'The Change We Need' Is in Economic Direction

The Federal Reserve – the Fed - is the dictator of our economy.

The term "dictator" is generally used to describe a leader who holds and / or abuses an extraordinary amount of personal power, especially the power to make laws without effective restraint by a legislative assembly. Dictatorships are often characterized by some of the following traits: suspension of elections and of civil liberties; proclamation of a state of emergency; rule by decree; repression of political opponents without abiding by rule of law procedures……. Wikipedia.

Our economic dictatorship is not a new development but the consequences are – the economy is failing and a new direction is needed. It is painfully obvious that the average Joe has no voice in controlling its direction. The Fed is unwilling to alter American economic religion even though it created the worst economic destruction since the Great Depression.

The Fed’s religion requires adherence to an inflating economic model stimulated by credit and reinforced by free trade. This model collapsed in 2008 under historically high debt load, almost two decades of misdirected economic stimulus (which created a massive real estate bubble), and its inability to generate employment.

The economic collapse radiated through our nation destroying wealth. The affected have embraced this religion. They want back what they lost. American politicians love this religion – it promises a brighter future without consequences.

There are other religions. But no religion offers so much benefit for so little sacrifice as the Fed’s religion. Is it possible for the Fed’s religion to deliver on its promised benefits? Ask yourself these questions:

• Do you believe that significant expansion of consumer credit is possible?
• Can we continue to borrow as a nation or as individuals from the future to pay for the present? Is there a point where borrowing is at a limit?
• Do you believe the government is capable of leading business recovery, deciding which businesses should be saved or should fail, and envisioning what the future business sectors should be? On a scale between 1 and 10 (10 being the best), what rating would you give GSE’s business performance? [This will give you a good indication of how well the government can lead and manage business.]
• With the value of imports exceeding exports by 3% of GDP, do you honestly believe this has no effect on employment - or does not have a negative multiplying effect on economic growth in America?
• Do you believe sustainable economic growth is possible before the excesses of credit and supply are unwound in the banking and private sectors?

Throughout my life, I have been led to believe the events currently unfolding were impossible. The main tenets of our current economic religion failed. It is not logical that we should continue using this religion with no modification or debate.

• Our economic religion requires growth to properly function. Unfortunately, every nation, every business, and every person reaches a point where further growth creates instability. The span of control becomes ineffective. Maintenance of existing infrastructure is too onerous. Efficiencies of scale start inverting. Existing rules, regulations, laws and procedures become outdated and conflicted resulting in deterioration of economic function.
• Our economic model is not delivering full employment – and in fact has been eroding employment since 2000. We need 10 million new jobs today. The current model is exporting jobs without stimulating creation of replacement jobs. Without employment opportunity, it is difficult to start considering a new growth stage. If people do not have jobs they cannot consume. If there is no consumption there is no growth.
• Inflation drives growth through borrowed money – but today we see no growth direction. Why should we tolerate Inflation? It rewards the risk takers and punishes conservative business and personal practices. It allows a government to continue to expand its indebtedness. It has been allowing historically large economic excesses. A non-inflationary model’s does not provide growth unless growth is warranted.
• It will be a decade or more until the consumer demands of the past are recreated. The current engine of economic growth – the boomers – is exiting.

I do not accept the Fed’s religion. It promises everything but is proven capable of delivering little except instability. Either this model does not work, or the Dictator is incapable of managing it.

This week, we will begin to see the beginning of the promise for change. From an economic point of view, President-elect Obama is offering little except a LOT more of the same. His team will, however, bring new vigor to a rather dismal economic environment.

We need a change in direction for our economy. Obama is relying on the same religious group of economists to lead us out of this crisis that ruined the economy in the first place.

America needs the promised change – not a lot more of the same. We need a new economic vision. A vision where jobs are created and growth is not exported. A vision where credit does not fuel misdirected expansion. A vision where markets are stable and investable – and your wealth is not destroyed in a single year. A vision where inflation is not a consideration in retirement, and the government does not bankrupt its citizens to pay for its debt.

Mr. Obama – "The Change We Need" is a new economic religion.

News of the Week

Hong Kong has been named the world's freest economy for the 15th year in a row, according to an annual report released by the conservative Heritage Foundation and the Wall Street Journal that warns against government intervention amid the global economic crisis. The Chinese territory, known for its low taxes and looser regulations, was followed by Singapore, Australia, Ireland and New Zealand, according to this year's Index of Economic Freedom. USA has dropped to sixth place.

Nobel Laureate Nouriel Roubini's think tank has produced the following GDP forecasts for 2009:

In addition, Roubini has come to the following conclusion:

So 2009 will be a painful year of global recession and further financial stresses, losses and bankruptcies. Currently, the probability of an L-shaped, stag-deflation is now rising to a third, while the probability of a severe U-shaped recession is two-thirds. Only aggressive, coordinated and effective policy actions by advanced and emerging-market countries can ensure that the global economy starts to recover -- however slowly --in 2010, rather than entering a more protracted period of economic stagnation.

