Friday, July 30, 2010

Last Call

Steven D's piece tonight on the Village war drums for attacking Iran is a sobering read.  former Bush CIA man Gen. Mike Hayden calls it "inexorable" that we will attack them, and the response from Iran will not be fun, and with Israel in the mix, who knows what the total picture will be.

Yet the worse our economy gets, the more I think the people advising the President will start seriously saying that the only way Obama gets re-elected will be to pull the country behind him on hitting Iran.  Personally, I hope that any Obama advisers pitching that line need to be shown the door, but that's a thin support to hang that particular hope on.  What could go wrong?  How's this for starters:

Spheres of action could include any or all of the following.
• Missile attacks on Israel using conventionally-armed systems might be carried out primarily to demonstrate the survival of a capability after an initial Israeli attack. These would be intended principally to undermine Israeli morale rather than have any serious military effect.
• Closure of the Straits of Hormuz, however brief, would cause a sharp rise in oil prices and be a reminder of Iran’s leverage over Gulf shipping routes. Any sustained price rise would have a potentially catastrophic impact on the global economy.
• Paramilitary and/or missile attacks on western Gulf oil production, processing and transportation facilities would be of very deep concern to the producer states, especially Saudi Arabia, Kuwait and the United Arab Emirates. While such facilities have much more intense security than a decade ago, they remain essentially soft targets.
• Action in Iraq and Afghanistan in support of those groups opposing western involvement could be tailored to discourage further attacks on Iran. [...]

Unlike Iraq or Afghanistan, Iran could really make our lives miserable if we attacked them.

Let's Push The Shiny Red Button, Dad

I keep hearing all this stuff about how GOP Rep. Paul Ryan is a rising star in the party because he's so smart on economic issues.  So far he's been the point man for the GOP on the budget.  That hasn't gone really well for the guy, frankly ever since people figured out his "fiscally responsible budget plan" would actually make the budget deficit worse.  Yet, here he is again dispensing econ advice to Ezra Klein like these dense nuggets of fail:
I really do believe that locking in budget reforms and spending control will help us in the short run by taking pressure off interest rates and monetary policy. Spending control is pro-growth in this age of sovereign debt crises.
Oy.  Yes, in an economy where demand is drying up, the key is taking more money out of the economy!  Less spending is pro-growth, the way that not ever watering your plants teaches them to be tougher.
I think a mistake Keynesians are making is they think this is demand-side and consumption-led. I think we need to focus on investment and jobs. There’s lots of money sitting on the sidelines.
There's money sitting on the sidelines because there's no demand, Sparky.  Unless somebody plans on buying the goods and services produced by the jobs you create, they're not going to last too long.  We got in way over our heads on equity bubbles and cheap credit, and that's gone.  People are cutting back on everything.  If the government will not step in to stimulate demand, and the money's on the sidelines, who will buy it?
These short-term stimuli, which Bush and Obama did, don’t change aggregate demand. And that’s why I think we need more of an investment-led recovery. At this point, given the borrowing costs, stimulus is counterproductive.
To recap, borrowing costs right now are the lowest in several decades.  Why we're choosing not to take advantage of it is insanity bordering on economic negligence.   But here's my favorite part:
We need to do things to free up credit. We need regulatory forbearance there. Right now, the policymakers and regulators are doing opposite things. So you’re right that there’s a lot of capital parked out there, and we need to coax it out into the markets. I think literally that if we raised the federal funds rate by a point, it would help push money into the economy, as right now, the safest play is to stay with the federal money and federal paper.
Raise.  Interest.  Rates.  That will get people out of bonds and into stocks, where people will still be suffering from demand problems and...then what?  Oh, and raising interest rates would also retard investment because...borrowing costs would increase!  Ta-da!  How does that help with aggregate demand?  If raising interest rates would really motivate people to invest MORE, why did we bother lowering them in the first place?

It doesn't.  Ryan doesn't know a damn thing about economics.  Why do people continue to treat him like he does?

