5 August 2011

Thoughts on the Latest Stock Market Panic

Filed under: Culture, Reflections — ktismatics @ 8:38 am

So… Private industry wants to maximize profits. How? Increase revenues; decrease costs. This basic strategy has been going great for US companies: for the past year or so profits have reached record highs.

One of the biggest costs to private industry is employee wages. Keeping costs down means keeping wages down. But lower wages means less money to buy things, which reduces corporate revenues. What’s to be done?

Get people to spend money they haven’t earned; i.e., instead of paying them more wages, encourage them to borrow more.

People borrowed more and more, secured by the rising value of their houses, in order to keep buying. A few years ago this source of spending money dried up: real estate prices stopped going up; wages went down and jobs went away; mortgagees began defaulting. While the crisis to the lenders was immediate — and fixed via government bailout — the crisis to mortgagees has gotten worse. Prices of houses continue to go down; wages are still declining; unemployment has doubled since the housing crisis began.

So now the private sector loses its best strategy for keeping spending high while keeping wages low. What to do? Find another source of consumer borrowing. It’s the government. The government increases its borrowing, paying workers and contractors money they can spend on private-sector products. Meanwhile the private sector continues to keep its own labor costs low while keeping sales up.

Now the financial industry starts getting nervous. What if the governments start defaulting on their loans, just as the home buyers did? And isn’t the government, which on average pays higher wages than the private sector, becoming a problem for private employers that want to drive wages even lower in order to reduce costs? Isn’t it time to put a limit on government borrowing?

So now the companies get nervous. Both of the big sources of money for keeping spending up — real estate borrowing, government borrowing — are drying up. The rich have more money than ever, accounting for 50% of domestic spending. But because of widespread privatization in government, much of the government’s borrowing is spent on private-sector contractors rather than on government employees. So reducing government spending has a direct effect on reducing private revenues, which threatens to reduce the wealth of the very rich who drive spending.

No wonder the stock market is jittery. The only way to keep people buying the products without paying them more is to keep them spending borrowed money. But now both big sources of borrowing — first private, then public — are drying up. It seems inevitable that companies are going to have to spend some of those record profits on higher wages. At least in the short term, costs will go up before revenues do. That means corporate profits are likely to go down. And so their stock prices go down.

Maybe companies will hire more American workers now. If they do, unemployment has been so high for so long that people will likely be willing to go back to work at much lower rates of pay than they formerly earned. Or else companies will continue to shift jobs from the still relatively high-priced American workforce to other cheaper sources of labor. But in order to keep revenues up on a global scale, they’ll have to raise prices in other parts of the world to make up for declining sales and margins in the US. But since other countries’ governments aren’t borrowing either, than means raising the pay scale for those other countries’ low-wage workers, so they can afford to buy more of what they’re producing. Either way, the companies — and their rich investors — are going to have to spend money to make money. I expect they’ll find a way.

ADDENDUM: The latest budget showdown in Washington yielded only one tangible result that I know of: they raised the debt ceiling. Possible austerity measures for reducing government spending were mostly deferred, having been assigned to some special commission to figure out later. I wouldn’t be surprised if that commission eventually decides to impose only the smallest spending cuts. Keep borrowing, keep spending, keep corporate sales up and wages low. Maybe raise interest rates on Federal bonds a point or two to make the investment bankers happier and richer.



  1. I think you have put your finger on the problem of “trickle down economics” in a class system with massive inequality. It’s a system that many of my relatives buy into. When I point out that the wealthy and American corporations have sent many jobs overseas (to poor and desperate people who will work for .17 cents per hour), which severely limits the economic potential of our country, the response is something like “get government out of the way so that corporations can make money.” This idea, though, is getting old, because it isn’t based on reality. The reality is that government is not in the way of the wealthy. Tax rates are at historically low points for the top earners. In the face of a changing climate, we still do very little to regulate environmental standards. How is government “standing in the way”? Certainly there are likely ways that government could further reduce unnecessary red-tape and restrictions, but it is unclear to me that this is the cause of sending jobs overseas to poor workers.

