus, etc. -collectively they shot one of — if not the last — chits of U.S. financial ‘supremacy’ meme inertia. The financial world is all too clear about American pointless profligacy. Exploding debt service is a fact. *And* finally China, Japan, Germany and the rest of our creditors are saying no more. You (Obama/U.S.) are cut off. The Chinese have been surprisingly blunt having seen their traditional indirect warnings disappear in a cloud of Rahm’s vulgarities and the Summers et al. black hole of multi decade incompetence. All that debt and almost no actual investment in generating wealth creating hard currency exports.

Doomsayers hit an agitated creative peak last Fall. We still have pollyannas. Green jobs will save entire states like Michgan. We are told that we will see new job growth. In the real world, green tech is already beyond our grasp. Americans at best will assemble products designed and created overseas. The pay can be a dollar above minimum wage. How small the American dream has become. We’ve yet to see a serious non-ideological depiction of a sustainable U.S. situation beyond the short term.

The ‘Things aren’t so bad’ crowd have one systemic reality in their favor. Financial decision-makers in Frankfurt, Riyadh, Beijing, Tokyo, etc. are conservative and loathe to rock the boat. Even now. Better many think to discipline an irresponsible and clueless U.S. one knows than for Beijing and Tokyo etc. have the onus for building a new architecture while not shooting their own dollar holdings in the process. The problem, however, is that the U.S. economy is moribund, the dollar finished as a reserve currency. So the ‘pretend we can cajole’ game has a short life span.

In their private councils the question is on the table. How to let the U.S. sink in deserved ruin without pulling everyone with them? It’s like the Chinese finger traps with two fingers and they tighten more if one seeks extrication.

We have reached a new era in which our creditors are increasingly condescending in public, making explicit threats or revoking the U.S. allowance. One might think there are some silver linings. Surely creditor denial, for example, spells the death knell for Neocon enthusiasms to kill other people via others such as the hoodwinked American military. A strand of thinking, however, suggests that small chump change might be provided so that Americans will die in far off places rather than say Chinese combat troops, etc. Round eye canon fodder. Irony abounds. We didn’t shove opium on them. They didn’t either. Just electronic gimcrack. And Riyadh might find it convenient to leverage our poverty in return for dying stopping the Persians (and keeping Mayo going and American call girls at the ready).

There is going to be transition period. 2008 taught us that smart money wants order and predictability. But beyond that, we note most of the pessimists/ realists for all their self adorned iconoclasm largely envision tomorrow today, only more so around the edges. None we have seen (if you have, please pass along) imagine what it would look and feel say for the IMF to take control of the U.S. political economy like it did as agent of American imperial capital in so cases. Or even more.

Not in lurid Glenn Beck verbal spatter. But on straight factual walk thorough.

Unthinkable, right? Here’s some more. The Stiftung Library has mint original manufactured currency imposed on Japan by SCAP (Supreme Command Allied Powers (our Shogun, Douglas MacArthur)). The cases are not analogous directly. Military obliteration, Robert Strange McNamara and Curtis LeMay planning the mass murder for wooden Tokyo in low level incendiary bombing raids. The devastation – like Bomber Harris’ war crime against Dresden – was orders of magnitude beyond the 2 atomic weapons. SCAP tried to run Japan as an American fiefdom. The Japanese proved cannier in the end. They all but outfoxed and co-opted the serenely unaware Americans. Korea then changed everything anyway. Still, we made the Japanese use our cool currencies at the snap of our fingers.

Given the difference between catastrophic military defeat and slo-mo fiscal suicide, it’s unlikely we we will get that other silver lining of watching a servile Sean Hannity licking the shoes of the Deputy Assistant Manager for Bounced American Cheques. We nonetheless defeated ourselves pissing away trillions on Bedazzlers, Snuggies and McMansions while chasing empty, vain consumption.

We do think it useful to anticipate the likely scenarios. But even more so the unexpected ones. The draconian possibilities hinted at above may never come to pass. Why not try and minimize the surprise? History, of course, is made by the unexpected event every day. The Stiftung’s Library has many examples of SCAP imposed currency. We make no direct analogous claim – but is it so fantastical to ask ‘What if?’ Surely there’s a suitable color and graphic for when we sign the papers handed by the solvent nations. Perhaps in Sarah Palin’s peppy red color scheme?