Another Milepost On The Road To Oblivion

Steve Benen documents the Republican obstruction:
It's been pretty unpleasant watching the Senate lately. The DISCLOSE Act came up, and every single Senate Republican joined together to block the bill from even getting a vote. A package of incentives and tax breaks for small businesses looked to be in good shape, but every single Senate Republican joined together to knock that down, too. Twenty obviously qualified judicial nominees were brought forward, and the GOP blocked votes on all of them. Medical care for 9/11 victims came up, and Republicans prevented it from passing, too.

And these are just developments since Tuesday.
The Senate has one more week before the Labor Day recess and campaign season, so anything that doesn't pass now is dead and buried for...well, who knows how long, most likely the rest of the year minimum.  Things don't look good for Harry Reid to try to get money to the states before August 6 or for anything to be done about oil spill legislation either.

There is no appetite for Congress to do anything right now.  Period.  Republicans block everything, Dems say "Oh well, they are blocking everything."

And they wonder why they have an approval rating of 11%.

Zandar's Thought Of The Day

Someone might want to mention to Hot Air's Ed Morrissey that a pretty sure sign that as a blogger that you have jumped the shark into the World Net Daily section of the Obama Derangement Syndrome tank is any effort to try  to connect the Six Degrees of Separation of Obama destroying the Gulf.
The generally accepted view of the Deepwater Horizon disaster has focused on the blowout preventer and the non-standard procedures BP conducted just before the explosion and fire.  However, most of the damage and the main source of the spill came from the collapse and sinking of the DH platform rather than the initial explosion.  A new report by the Center for Public Integrity, based on testimony from people on scene and Coast Guard logs, contains evidence that the platform sunk because of a botched response from the Coast Guard, which failed to coordinate firefighting efforts and to get the proper resources to fight the fire.

Right, so the Coast Guard failed to get the proper firefighting team out there 50 miles off the coast and that's all Obama's fault.   Never mind all the safety protocols BP and Transocean were actively ignoring that led to the explosion and fire in the first place, we have to find some way to affix blame to that Obama guy because there's a chance that if the Coast Guard had Bruce Willis's crew from Armageddon on 24/7/365 standby, they could have saved the rig and the oil wouldn't have spilled and did I mention it's all Obama's fault because he's eeeeeeeeevil and in charge of the Coast Guard?

And from there Ed builds a little ramp out of that report, revs up the Wingnutoboat and gracefully vaults over the Carcharodon carcharias to arrive at "The White House needs to come clean on this point" even though nobody has any idea what that point is, other than "Hey we found a way to pin this on B. Hussein, high fives for everyone!"

Which, come to think of it, really is Ed's point, isn't it?  Nice to know that any time a building burns down or a crime happens in America, Obama's "inadequate government response" means I know who I can send the blame to.

Eddie my man, your complimentary Glenn Beck University Chalkboard is in the mail.  Enjoy.

If This Means Shrimpfest Is Off, Somebody Will Pay

And Dan Froomkin reminds me why I haven't used my Red Lobster gift card I got for my birthday from the Zandarparents yet.
Scientists have found signs of an oil-and-dispersant mix under the shells of tiny blue crab larvae in the Gulf of Mexico, the first clear indication that the unprecedented use of dispersants in the BP oil spill has broken up the oil into toxic droplets so tiny that they can easily enter the foodchain.
Marine biologists started finding orange blobs under the translucent shells of crab larvae in May, and have continued to find them "in almost all" of the larvae they collect, all the way from Grand Isle, Louisiana, to Pensacola, Fla. -- more than 300 miles of coastline -- said Harriet Perry, a biologist with the University of Southern Mississippi's Gulf Coast Research Laboratory.
And now, a team of researchers from Tulane University using infrared spectrometry to determine the chemical makeup of the blobs has detected the signature for Corexit, the dispersant BP used so widely in the Deepwater Horizon
"It does appear that there is a Corexit sort of fingerprint in the blob samples that we ran," Erin Gray, a Tulane biologist, told the Huffington Post Thursday. Two independent tests are being run to confirm those findings, "so don't say that we're 100 percent sure yet," Gray said.
"The chemistry test is still not completely conclusive," said Tulane biology professor Caz Taylor, the team's leader. "But that seems the most likely thing."
Yay.  The Corexit worked great!  The oil is now in super tiny toxic bits that will wreck the Gulf's ecosystem from the bottom up and kill all kinds of species out there, plus it's toxic.  Did I mention it's toxic?