    So, in a society where the rich get too greedy and nothing is trickling down, at what point do people realize that relying on the rich may not be the best option? This idea that we have to rely on the wealthy, that we need to concentrate wealth and capital, this is a common perception, I think, that is shared by both Republicans and Democrats. To a lesser degree by Democrats, but I think that both parties share the same presupposition.


    Comment by erdman31 — 5 August 2011 @ 10:37 am

    • I agree, Erdman, but I’d take it farther than that, as outlined in the post. Rather than standing in the way of corporations, government is aiding and abetting corporations. It’s not the case this time that government borrowing and spending is following the Keynesian policy of offsetting a lull in the private sector, which the Democrats have traditionally supported. This time the corporations are extremely healthy. I’d say that we could rely more heavily on the rich by taxing them more heavily rather than relying on their extravagant spending to trickle down. At minimum, long-term capital gains ought to be taxed as ordinary income, as was the case prior to Clinton’s and GWBush’s tax “relief” legislations.


      Comment by ktismatics — 5 August 2011 @ 11:48 am

  2. “Either way, the companies — and their rich investors — are going to have to spend money to make money. I expect they’ll find a way.”

    That seems like the least original thing in the post, but it’s striking because there’s a special sensation going on right now (or at least I pick it up) that everything has ‘gone wrong’. It’s almost as if the default happened after all, and that things are being purposely botched, or just that people are being mugged–including powerful people. None of what happened in that mess makes the Dems look good, even if the Republicans look like total shit; they still come across as having been effective and basically victorious. I wonder if there really is a public perception that the Republicans were quite willing to 100% destroy, not merely send us reeling back to where we were. Krugman was good on this today, pointing out how there simply hadn’t been a ‘recovery’, but even so, it seems unlikely that we’ll get a literal return to full 2008 panic. Obama is very imperfect, and really did cower in this melee, but it’s still not like having Bush and Cheney there, who were not only destroying things, but enjoying the process.


    Comment by illegal dances of new york city — 5 August 2011 @ 11:19 am

  3. I just read the Krugman piece, and I agree with some but not all. There has been no recovery in jobs and wages, that’s for sure. There has, however, been a huge recovery in corporate profits. And that’s no coincidence: part of the profitability was derived from laying off workers while squeezing increased productivity out of the workers that remain, along with exporting jobs to cheaper markets. In the Addendum I’m suggesting that the Republicans may well back off from the call to reduce government spending, since that spending has been used less for providing jobs (as Krugman and traditional Democrats would have it) and more as a “stimulus” to crank up sales in the private sector. The increased borrowing was necessary to offset reduced tax revenues on highest-income people and corporations, which all of the last three presidents and congresses have enacted. Restore tax levels from the GHWBush and early Clinton eras and the debt crisis goes away.


    Comment by ktismatics — 5 August 2011 @ 12:02 pm

  4. Speaking of the wealthy and NYC, this morning at the library I picked up at your recommendation a book by Auchincloss. I’d been enjoying rereading The American by James, which helped trigger my interest. It’s Three Lives from 1993, consisting of three novellas.


    Comment by ktismatics — 5 August 2011 @ 12:21 pm

    • Auchincloss wrote ‘Reading Henry James’ in 1975. I haven’t read it. I think his favourite novelist was Edith Wharton, but I’ve never been able to get through her bitter-sounding prose, and only read a portion of ‘age of innocence’, didn’t even care for the movie. Auchincloss is not so great for style, which is mainly just serviceable, but he’s such an insider that the stories are fascinating, to me at least. Although I read a big chunk last year (maybe 6 volumes), and that’s probably going to be it. He also has an ‘East Side Story’, which I didn’t know about when I titled Book III, so I then just changed it to ‘Upper East Side Story’.


      Comment by illegal dances of new york city — 5 August 2011 @ 5:37 pm

  5. “S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about the government’s budget deficits and rising debt burden. The move is likely to raise borrowing costs eventually for the American government, companies and consumers.”

    It’s like I said in the Addendum. Next we’ll get Bernanke’s announcement of charging higher rates on new US bond issues. Everyone knows the Federal government isn’t going to default.


