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EDITORIAL COMMENT: Conservatives don’t conserve anything and liberals are not liberating anyone. Regulators don’t regulate, and congress isn’t passing laws that make any sense. Policy makers are getting their orders from Wall Street instead of originating the policy decisions. 216,000 jobs were added last month to our ailing economy, but most of those jobs were in sectors where the going wage won’t pay for even basic living expenses.

They say the unemployment rate has dropped to 8.8% — which is SPIN ON STEROIDS. First you have another 8%-10% who have become so discouraged they have stopped looking for a job. Then you have the underemployed at around 10%-15%. And now, courtesy of the Wall Street spin cycle which the government is parroting, we have something I would call “soft unemployment” — which consists of people who are technically employed but not making a living wage, which looks like it is right around 7%-8%.

So altogether we have an unemployment problem of around 36%+. AND THEY CALL THAT PROGRESS. One third of our labor force is not employed when we need them employed working on an infrastructure that is seriously going to collapse with increasing frequency. Why do we need to wait until the bridges fall, the tunnels collapse, and the electricity and water get turned off?

We all know that no matter how they spin things, the housing market is still falling into an abyss, homelessness is on the rise, and employment, if you want to call it that, is at an all-time low. Half of our economy as the government reports consists of financial services, which means that half of our economy consists of trading meaningless pieces of paper as though this was actually commerce. I thought commerce was like buying a toaster or hiring someone to clean your yard. If you take away the Wall Street vapor asset levels are a small fraction of what is reported, and the level of commerce is around 52%-55% of reported GDP, which means that our debt ratio as a country is much higher because the reported $14 trillion dollar economy is really an $8 trillion economy — and going down.

There is no possibility of true economic recovery unless we get practical and face reality. One of the realities is that we can’t rely on our politicians to do anything that makes any sense. That is quite a challenge. If we don’t stop the sale of homes in fraudulent foreclosures we will be setting the stage for more of the same, and setting the example that crime pays. As the wealth of the nation goes down the toilet, Wall Street strangely is coming up with more and more assets and income —- hmmm.

Just where is all that “money” coming from — or was it there all along, was the bailout a scam rewarding Wall Street for creating the illusion of securitizing debt and thus enabling the largest PONZI scheme in the history of the world?

The Mellon Doctrine


NY Times

“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” That, according to Herbert Hoover, was the advice he received from Andrew Mellon, the Treasury secretary, as America plunged into depression. To be fair, there’s some question about whether Mellon actually said that; all we have is Hoover’s version, written many years later.

But one thing is clear: Mellon-style liquidationism is now the official doctrine of the G.O.P.

Two weeks ago, Republican staff at the Congressional Joint Economic Committee released a report, “Spend Less, Owe Less, Grow the Economy,” that argued that slashing government spending and employment in the face of a deeply depressed economy would actually create jobs. In part, they invoked the aid of the confidence fairy; more on that in a minute. But the leading argument was pure Mellon.

Here’s the report’s explanation of how layoffs would create jobs: “A smaller government work force increases the available supply of educated, skilled workers for private firms, thus lowering labor costs.” Dropping the euphemisms, what this says is that by increasing unemployment, particularly of “educated, skilled workers” — in case you’re wondering, that mainly means schoolteachers — we can drive down wages, which would encourage hiring.

There is, if you think about it, an immediate logical problem here: Republicans are saying that job destruction leads to lower wages, which leads to job creation. But won’t this job creation lead to higher wages, which leads to job destruction, which leads to …? I need some aspirin.

Beyond that, why would lower wages promote higher employment?

There’s a fallacy of composition here: since workers at any individual company may be able to save their jobs by accepting a pay cut, you might think that we can increase overall employment by cutting everyone’s wages. But pay cuts at, say, General Motors have helped save some workers’ jobs by making G.M. more competitive with other companies whose wage costs haven’t fallen. There’s no comparable benefit when you cut everyone’s wages at the same time.

In fact, across-the-board wage cuts would almost certainly reduce, not increase, employment. Why? Because while earnings would fall, debts would not, so a general fall in wages would worsen the debt problems that are, at this point, the principal obstacle to recovery.

In short, Mellonism is as wrong now as it was fourscore years ago.

Now, liquidationism isn’t the only argument the G.O.P. report advances to support the claim that reducing employment actually creates jobs. It also invokes the confidence fairy; that is, it suggests that cuts in public spending will stimulate private spending by raising consumer and business confidence, leading to economic expansion.

Or maybe “suggests” isn’t the right word; “insinuates” may be closer to the mark. For a funny thing has happened lately to the doctrine of “expansionary austerity,” the notion that cutting government spending, even in a slump, leads to faster economic growth.

A year ago, conservatives gleefully trumpeted statistical studies supposedly showing many successful examples of expansionary austerity. Since then, however, those studies have been more or less thoroughly debunked by careful researchers, notably at the International Monetary Fund.

To their credit, the staffers who wrote that G.O.P. report were clearly aware that the evidence no longer supports their position. To their discredit, their response was to make the same old arguments, while adding weasel words to cover themselves: instead of asserting outright that spending cuts are expansionary, the report says that confidence effects of austerity “can boost G.D.P. growth.” Can under what circumstances? Boost relative to what? It doesn’t say.