The heads of the Minneapolis Fed and the Philadelphia Fed spoke out last week: These are non-voting members of the Fed Open Market Committee.

• Recovery should slowly begin in the second half of 2009, and will gain some strength in 2010.
• Are worried about the treat of inflation
• Sees the housing market bottoming later this year

A significantly different darker view was presented by Fed Chairman Bernanke – who has finally spoken out on the crisis in a 1/13/2009 speech in London. The amount of detail given is significant and is presented in Bernanke Speaks Out on the Great Recession.

The New York Fed has continued purchasing fixed-rate mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. Selected private investment managers are acting as agents of the New York Fed in these purchases. They already purchased $10 billion in the previous week and another $23.4 billion last week. By mid-year, the Fed wants to purchase $500 billion worth of these securities.

After a lull in December, the amount of money needed by banks through the Fed’s TAF (Term Auction Facilities) has resumed its upward path. This program was put in place to allow banks access to short term money when credit began to freeze. The credit freeze may be gaining ground again.

Bankruptcy this week: Nortel Networks (NT), Gottschalks Inc (GOT), Merisant Worldwide [makers of Equal], Tronox (TRX), Minneapolis Star Tribune (owned by Avista Capital Partners)

The European Central bank cut interest rates 50 basis points to 2%.

The second $350 billion tranche of the $700 billion TARP program was approved by Congress to backstop the American financial system. The money is reported to be available within two weeks.

Bank of America (BAC) will receive another $20 billion (in exchange for preferred stock) under TARP to shore up its capital base. The Fed is blaming the need for this new capital injection on the acquisition of Merrill Lynch. The Fed in addition is providing unspecified guarantees and liquidity access. Both Bank of America and Citigroup (C) have announced billions in losses this week ($2.39 billion & $8.29 billion respectively).

Summary of the Week’s Economic Fundamentals

The indicators continue to show a moderate to severe economic contraction. Below is a list of news which happened this week.

Interesting but Not Indicating Anything

• Home loan applications were rose 15% last week, and are at levels last seen in 2003. This Mortgage Bankers Association index covers 50% of all loan applications. Over 85% of all loan applications were for refinancing existing loans. Basically we are in an uptrend cycle caused solely by consumers refinancing their homes with lower cost mortgages.
• BLS released December 2008 US Import and Export price indexes showing continuing deflationary trends in the prices of exports and imports.

click to enlarge images

• The Bureau of Labor Statistics released the December 2008 Producers Price Index showing continuing deflationary trends in the supply of goods:

• Real average weekly earnings rose by 0.6 percent from November to December after seasonal adjustment, according to preliminary data released today by the BLS. This gain stemmed from a 0.3 percent increase in average hourly earnings and a 0.9 percent decrease in the Consumer Price Index (CPI-W), which were partially offset by a 0.6 percent decrease in average weekly hours. Average weekly earnings rose by 2.2 percent, seasonally adjusted, from December 2007 to December 2008. After deflation by the CPI-W, average weekly earnings increased by 2.9 percent.
• The Consumer Price Index for All Urban Consumers (CPI-U) decreased 1.0 percent in December, before seasonal adjustment,. The December level of 210.228 (1982-84=100) was 0.1 percent higher than in December 2007.

Positive Leading Indicators

• None this week

Negative Leading Indicators

• ECRI’s Weekly Leading Index continues to demonstrate deteriorating market conditions six months from now. As I contribute ECRI’s index result at the same time as this weekly summary, I cannot give you a link – but if you click on “more articles” under my picture above you can find this week's submission.
• The price per barrel of oil has again dropped below $40 per barrel. This is constraining development of additional resources which will be an economic inhibitor when the economy improves.

Positive Coincident Indicators

• None

Negative Coincident indicators

• The Department of Labor released their weekly Unemployment Insurance Claims. The non-seasonally adjusted initial claims are massive – being the fourth largest ever reported.

Positive Trailing Indicators

• None

Negative Trailing Indicators

• November 2008 balance of trade in goods and services improved 30% over the previous month with exports and imports reducing by 10% overall. This is a fairly significant one month drop, YOY reduction in goods and services trade was almost 12%.

If you would like a summary of all government financial indicators, click here.

Afterthought

Last week, in my article We Are the Mushrooms of This Economy I criticized the Fed for not being forthcoming about our economic crisis. A few days later in London, Bernanke Speaks Out on the Great Recession.

What surprises me about Bernanke’s speech was the lack of coverage and analysis in the media – and especially in business news. I was surprised how open he was about the future (yes, you still need to read between the lines). The Fed has not correctly interpreted why we are in this crisis, the next shoes to fall, and therefore has given the wrong prescription for recovery. I do hope that the Fed remains true to their word that they will be more transparent in the future.