Just because you can't see the oil doesn't mean it's not hurting things.

Here Comes The Judge

Via Memeorandum, this AP story should shock a grand total percentage of zero people.
Authorities say a federal judge in Phoenix has been getting some threats since her ruling on Arizona's controversial immigration law.

David Gonzales, the U.S. Marshal for Arizona, says U.S. District Judge Susan Bolton has received thousands of phone calls and e-mails since her preliminary injunction Wednesday that put key provisions of the state's immigration law on hold.

Gonzales says some of the messages sent to Bolton are positive, but others are "from people venting and who have expressed their displeasure in a perverted way."

Gonzales says his agents are taking some of the threats to Bolton seriously. He refused to discuss any extra security measures, which U.S. marshals routinely provide federal judges. 
But remember, the Tea Party folks aren't angry, and this is all about people peacefully simply wanting a law enforced, and the folks behind SB1070 are not an unruly anti-immigrant mob whipped up into a blood frenzy that might be in any way dangerous or anything like that.

They're normal law-abiding folks who are, you know, just making threats against a federal judge.  Totally law-abiding and not a bunch of scapegoating fanatics.

Right, and I've got some nice oceanfront property in Flagstaff to sell you.

A. Weiner Is You, Once Again

Oliver Willis, TPM, and Steve Benen all flag down this impressive video of NY Dem Anthony Weiner unleashing 2 minutes of hell upon the House GOP for blocking medical funding for 9/11 victims.

Benen details the story behind this awesome display.
So, as Republicans see it, we can afford tax breaks for billionaires. But care for 9/11 victims, not so much.

Rep. Joe Barton (R-Texas), perhaps best known for his apology to BP after the company's oil spill, "said the rest of the country should not bear the brunt of helping New Yorkers cope with the aftermath of the terror attacks." [Update: To clarify, this is a paraphrase from the New York Daily News, not a direct quote of Barton.]

How could House Republicans kill the bill in a majority-rule chamber? As it turns out, Dems brought the measure to the floor as a "suspension bill," because they didn't want the GOP to try to gut the legislation with poison-pill amendments. But this strategy meant the bill needed a two-thirds majority to pass. The final vote was 255 to 159 -- far short of the two-thirds threshold -- with 155 Republicans in opposition, many of them saying they would consider supporting the bill, but only if the GOP were allowed to push unrelated amendments intended to embarrass the majority.
And so the GOP scuttled it.  $687 billion for tax cuts for the wealthy, Republicans are behind that 100%.  $7.4 billion for 9/11 victims' health care concerns?  "Why should my tax dollars help those damn New York liberals?"

Weiner destroys them for it.  "You vote yes if you believe yes. You vote in favor because it's the right thing."

Naturally the response from some on the Left is that Weiner should have kept his mouth shut.
Weiner repeatedly yelled about the GOP's "shame," but this misses the point. Republicans are not going to be shamed into doing what Dems want them to do. Republicans are pursuing a concerted game plan here that Dems need to reckon with more directly.

Indeed, Dems would be far better served if they kept calmly repeating that Republicans want government to fail, in order to breed cynicism and to get voters to give up on the idea that government works for them.

By the way, there's precedent for this. Remember when former Senate Majority Leader Tom Daschle erupted on the Senate floor in 2002 in response to Bush's rank politicization of national security in the runup to the midterm elections? That didn't work, either.