Did I mention that in Britain, where the government that took power last May bought completely into the doctrine of expansionary austerity, the economy has stalled and business confidence has fallen to a two-year low? And even the government’s new, more pessimistic projections are based on the assumption that highly indebted British households will take on even more debt in the years ahead.

But never mind the lessons of history, or events unfolding across the Atlantic: Republicans are now fully committed to the doctrine that we must destroy employment in order to save it.

And Democrats are offering little pushback. The White House, in particular, has effectively surrendered in the war of ideas; it no longer even tries to make the case against sharp spending cuts in the face of high unemployment.

So that’s the state of policy debate in the world’s greatest nation: one party has embraced 80-year-old economic fallacies, while the other has lost the will to fight. And American families will pay the price.

9 Responses

  1. I’d like to expand a bit on Anonymous’s reply ,, both parties were involved , The Democrats more deeply than the Republicans , mostly because they held more power and it was key for Wall Street to get them onboard ,, There were something like 17 “reform” bills relating to banking and FNM and FRE in the period the bubble was being inflated ,, none could get traction.

    We aren’t going to get any helpful legislation ,, and we don’t need it ,, we just need things to deteriorate (we’re on that glide path now) and for people to gain knowledge about what really happened.. Public Opinion will force the courts to follow the law eventually .. we’re playing for time ..

    If we don’t get justice and the application of the rule of law we WILL have a re-run of the French revolution. The stench from the bench is making me clench!

  2. We had better be vigilant about all kinds of bills going thrugh Congress that are created to cover up the Ponzi Scheme in any of its iterations. We also need to be vigilant about our state legislatures as well.

  3. Zoe

    Yeah — but how come MERS does not report cases it lost???

  4. Last month was a good month in court for MERS. No doubt, that run of wins will be used to validate MERS.

    Take a look at the MERS site for its listing of cases won in March.

  5. Neil,

    Can you create chart

    GOP by Elected Official
    2000-2011 Financial Info Public

    Would love to see the graph charting how rich who became while collecting salary from the people and imagine how they will enjoy their retirments on the people.

  6. Not orchestrated by either party — all were in cohoots to cover up what was going on — and then had to cover up the fraud by bail-outs.

    Stock market is ready to burst. We have no viable US economy. And, stock market is being currently manipulated by governments and institutional investors — retail investors are not participating.

    Big trouble in USA cities — all over the country.

    The absurdity of the massive foreclosures is reason alone to question what is really going on. No justification for the massive foreclosure of American society. Have to ask — why are they allowing it? Answer is — they have no choice — the US economy is dying. But, we will not be the scapegoats. How could Obama appoint the same cohorts?

  7. Maybe a new wave of foreclosure will come up , if the Goverments pay check will not arive next week.
    There is a lot of people , who dont have any savings anymore.

  8. Do you think that the economic collapse was orchestrated by the Republicans – either unwittingly in a delusional, lack of sense of consequence state of mind or purposely to cover up the blazed trail of state pension and retirement funds destruction they left in the wake of their bad securities investments – or as I call them, “favors”?

    The School Employees Retirement System of Ohio, represented by state Attorney General Cordray, said it lost $29.6 million; An investment by Wachovia Global Securities Lending of some of the fund’s cash in notes issued by Sigma Finance Corp, a $53.5 billion asset-backed securities vehicle that failed in October 2008 (the Prospectus that investors received had 100s of pages of risks and warnings that these investments were not safe).

    I just find it interesting that losses in state retirement and pension funds are found in states like Ohio and Wisconsin – who want to put union folks out of work. When I add that to the investor lawsuits against the banks – like Wisconsin’s Fulton County Employees’ Retirement System, Plumbers & Pipefitters, the IBEW, Police & Fire Retirement System Of The City Of Detroit, etc. over bad securities deals – add the “Jed Bush consultant for Lehman Bros.” factor … well, my radar thinks somebody should start connecting the dots, open investigations, take depositions and gather the emails – especially in the governors’ offices starting in 2003.

  9. “Earnings at Bank of America, the largest U.S. lender, may suffer materially if using Mortgage Electronic Registration Systems or MERS is found to be invalid, according to a regulatory filing last week. Citigroup and PNC said fines or other penalties may result from investigations into MERS and allegations of faulty foreclosure practices.”

    “They’re recognizing the writing on the wall, that there are serious problems associated with the basic business model and legal theories of the MERS system,” Christopher L. Peterson, a law professor at the University of Utah in Salt Lake City who has written articles on Reston, Virginia-based MERS, said yesterday.”

    Folks: We all better get ready for the great MERS fraud whitewash. Several posters on the FC blogs have predicted a bill will be passed to exonerate MERS of any wrongdoing Good Friday/Easter weekend. We need to remain vigilant for any MERS fraud-patch-up. I do sincerely doubt there will EVER be any “investigations,” especially after what we have witnessed lately from our goverment officials and CONgress.

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