Disclosures: none

Comments

[socrateazz:]

I may be wrong but I think the basic premises of the fed control of the economy is correct. The Problems I see are mostly in beliefs causing the wrong actions at the wrong time. Many forces have changed peoples perception of what is logical and what is reasonable. Some like the expansion in government has happened for milinea. I believe all goverment believes more ........ is what government is for. To leaders more money means the government can do more. There is a tipping point though. Are we there? Building projects like the piramids of Egypt or the Greek and Roman empires will cause civilizations to persist for awhile. But note they went down hill after they were built. Will it happen today? Kingdoms seemed to work in europe for centuries. Why did they fail? I really believe too much wealth went to supporting the kingdoms taking too much from the actual people of the kingdoms. Kingdoms often started as ways to centralize and help the people and before their demise became selfish, prideful, envious, and greedy bastions for the royalty. Anyhow, If too many resources go to government, expect less resources for the people. Doling money out to the people will help short term. Will it help the future?

Jan 18 09:16 AM

[Jan Baker:]

Steven Hanson has collected practically every problematic area in the crisis and the political responses to it, and every bullet reaps comment, so I hope this thread goes on for a while. I'd like to comment on this particular bullet:

Steve wrote: America needs the promised change – not a lot more of the same. We need a new economic vision. A vision where jobs are created and growth is not exported. A vision where credit does not fuel misdirected expansion. A vision where markets are stable and investable – and your wealth is not destroyed in a single year. A vision where inflation is not a consideration in retirement, and the government does not bankrupt its citizens to pay for its debt.

First of all, there is a conference in April that will have representatives from three distinct economic platforms, distributism, socialism, and capitalism.Thomas Storck will speak for the distributist position. Dr. Charles Clark will be the speaker on democratic socialism. Michael Novak will be the main speaker for the democratic capitalist position. I do not know what definition of democratic socialism Mr. Clark will be using, nor Storck; Novak's positions are well known as the theology of present "free market" mess (it is not a free market, thus the quotes; a free market would be operating with the wish list outlined in this post, and it does not presently exist).

Regardless of what definitions being used for distributism and democratic socialism, this conference and any others are needed to begin the kind of social discussion that could send us in a healthier direction, exactly the kind Steven describes. That this particular one is being organized by Catholics should not be an impediment. Because of the history of the Church, and because of its mission statement ("To get souls to heaven"), Catholic leadership at a world level have long discussed--prior to the birth of capitalism, even-- socially healthy economies, and have, since capitalism developed to its present chaotic death-spin, offered an alternative, simply because the present conditions are not condusive to getting people to heaven, but rather condusive to suicide, abortion, divorce, theft, and every manner of dissolution.

The alternative stresses unqualified defense of private property, saying that ownership is sacred, but that the exercise of ownership may be influenced by the state for the common good. (That's a really important distinction; go an eighth of an inch over, and you've alienated private property, and nothing the new administration has said assures one that they grasp it. It's the difference between seizing someone's assets and increasing the taxation on, say, ownership concentrated over a certain level, more than four pizza shops in a chain; more than four hardware stores in a chain; in other words, anti-Walmart taxation structures which do not seize assets but might promote their sell-off.)

A second footprint of distributism not present in some definitions of socialism and not present in advanced capitalism such as our own is the widest possible distribution of ownership--of whatever--and cooperatives are one such form of ownership, a kind of merge between the social safety net provided by socialism and the profit-making of capitalism. One group active now is the Center for Economic and Social Justice, calling interestingly for the cooperative ownership by all Americans of future new wealth. You can find their web page by googling them. There are other groups as well. There is also, of course, private ownership as well, but cooperatives in some modern form is such a fresh idea! Think of the possibilities for our impoverished population, to have alienable shares in say, the oil deposits not presently being developed, or space projects (moderated in some form or other; think of land ownership forms the Mexican government uses to protect the land distributed among their tribes, for example; they can't simply be sold, but they can be used as collateral on loans, and can be sold in some forms; I don't know if this model is a good one, but they are using a form of moderation, is the point).

I've added the space projects thing. No one ever talks about space and energy anymore, and yet there it is, full of solar that is microwaveable to earth.

In any case, I am delighted that Steven Hansen here has opened this discussion. We DO need a "new economic religion." Capitalism in its present form is stiffling that discussion. Other forms are out there.

Pius XI, in a very interesting economic/theological work called Quadragesimo Anno, said, as a caution, that the best economic model for getting souls to heaven was probably the one known as "moderate socialism," (I do not know that this term may be used interchangeably with "democratic socialism") meaning one with private ownership but a big safety net, savings-based economy as opposed to credit-based economy, etc.), but that there was one enormous problem: because the state had even more power in this form of government than under advanced capitalism, it was imperative that there be very firm social structures to guide this power through conscience as opposed to by legislation. There had to be total respect for the sanctity of the human life. There had to be total respect for the economic unit that is before all economic platforms, the natural human family. These strictures had to be as firm as those protecting private property. That ought to give us pause. It might make us consider whether we can find a new economic religion and keep the social mores of the present one, which might be characterized as a whores code in which the idea of sexual discipline makes some people literally froth at the mouth.