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Obama can’t get no relief from those mainstream leftist fascists like Frank Rich. The one-time theater critic and rugby scrum pal of Imus et al. has stumbled accidentally on a scandalizing truth: Obama is all air.

Is it a fair critique? Certainly his pirouette today on Wall Street bolster’s Rich’s case. The speech offered no new policy approaches. As an admonition it can hardly intimidate an industry and state of mind whose bonus levels already equal 2007. After all, they can watch the health care debate as well as anyone. They know it’s unlikely that any financial reform legislation will make it through Congress this year. And second, they know a flincher when they see it. “Blue Horseshoe loves Annacot Steel” is quaint beyond the telling of it.

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And all the timebombs
They’re all dancing to the same song
In a world full of no one
I am a someone
I am a timebomb

An overly mannered, attempted droll reference to our torch-carrying friends in the Movement? Too lazy. Their er, tea bagging and now their subconscious projections via guns and swastikas a boring commonplace.

We resurrect this catchy pop tune because it seems to apply to all of us this August, beyond the Movement fringe. We sense a Nation in the lull before a storm. The latent potential for frustrated expression is not an exclusive trait of our brownshirted irrational Fox Lovers. (We will concede them the franchise on violence, ‘May Pole’-esque reverence for ‘big’ guns and Corporal homages). What strikes us this August is how many non-political acquaintances are openly expressing frustration over dashed expectations. These are the majority of Americans who demanded ‘change’ last Fall but don’t particularly care whether Laurence O’Donnell was chief of the Senate Finance Committee staff, what Wilkerson has to say (on anything), or whether John Dean thinks Pepsi’s new logo is worse than Watergate.

Our view remains that Obama’s best function historically is to stabilize the Republic after 8 years of Christian Socialist Authoritarian misrule. Ideally, he would need two terms to return governing to a non-radical, non-extra-legal meme basis. We do not see it in him actually to roll back the damage. That will be up to one later who can build on a stabilzed foundation with a clearer restorative purpose. We personally are not reacting in this post to all the Rightist August frenzy per se. It’s to be expected. Even a stabilizing caretaker simply counter-flooding watertight compartments in our ship to compensate for huge holes left by the Warlord would galvanize the Movement eventually. Cost of doing business. We just didn’t expect Obama or the Democrats to be so pitifully unprepared.

Why shouldn’t one expect some competency? We’ve debated here in our cozy little corner whether he took on too much at once, had no alternative, could have prioritized, etc. What can not be denied, we believe, is that it is imperative that he be seen as having done something well. At least one thing. We know of almost no one who trusts Geithner and Summers. If Liz Warren, our old acquaintance is skeptical, knowing how her mind works, we are too. We do not share the Obama team’s enthusiasm for war in Afghanistan or a prolonged presence in Iraq. We never understood why so much of the deficit should be for more Republican tax cuts in the pitifully small stimulus when the tax cuts got no Republican support anyway. One could go on. They did handle Swine Flu reasonably (the Biden-on-the-plane-thing merely loopy). But to be this clumsy over 1/7 of the economy after the bailouts?

Should he prove to be neither competent nor progressive it may well be the worst of all outcomes for those wary of the Counter-Enlightenment Will to Power: general disillusionment combined with a radically energized, irrational Movement raging for revenge. His first 8 months suggest a very good ordinary politician feeling his way through a learning curve. But these are not ordinary times. Our biggest disappointment beyond competency? Team Obama shows the Stiftung time and again that at the core they, like Reid, Pelosi and the rest, do not understand the regime they overthrew in Fall 2008 or the shards coalescing for a re-match.

The tissue of American commitment to civil society, civil liberties and liberal democracy has always been more gossamer thin than most suppose. Obama revealed as ordinary tactical pol with mixed competency facing a galvanized Movement? One wonders if the commitment withstands that challenge. Let’s hope Obama doesn’t put it to the test. For our sakes, we hope he succeeds. On at least on thing.

In that sense, we are all timebombs. Ticking, ticking timebombs.

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