Card Check

[Crewleader]

December 9, 2008

Clearing the Path for a Workers' Surge?

By MIKE WHITNEY

Even though the Federal Reserve is now the biggest single participant in the financial system, the myth of a "free market" still lingers on. It's mind boggling. The Fed has expanded its balance sheet by $2 trillion, guaranteed $8.3 trillion of dodgy mortgage-backed paper, provided a backstop for bank deposits, money markets, commercial paper, and created 8 separate lending facilities to ensure that underwater financial institutions can still appear to be solvent. The whole system is a state subsidized operation buoyed on a taxpayer-provided flotation device which bears no resemblance to an invisible hand. More astonishing, is the massive power grab engineered by the Fed which has taken place without the slightest protest from 535 shell-shocked congressmen and senators. Elected officials have either kept their finger in the air to see which way the political wind is blowing or timidly caved in to Treasury's every multi-billion dollar demand. It's flagrant blackmail and everyone knows it. Congressional oversight is an oxymoron.

Anyone who has followed the financial crisis from its origins knows that the Fed's bloody fingerprints are all over the crime scene. Still, that hasn't stopped well-meaning liberal economists (Krugman, Stiglitz, Reich) from supporting Bernanke's increasingly unorthodox attempts to flood the financial system with liquidity ("quantitative easing") and invoke whatever radical strategy pops into his head. In fact, many of the experts believe that Bernanke should do even more given the sheer size of the meltdown. There's growing support for a gigantic stimulus package ($700 billion) which will focus on road construction, infrastructure, state aid, extensions to unemployment benefits and green technologies. The Obama camp hopes that government programs and deficit spending will make up for the huge losses in aggregate demand which threaten to drag prices down even further in a self-reinforcing deflationary cycle. Even so, its natural to wonder at the wisdom of giving even more power to the very people who created the mess to begin with and who seem more interested in proving their depression-fighting theories than throwing a lifeline to struggling homeowners, consumers or auto workers. Maybe its time to try something different.

So far, Bernanke's monetarist approach has amounted to nothing. The stock indexes are off 45 percent and housing prices continue to plunge. The Fed's low interest rates and lending facilities have helped to keep the banking system from collapsing, but they've failed to get consumers or businesses spending again. The economy is tanking fast. Paul L. Kasriel, the Director of Economic Research at The Northern Trust Company summed up Bernanke's dilemma like this:

http://www.counterpunch.org/

[mrreowwr_kittty]

1. Damn straight, Mike! nt

[Warpy]

2. This is it in a nutshell:

"The real worry is that Bernanke's pet theory is merely an academic pipe-dream which is doing more harm than good. After all, his strategy is based on a controversial reading of history that is only accepted by disciples of Milton Friedman. The idea that a normal recession morphed into the Great Depression because the money supply decreased by one-third between 1929 to 1932, is likely an oversimplification of a very complex situation."

This is the dying gasp of monetarism, that spiffy retread of a tired, worn out dogma that states all economies run from the top down. I'm afraid what is happening now is necessary, that last ditch effort to do all the wrong things in order to convince even the diehards that doing the wrong things over and over again won't magically turn out right if you do them long enough.

When the time comes to do the right thing, to readdress the importance of the demand side of the economic equation, they will be out of tricks. Their whole arsenal will be used up and they'll be sitting shattered, unable to form whole sentences in defense of their loopy ideology. There will be little resistance from monetarists, most of whom will be keeping a low profile and hoping nobody thinks to blame them for this whole stinking mess.

[AdHocSolver]

3. There are two "economies" being talked about here. The "real" economy and the "fictional" economy.

The "real" economy is the one that consists of the exchange of goods and services. This includes manufacturing companies, department stores, supermarkets, medical clinics, and so forth.

The "fictional" economy plays with imaginary "numbers". This includes the stock market, the DOW, the Federal Reserve, and gambling casinos. Of the latter, the most honest of the group, that is, the least rigged, are the gambling casinos.

The "real" economy is in trouble, not because of the stock market, nor the DOW, nor the games being played by the Fed. The real economy is in trouble because of the offshoring of jobs and the fact that this country imports most of its goods and services. This has created huge trade deficits and fuels the federal deficit (workers in foreign countries don't pay U.S. income taxes).

The stock market is nothing more than a rigged Ponzi scheme. Even if the share prices of a stock drop precipitously, the assets of the company still exist. That is, the factories, employees, office buildings, furniture, computers, etc. still exist and can be used to operate the business. As long as a company has enough money around to pay its bills and its employees, it can continue to operate no matter how low its stock price goes.

I know of a company that survived for years even though it never made a dime in profit (and its stock price was a joke) because its investors wanted to keep it going, and had deep enough pockets to keep pouring capital into it to keep it operating.

Stocks are NOT certificates of ownership. That is pure fiction. If a guy "owned" $50,000 worth of stock in a company, went to its office and tried to walk off with a computer, he would be arrested for theft. If he claimed he was only picking up a piece of the company that he owned, he would be sent for psychiatric evaluation.

A stock certificate is essentially a gambling chip, as is a derivative, and just about every other alphabet soup financial instrument. The real "owners" of a corporation are the handful of executives that set company policies and make its business decisions. In many cases, these executives, like those at Enron, are running a Ponzi scheme using the company as "collateral".

The "bailouts" are in reality the corporations conning the government into giving them "future" U.S. taxpayer dollars to prop up their collapsed Ponzi schemes. These bailouts are not designed to help the real economy (an irrelevancy to the operators of the Ponzi scheme), and in fact will do nothing to help the real economy.

In fact, by diverting money from the "real" economy to the Ponzi scheme, the bailouts will accelerate the collapse of the real economy which is starving for capital. The "bailouts" are, in fact, a nasty fraud.

Bailout money has already been used to buy out competitors and thereby reduce competition. Additionally, it is useful to prop up stock prices long enough to allow insiders to exercise their stock options and give themselves big bonuses "for pulling off the con".

GM wants bailout money to expand its factories in Brazil and China. GM is making significant profits in China.

To understand what is really going on with the "economy", remember that there are really two economies: the "real" economy and the fictional economy (which is little more than a glorified Ponzi scheme).