Let me offer an example of what can happen when this whores code is applied. One of Obama's campaign promises was to begin funding again the UNFPA, the UN Family Planning Agency. This is under no particular banner except the general "sexual freedom" clause of the whores code. The UNFPA provides abortion kits and support personnel for coerced abortion and sterilization in China and Albania, for two that are easily investigated and are probably only two among others. Bush refused to fund it. Obama will keep his promise (and forget Tuskeegee, forget how blacks were similarly ill-used). The UNFPA also provides the platform for the kind of "voluntary" abortion and sterilization where the volunteer trades the signature on the consent form for food. (If this does not raise a red-flag for you, if you think somewhere deep down, 'listen, they're only indians, they're only blacks, they HAVE to stop reproducing, it's the right thing to do for Mother Earth,' you better take a look at what kind of 'liberal' you've become. Because it's an eighth of an inch over from fascism, did you know that?)

Below is the contact form for that conference. I'll be there. (I'll be the grey-haired woman who looks cheerful, because getting souls to heaven is happy work.) It may be a bust. But we need to create a buzz for a new economic religion, Steven Hansen is on the money again, with this one.

Here's the contact info, you have to make a reservation:

Garden City, NY, USA. A conference hosted and sponsored by the Nassau Community College for Catholic Studies in Long Island, New York, is confirmed for April 4th, 2009 at the College Center Building.
Nassau Community College
Office of Life Long Learning
One Education Drive
Garden City, New York, 11530
1-516-572-7472.

Jan 18 09:30 AM

[skwestorange:]

Steven Hansen has indeed summarized the real issues confronting us very well and stated the need for a new economic vision very well. That is what we need to help our great grand children bear the burdens we impose on them.

The question is who is going to lead and see this effort thru for the benefit of the public at large. As a layman who reads a lot on US and world economics, I doubt that absent a benevolent dictatorship (utopian as it may sound) there seems to be no way to effect change of the type being advocated in our society.
Pols and business leaders are human too and they of course seek to cover their own and their cronies' bases first and that too at public expense. So, may be our scientists have to invent new gene or whatever you may call it that brings about a change in human behaviour. Perhaps a generation of this altered species can bring about this change.

Jan 18 10:35 AM

[fireball:]

more of the same. maybe obama will take the appeasement route with aggressors and a third world war will cure the world economy

Jan 18 11:03 AM

[Prudent Man...:]

The "new way" is the old way: Free Enterprise not Capitalistic monopolies and large Central Government. The socialistic bail out just freezes contracts, as Barney Frank stated "the law is what Congress says it is". and no one wants to take any risk because the politicians change the rules for their own political purposes and expediency. They don't care about the damage they cause to Free Enterprise because, basically, they don't believe in it.

We have an avowed socialist as president and Barney Frank and Chris Dodd running the Congress' top financial committees. Now that is encouraging for one to take risk and build a business. A business that the Congress wants to rule but not take the risks.

Jan 18 11:30 AM

[sleepless_o...:]

This is a paraphrase of a comment I just wrote in another comment stream.

The old religion was the use of credit (debt) to produce more credit.

The new religion should be the use of credit (debt) to produce the means of production of goods and services.

The old religion is related to Ponzi.

The new religion is related to economic growth.

Jan 18 11:50 AM

[derryl:]

Mr. Hansen wrote,
"Our economic religion requires growth to properly function. Unfortunately, every nation, every business, and every person reaches a point where further growth creates instability. The span of control becomes ineffective. Maintenance of existing infrastructure is too onerous. Efficiencies of scale start inverting. Existing rules, regulations, laws and procedures become outdated and conflicted resulting in deterioration of economic function."

I agree that this is where we are at. Our systems have become so large and complex that no human mind can understand them. They have become 'inhuman'. We have conflicting 'theories' of how our systems work. We lack the brainpower to understand and control what we have built so our efforts become inefficient, counterproductive and the outcomes unpredictable. We have to react to unexpected consequences so, in effect, our systems are running us, not us running our systems.

Our system of money-as-debt creates the need for constant debt-money expansion for the system to keep functioning. Central bankers know this so they try to keep inflating the money supply by 1-3% annually, the target rate of inflation.

But in our system all this new money can only be created as new debt so the system requires constant expansion of willing borrowers to take on ever increasing total debts. To qualify for loans of this new debt you have to show that you have income to pay it back, which requires employment, either at your own business or working for someone else. (subprime liar loans or loans based on unemployment insurance income were tried with disastrous effect)

Ever increasing need of new debt requires ever increasing need of employment which requires ever increasing exploitation of economic resources. This planet has finite resources, 'scarcity', so our monetary model does not fit with the planet's economic reality.