To be clear, I'm all for the kind of passion Weiner is showing here, but let's direct it properly. Don't get into a shouting match about procedure. As emotionally satisfying as it may be to watch, raging against the GOP opposition machine's successful efforts to tie Dems in knots just makes Dems look whiny, weak and impotent.
Right, and Dems saying  "The Dems are wrecking the economy!" won't be called whiny, weak, and impotent either.  The point is Greg that anything passionate Dems say about what the GOP is doing will be dismissed as whining, so dismissing what Weiner is saying as whining only feeds that narrative.

How about a little credit here?  Weiner's right, after all.

Damn, and people wonder why Dems fold like lawn chairs.  When we got somebody that actually stands up and says what needs to be said, we nitpick on procedure and complain they're coming across as whiny.

In the end, A. Weiner is still you.

Epic Weiner.

Also The Fed May Try To Annex The Sudetenland

Rand Paul continues to bravely stake out the territory that includes Kentucky voters who respond well to complete insanity.
“People say, ‘Oh those Tea Party people, they’re angry.’ I say: ‘No, they’re concerned and they’re worried.’ They’re worried that we could destroy the currency by adding such a massive debt. In Germany it led to Hitler.”
You know who invented paper money?  The Chinese.  They had a Great Wall.  That Great Wall?  That led to Communism.  We should add a plank to the Tea Party to stop the border fence or else the pinkos win.  See?  This is easy.

Can I has Senate seat now please?

The Domestic Product Is Indeed Gross

The 2nd quarter GDP numbers are out:  2.4% growth in the last three months, down from a revised 3.7% in the 1st quarter.  That's not good, but the real story is the quiet downward revision of the 2007-2009 numbers.
The Commerce Department, in revisions issued Friday, estimates the economy shrank 2.6 percent last year — the steepest drop since 1946. That's worse than the 2.4 percent decline originally estimated.

The economy's plunge underscores why the unemployment rate surged to 10.1 percent in October, a 26-year high.

The revisions in gross domestic product, or GDP, now show zero growth in 2008. That compares with a 0.4 percent gain previously estimated.The economy also grew less in 2007 (1.9 percent) than earlier thought (2.1 percent).

For all three years, consumers spent less and home builders cut more deeply than had been thought. Those factors help explain the downward revisions on the economy.
I'm betting we'll see even more downward future revisions.   Meanwhile, here in the present, the recovery is dying, and I just don't see the numbers getting any better anytime soon.

In fact, I expect them to get much worse.  Keep an eye on the ECRI index today:  I'm betting we break that -10% barrier, and that's all but assured.

The Kroog Versus The Fire Sale

Paul Krugman notes the supply siders are waving the white flag and are shifting into "semi-permanent capacity reduction mode"...the notion that with many of the 8 million jobs lost never coming back, it's time to sell off the excess capacity and get what you can for it.  Growth?  What growth?  The depression is coming.

I’ve been surprised by a lot of things since the financial crisis broke, few of them good. One of the truly amazing things, however, is the return of full, 1930s-type liquidationism — the idea that a slump serves a useful purpose, and that stimulating the economy, even through monetary policy, is a mistake. And so we have Raghuram Rajan in today’s FT arguing that with 9.5 percent unemployment, long-term unemployment at record levels, and falling inflation, we need to … raise interest rates:
This crisis followed a period, from 2002-2004, when monetary policy had done too much heavy lifting. The US had far too much productive capacity devoted to houses and cars, because consumers could obtain financing for them easily. With households now struggling with this remaining debt, should we expect them to spend beyond their means again, or ask them to do so?
Moreover, if consumers are now going to want fewer houses and cars, a significant number of jobs will disappear permanently. Workers who know how to build houses, or to sell or finance them, will have to learn new skills. This means resources have to be reallocated into other sectors to ensure a robust recovery, not simply a resumption of the old binge. But this will not necessarily be facilitated by ultra-low interest rates.
Well, I have to agree with the Kroog here.  Rajan's theory is once again supply creates demand...only that we have over-supply so by moving people to other industries and investing in them demand for those other industries will be created by...Magical Demand...Gnomes...or something, I guess.  I don't get it, Rajan admits right there that the problem is lack of demand, and his solution is to shuffle supply around.