Us humans have a finite capacity to carry debt beyond which we feel very insecure, so our monetary model does not fit human psychological reality either. We feel we should 'live within our means', but if we all got out of debt and lived on our cash incomes the monetary system would collapse.

I think we also need to feel 'productive', so we need to have useful work to earn our living by. This means that any local economy (a country is 'local' in a global economy) needs to have a range of work that allows all people to participate. Most people need relatively 'concrete' work like manufacturing or construction or even answering phones at a call center, work we can understand and see the product of our efforts. Some people are comfortable with more abstract work, but most people need concrete work.

If this is true then offshoring all your 'simple' jobs to cheap labor countries is a mistake. It does not serve the needs of your country's people to export the kinds of work they are capable of doing themselves. The typical autoworker or carpenter cannot be 'retrained' to become a geneticist or materials engineer to succeed in the 'knowledge economy'. We have different kinds of minds that are suited to specific kinds of work and unsuited to others. An economic policy that serves 'the country's interests' should accomodate the people you actually have, not try to force them to become something they are not.

Offshoring your country's jobs may increase aggregate wealth of your country, but it does so by concentrating that wealth in the hands of whatever global corporations are headquartered in your country. The unemployed have no way to earn a share of that wealth so you have to expand the welfare state and bureaucracy to get money to these people. I think most of these people would prefer to 'earn' their living, but if your government has allowed the export of all the kinds of productive work they are suited to they have little option but to take welfare.

I think 'change we need' involves pulling back on globalization. If your own people need work and they can do something useful, that kind of work should be protected. Countries can still trade their comparative advantages, but countries should not overspecialize their economy so that ONLY those working in the advantaged industries have work. We do not accept economic Darwinism. We do not expect the unemployed to die off.

I think we also have to rethink the current operation of our monetary system. We are seeing that there are limits to the total debt we are able to carry. The simplest way to fix this and keep this system operating is for government to create and spend debt-free money into the system on an ongoing basis. Private debt can be stable or even decline if there is some external source of money available to the money-as-debt system, and government can provide that source. Taxation can then remove 'excess' money as required. If you wanted to, you could eventually monetize all debt in this way then run the banking system with 'real' money rather than with newly created debt-money.

On the downside, this is a complex system that only a few people will understand. Politicians will have to rely on monetary 'experts' to coordinate fiscal and monetary policy. This kind of system can be easily abused by the 'elite' who are operating it. We saw what happened on Wall St when investment banking 'elites' designed complex financial instruments that enriched them personally but were disastrous for the economy as a whole. I don't know how to prevent this from happening.

I've been referring people to Warren Mosler's "Soft Currency Economics" for a description of how this change to the monetary system would work. Just this one simple change could solve the problem of our recurring debt crises, and seignorage on the newly created non-debt money would partly replace taxes to fund government spending.

Jan 18 11:57 AM

[Isnt_It_Jus...:]

I don't trust any group who has the over arching goal of "getting people to heaven" as the basis for deciding which economic model is best, although their interests may be aligned with secular interests. I also wonder about how an economic model will deal with the rather large group of people who simply can't/won't work productively. Do we let them starve?
The US has bought into the "something for nothing" economic model, which is consuming now what we should've consumed in the future, of the Reagan voodoo economic model. It proved to be too seductive and so we despoiled ourselves with it. We must undo more than a generation of wrong thinking and get back to actually making things other people want. There's no other way.


On Jan 18 09:30 AM Jan Baker wrote:

> Steven Hanson has collected practically every problematic area in
> the crisis and the political responses to it, and every bullet reaps
> comment, so I hope this thread goes on for a while. I'd like to comment
> on this particular bullet:
>
> Steve wrote: America needs the promised change – not a lot more of
> the same. We need a new economic vision. A vision where jobs are
> created and growth is not exported. A vision where credit does not
> fuel misdirected expansion. A vision where markets are stable and
> investable – and your wealth is not destroyed in a single year. A
> vision where inflation is not a consideration in retirement, and
> the government does not bankrupt its citizens to pay for its debt.

>
>
> First of all, there is a conference in April that will have representatives
> from three distinct economic platforms, distributism, socialism,
> and capitalism.Thomas Storck will speak for the distributist position.
> Dr. Charles Clark will be the speaker on democratic socialism. Michael
> Novak will be the main speaker for the democratic capitalist position.
> I do not know what definition of democratic socialism Mr. Clark will
> be using, nor Storck; Novak's positions are well known as the theology
> of present "free market" mess (it is not a free market, thus the
> quotes; a free market would be operating with the wish list outlined
> in this post, and it does not presently exist).
>
> Regardless of what definitions being used for distributism and democratic
> socialism, this conference and any others are needed to begin the
> kind of social discussion that could send us in a healthier direction,
> exactly the kind Steven describes. That this particular one is being
> organized by Catholics should not be an impediment. Because of the
> history of the Church, and because of its mission statement ("To
> get souls to heaven"), Catholic leadership at a world level have
> long discussed--prior to the birth of capitalism, even-- socially
> healthy economies, and have, since capitalism developed to its present
> chaotic death-spin, offered an alternative, simply because the present
> conditions are not condusive to getting people to heaven, but rather
> condusive to suicide, abortion, divorce, theft, and every manner
> of dissolution.
>
> The alternative stresses unqualified defense of private property,
> saying that ownership is sacred, but that the exercise of ownership
> may be influenced by the state for the common good. (That's a really
> important distinction; go an eighth of an inch over, and you've alienated
> private property, and nothing the new administration has said assures
> one that they grasp it. It's the difference between seizing someone's
> assets and increasing the taxation on, say, ownership concentrated
> over a certain level, more than four pizza shops in a chain; more
> than four hardware stores in a chain; in other words, anti-Walmart
> taxation structures which do not seize assets but might promote their
> sell-off.)
>
> A second footprint of distributism not present in some definitions
> of socialism and not present in advanced capitalism such as our own
> is the widest possible distribution of ownership--of whatever--and
> cooperatives are one such form of ownership, a kind of merge between
> the social safety net provided by socialism and the profit-making
> of capitalism. One group active now is the Center for Economic and
> Social Justice, calling interestingly for the cooperative ownership
> by all Americans of future new wealth. You can find their web page
> by googling them. There are other groups as well. There is also,
> of course, private ownership as well, but cooperatives in some modern
> form is such a fresh idea! Think of the possibilities for our impoverished
> population, to have alienable shares in say, the oil deposits not
> presently being developed, or space projects (moderated in some form
> or other; think of land ownership forms the Mexican government uses
> to protect the land distributed among their tribes, for example;
> they can't simply be sold, but they can be used as collateral on
> loans, and can be sold in some forms; I don't know if this model
> is a good one, but they are using a form of moderation, is the point).

>
>
> I've added the space projects thing. No one ever talks about space
> and energy anymore, and yet there it is, full of solar that is microwaveable
> to earth.
>
> In any case, I am delighted that Steven Hansen here has opened this
> discussion. We DO need a "new economic religion." Capitalism in its
> present form is stiffling that discussion. Other forms are out there.

>
>
> Pius XI, in a very interesting economic/theological work called Quadragesimo
> Anno, said, as a caution, that the best economic model for getting
> souls to heaven was probably the one known as "moderate socialism,"
> (I do not know that this term may be used interchangeably with "democratic
> socialism") meaning one with private ownership but a big safety net,
> savings-based economy as opposed to credit-based economy, etc.),
> but that there was one enormous problem: because the state had even
> more power in this form of government than under advanced capitalism,
> it was imperative that there be very firm social structures to guide
> this power through conscience as opposed to by legislation. There
> had to be total respect for the sanctity of the human life. There
> had to be total respect for the economic unit that is before all
> economic platforms, the natural human family. These strictures had
> to be as firm as those protecting private property. That ought to
> give us pause. It might make us consider whether we can find a new
> economic religion and keep the social mores of the present one, which
> might be characterized as a whores code in which the idea of sexual
> discipline makes some people literally froth at the mouth.
>
> Let me offer an example of what can happen when this whores code
> is applied. One of Obama's campaign promises was to begin funding
> again the UNFPA, the UN Family Planning Agency. This is under no
> particular banner except the general "sexual freedom" clause of the
> whores code. The UNFPA provides abortion kits and support personnel
> for coerced abortion and sterilization in China and Albania, for
> two that are easily investigated and are probably only two among
> others. Bush refused to fund it. Obama will keep his promise (and
> forget Tuskeegee, forget how blacks were similarly ill-used). The
> UNFPA also provides the platform for the kind of "voluntary" abortion
> and sterilization where the volunteer trades the signature on the
> consent form for food. (If this does not raise a red-flag for you,
> if you think somewhere deep down, 'listen, they're only indians,
> they're only blacks, they HAVE to stop reproducing, it's the right
> thing to do for Mother Earth,' you better take a look at what kind
> of 'liberal' you've become. Because it's an eighth of an inch over
> from fascism, did you know that?)
>
> Below is the contact form for that conference. I'll be there. (I'll
> be the grey-haired woman who looks cheerful, because getting souls
> to heaven is happy work.) It may be a bust. But we need to create
> a buzz for a new economic religion, Steven Hansen is on the money
> again, with this one.
>
> Here's the contact info, you have to make a reservation:
>
> Garden City, NY, USA. A conference hosted and sponsored by the Nassau
> Community College for Catholic Studies in Long Island, New York,
> is confirmed for April 4th, 2009 at the College Center Building.
>
> Nassau Community College
> Office of Life Long Learning
> One Education Drive
> Garden City, New York, 11530
> 1-516-572-7472.

Jan 18 02:00 PM

[{5U}:]

Great article.

The Fed is a tool for the politicans. Bernake cut rates to near zero to save his job.