We call that "rearranging the deck chairs on the Titanic."  Quite literally, that's what his plan is.  I guess what he doesn't get is the fact that lack of demand is a symptom of an even greater problem, and that's the fact that wages have stagnated for so long and wealth has been transferred out of the vanishing middle class for so long that there's nobody left to buy crap.

Krugman notes too that we've seen this all before.
If high unemployment were largely about shifting workers out of an overblown construction sector, wouldn’t you expect job losses to be concentrated in that sector? Wouldn’t you expect employment elsewhere to be, if anything, rising? In fact, however, the vast majority of job losses have occurred in parts of the economy with little direct connection to the housing bubble. Yes, as a percentage job losses have been much larger in construction; but nothing in Rajan’s argument explains why we shouldn’t be using policy in an attempt to prevent vast job losses in parts of the economy that aren’t overblown.

I’d add that even if you think structural unemployment has gone up, it clearly hasn’t risen enough to stop a slide toward deflation — and if it has risen, the slump is arguably a cause, not an effect, of that rise.
Ding ding ding!  Kroog in one, ladies and gents. And yet all the plans I'm seeing are "Hey, let's transfer more wealth away from the middle class and destabilize our consumer based economy."  The point here isn't to save the economy, the point here is to raid the treasury to build fat, load-bearing piles of cash that the guys at the top can use to ride out the floods high and dry while the rest of us drown.

So many people seem to be employed these days in convincing us to go along with this plan, too.

Of course, there's the concept of a complete over-correction on the demand thing and accomplishing the same thing as the supply shuffling only in a much more messy style...

Check The Plates, Stock The Ink And Paper, Oil The Gears

Because Helicopter Ben's Magic Printing Press is very, very close to being dragooned into service.
Federal Reserve Bank of St. Louis President James Bullard said the central bank should resume purchases of Treasury securities if the economy slows and prices fall rather than maintain a pledge to keep rates near zero.

“The U.S. is closer to a Japanese-style outcome today than at any time in recent history,” Bullard said, warning in a research paper released yesterday about the possibility of deflation. “A better policy response to a negative shock is to expand the quantitative easing program through the purchase of Treasury securities.”

Bullard’s stance increases the odds the Fed will make such a move and reject other options should the economy weaken further, former Fed Governor Lyle Gramley said. Other alternatives to aid growth include using communication to plot the path of interest rates or cutting payments to banks on reserve deposits, Chairman Ben S. Bernanke said last week.

“It’s going to be very important in shifting the mix of thinking at the Fed,” said Gramley, now senior economic adviser with Potomac Research Group in Washington. “Having Jim Bullard on the side of doing that could, I think, be the straw that broke the camel’s back.” 
For some time now, readers will note I've been talking about the three stage roller coaster scenario in the economy:  bubble-based commodity inflation, recessionary real estate deflation, and then depressionary economic hyper-inflation.   The first happened in 2008 ($4 gas anyone?) as the flight to commodities out of the stock market created yet another bubble (which of course was a response to the housing bubble detonating in 2007.)  That bubble burst in early 2009 as oil crashed and the deflationary spiral kicked in.  Some 18 months later, we're nearing the end of stage two and Bullard's statement here is clearly setting the table for the beginning of stage three.

Bullard's statement is also a tacit admission that the Obama economic plan so far has failed:  failed to put in regulations early enough to stop us at stage two, failed to grow the economy as the stimulus 18 months ago was too small, failed to plan for any sort of backup in case the first options didn't work.  That leaves us of course with the last card in the deck:  Helicopter Ben's Printing Press used to buy up investments by the billions.

The problem is that billions will have to turn into trillions with a T.   And the only way to sell a plan like that, as Zero Hedge points out, is to do something crazy like, I dunno, have the Fed automatically refinance everybody's existing mortgage to the new record lows that we're swimming in this month.  Everybody gets to keep their home, everybody gets to lower their payments, and the problem's solved, right?

This isn't my brilliant idea, it's Jim Bullard's plan.  Looks like Uncle Sam is about to get into the refi business, and then things are going to get really ugly...


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