It will be very ironic to hear Obama hee haw about an era of transparency when he will be spearheading the greatest ponzi scheme of all time: The US Government and the multi trillion dollar stimulus/lifeline/bail... agenda.

Jan 18 02:01 PM

[Moon Kil Woong:]

The biggest failure of this downturn remains lack of stability. Everything is an afterthought. Lack of stability means not enough confidence to plan for the future, hoarding cash and assets, business decline due to lack of demand and planning for the worst, job losses, fear of the future, fear of external forces, a sense of powerlessness followed by depression and lack of motivation. This leads to economic intability, war, revolution, starvation, etc.

How is the lack of stability started? It is puncuated by corruption, no faith in our leaders and our system, incongruent government actions, favoritism, lack of laws and rules, lack of enforcement and rules, lack of planning, lack of leadership, squandering of assets, and meaningless unproductive wars. It felled the Roman civilization and can fell any modern one as well.

The most likely candidate is not the US but countries without as solid political foundations like China, Russia, and all tyrannical governments. However, it can also fall America if we are not vigilant.

The fact that we have allowed banks to hide assets, allowed massive CDS derivatives markets without any regulation, allowed massive fraud in our financial system without regulation, and are socializing banks and big businesses (yes anyone taking TARP is a cocialized bank whether you want to believe it or not. That means their actions are not entirely based on market forces but the wants and whims of government and other institutions like the Fed and Treasury) leads us to economic and political stability. If we are not vigilant we also could topple as Steve Hanson repeatedly points out.

I hope this puts the current downturn in some historical perspective. Lack in US debt would not just fall the US but would destroy a good portion of the world's economies and political structures if not whole countries since global stability is still predicated on a strong US economy.

At least we still have something going for us in this dark time.

Jan 18 03:08 PM

[Jan Baker:]

To sleepless: yes, credit in the production of goods and services; but who will buy them? We have a demand problem with two legs: the system refuses to pay workers more than their sum total of skills and contributions warrent (hence the willingness to knock down auto workers in the new economy) and we have aborted fifty million new consumers in the last forty years. That scenario faces Europe to an even greater degree than the US, as we have held our growth at least at replacement levels--up to now. There are indications that that single US advantage is over now: abortions are up by thirty percent, with this latest crisis, and abortion is now legal in Mexico (as of 2008) to help from that cavalry will not be rolling over the border.

Jan 18 03:08 PM

[Moon Kil Woong:]

Sorry typo... I mean banks hiding assets etc. leads us to instability not stability.

Jan 18 03:10 PM

[Jan Baker:]

Isn't it Just Money, you wrote: "I don't trust any group who has the over arching goal of "getting people to heaven" as the basis for deciding which economic model is best, although their interests may be aligned with secular interests. I also wonder about how an economic model will deal with the rather large group of people who simply can't/won't work productively. Do we let them starve?"

I hope economic policies can be evaluated on their own merits. It is true that distributism as a body of principles originated among Catholics but has been adopted by many completely secular groups as a wise platform for development. I hope you'll check it out by googling and other investigation. Some people are bringing it forward--traditionally distributism is back-to-the-land movements. But there are many ways to implement it. And the 'commandments' of distributism are respect for private property (no socialism when socialism is defined as government ownership of the means of production) and the widest possible distribution of ownership, not the monopolies of advanced capitalism.

What would you say about feeding the non-productive? European moderate socialism, which isn't socialism, provides a safety net for everyone, and I think that is wise. It needn't be a fancy safety net. But what do you think? And why?

Jan 18 03:38 PM

[PROXIMO:]

Your comment ought to be nominated for a Pulitzer Prize.


On Jan 18 11:30 AM PrudentMan, CFA wrote:

> The "new way" is the old way: Free Enterprise not Capitalistic monopolies
> and large Central Government. The socialistic bail out just freezes
> contracts, as Barney Frank stated "the law is what Congress says
> it is". and no one wants to take any risk because the politicians
> change the rules for their own political purposes and expediency.
> They don't care about the damage they cause to Free Enterprise because,
> basically, they don't believe in it.
>
> We have an avowed socialist as president and Barney Frank and Chris
> Dodd running the Congress' top financial committees. Now that is
> encouraging for one to take risk and build a business. A business
> that the Congress wants to rule but not take the risks.

Jan 18 08:25 PM

[Teutonic Kn...:]

in the middle of his article, Steve seems to single out Hong Kong to portraying it as a Mecca of sorts. It sure is from a Capitalist standpoint. Corporate tax is a flat 15%. Employer contributions to health care, social security, medicare, 401(k), pension benefits are low to non-existent at large.

The moment you landed at the Airport and went into town you would notice that suffocating pollution as if your nose is plugged into a twin exhaust pipe of a motor vehicle. Most families live in high-rise apartments. You have to be a multiple-multi-miliona... to afford a single detached home with a garage and a small garden or backyard.

The question to ask is: If Hong Kong is so great, then why are there so many Hong Kong folks waiting in line for the quota to come here? Don't get me wrong at all. I am not Hong Kong bashing. I am just asking the reader to reflect on the prize to pay for being "consistently being named to be Number One on Top for 15 consecutive years" as quoted by Steve.

After all they are run by a non-public elected Chief Executive who is the best-paid civil servant in the world - US$500K per annum tax free - yes tax free, that is his take home pay plus whatever other perks.

Jan 18 10:27 PM

[Jan Baker:]

To the comment of Teutonic Knight regarding Hong Kong I'd like to add, it's disappearing. Hong Kong has the lowest birth rate of the entire world, less than one child per woman.

This is a comment to Steven: I likened economic platforms to religions already, a year ago--check out this paragraph below from a science fiction novel I'm working on. I'm sharing it to prompt Steven to take his idea further and continue to push us in the direction of seeking an entirely new model, consciously, considering the merits of various kinds of solutions, not the way this crisis is being handled.

Here's the paragraph, in a novel about a race to Alpha Centauri departing from the earth's first space colony, and it tries to touch on the economics that might prevail in space:

"As investments went in this day and age, it was a good one. There’d be no foreseeable social welfare problems, because there would be no unemployment on the colony, not in the near future, at least. The opposite, probably. Everybody worked, how not? They had a whole miniature world to set up. The first job, along with subsistence, was to provide solar energy to earth via microwaves, and until then everybody got paid just enough to maintain a minimum standard of living. There were very many perks! Women got paid time off to raise kids and had opportunities to stay trained in their specialties, for extra pay. Fathers got bonus pay. Above that, you could get extra through participation in any profitable project you could swing, even using the company resources in development. You got pizza going on the colony, made the connections for somebody with wheat and somebody with yeast and tomato sauce, you got the pizza franchise. Up to a point, anyway. Something else new, or old, that they were starting on earth, too. There was that big tax on chains over four franchises. Earth was getting serious about promoting broader ownership of business. The “Free Market” fake econoreligion had finally fizzled, along with communism. Now earth was searching for a third way, some way to save capitalism from itself. Keep it off the third rail. Some way to keep it young. "

You can't read the rest of this novel anywhere because I'm still writing it. Help me out with the economics! But can you see the possibilities, if we make it to space? We could go back to the future--borrow economic religions from earlier, less developed times.

Jan 19 09:16 AM

[LostInFrance:]

Nortel has filed for bankruptcy PROTECTION. The last word might make some difference

Jan 19 09:20 AM

[Jan Baker:]

Proximo, you wrote, A business
> that the Congress wants to rule but not take the risks.

Isn't it the other way about? Congress will assume the risk, because there's no penalty if the bailed out bank fails again and loses the money given it by the goverment, but if the bank makes it, the stockholders get the first cut. It's not clear what the government would get. Nor how their rule would go, either. It was never finalized, for example, if they would mandate what kind of cars would be built in the new regime, was it?

Is that how the bail out goes? If it is, isn't that fascism? I mean, both are bad, but just to know.


On Jan 18 08:25 PM PROXIMO wrote:

> Your comment ought to be nominated for a Pulitzer Prize.

Jan 19 09:22 AM

[Jason Rines...:]

Brilliant analysis and thanks for the charts as well Mr. Hansen.

Jan 19 12:21 PM

[Tony Rand:]

First things, first. Is it just me, or are there a lot of negative ratings assigned to the comments posted by users? It has always been my understanding that correct and truthful comments should receive positive ratings and incorrect or false comments, negative ones.

Interesting how you put all of this together, Steve. Yes, it is odd that the United States, having moved from capitalism and toward socialism, suddenly seems to be lowering its self-installed blinders - only to be surprised to catch themselves viewing the ground from their midway dive off one of the worst economic cliffs seen on the globe. This is an act of the People and we should take responsibility for the act.

For some reason WE the People think that we can blame our elected Government for our problems today. Our elected officials and all of their subsequent act(s) are only as good as our voting power can afford us. Well, I'm sorry to say that we, the People, got cheep and greedy. Agreed - All of the options laid out thus far seem to be further blinding the People, all of whom are living with the worst of all fears - the fear that they have no control over their destiny - including that they no longer seem to understand their own comprehension of "destiny".

If our nation is going to survive, we need to rethink how we are to proceed forward - ignoring all that has taken place in the past other than to make a checklist of what not to do in the future. We need to focus on promoting infrastructure and education, with education being the most important. Math, science and ingenuity driven from critical thinking will drive the future of this planet. If America does not get on board, we'll be left in the dust (literally). Although our new President hasn't said so, I believe he understands the fundamentals needed to help lead us, all Americans, back up the global ladder.

We do need a new economic and financial direction. I don't know if I would equate it to a "religion", but I do understand where you went with this. Religious faith is very strong and requires complete trust in the beliefs drawn from it...a blind faith so to speak. I have both my sight and my faith. What about the rest of you, America?

Jan 20 10:34 PM