    Comment by ktismatics — 5 August 2011 @ 7:05 pm

    • http://www.washingtonpost.com/blogs/plum-line/post/the-incredible-shrinking-tea-party/2011/03/03/gIQAJkxewI_blog.html?hpid=z2

      I think that those of us who were totally disgusted with Obama’s wimp-out (and one thing is for sure: He does NOT like looking like a wimp, and you couldn’t miss it this time, he was barely a shadow) forget to read these things. And it is interesting, because just because their popularity is down to record levels, since the Tea Party is IN THERE, they have not minded doing this shit. I think that most of the time something like this happens, we don’t think it’s constructive to belabour the matter of where the real blame lies, because we’re so disappointed that it wasn’t fought. And Obama’s cynical disappearing act, as if he can take for granted everyone’s vote who won’t want a Republican. He might be able to, but not if he allows things to get so wretched that his own performance is not even deemed re-electable. That’s probably very unlikely, but not impossible, because 2011 has seen a real ‘crowdedness’ of erupting events, such that even conservative people I know who ‘wear blinders’ almost all the time haven’t been able to miss it (not that some of these events weren’t positive, just that there’s an enormous overload of something or other and one story crowding out another every day till it’s just exhausting to even know about.) But with the debt ceiling fights, i think everybody saw that there was a very explicity political class, these people weren’t making any bones about representing anyone–which is very strange. Americans are only now coming into their own as ‘suicide types’, there was lots of that sort of talk last week, about the Tea Partiers ‘putting on their suicide vests’. That’s new, isn’t it? It’s like they’re not thinking the usual politicians’ sacred mantra: ‘Get re-elected’. Maybe they weren’t listening, and maybe they’re still not, what do you think? It’s made them look like shit, and even right-wingers can’t get re-elected if their supporters start thinking they look like shit.


      Comment by illegal dances of new york city — 5 August 2011 @ 8:40 pm

      • I wonder if Obama’s unbelievably tedious ‘bipartisanism’ has long been a TV joke. I would imagine so, but if not, I can’t believe he’s going to be able to keep using that line. The markets are freaking him out, and he’s going to keep talking ‘bipartisan’ like he did last week? He’d be laughed out of all towns. And even though his own approval rating is somewhat better than the Tea Party, he’s never looked weaker to me. It’s not even a week since the Dems were fucking screaming for him to invoke the 14th amendment, which would have made him look really strong, even if he does love the Republicans secretly. He’s NOT a Republican, and you can’t be both within that particular game, nevermind endless talk by columnists and bloggers that the parties are the same, he’s a Democrat, and thinks it will be ‘cute’ to schmooze with the Republicans or something. Something really fucking OILY about him, I always thought he was cool even in defeat before, but not this time. Every day, a sense of crisis is promoted at louder decibels in the media, but it’s not even yellow journalism, it’s because there really are nothing but crises. And it seems that it really IS the Tea Party that thinks that that is now ‘how things work’, maybe that if it’s not always 100% of the time totally cutthroat, then in their peabrains, nothing is being achieved at all. The fights seem to be the goal at this point.


        Comment by illegal dances of new york city — 5 August 2011 @ 8:48 pm

  6. I follow most political events from a distance, not really tracking the day-to-day skirmishes. I noted a few weeks back that Obama wanted to raise taxes on the rich, but then he was tentatively endorsing the Gang of Six’s proposal which would have lowered taxes for the rich and for corporations. In the end nothing changed on tax rates, did it? I confess that I too tend to think that “the fight seems to be the goal,” but that the fix is in. I didn’t pay much attention to the brinksmanship about the debt ceiling, since it seemed preposterous that even the most austere Republicans and Tea Partiers would let the government grind to a halt. Does it make me a conspiracy theorist if I believe that the partisan fights are mostly for show while the bipartisan deals are being cooked up behind the scenes?

    I’ll acknowledge that the parties are different from each other, but their core constituencies and leaders span only a very narrow band. The Tea Party is pretty far right-wing, but as you point out their popularity is sinking, and there is no particularly strong far Left counterpart. I remember an economics class I took in college: suppose there are two gas stations in a town, each at the opposite end of town. Eventually they’ll move to the middle of town, right across the street from each other, and both will charge the same price for gas. The same principal applies for two political parties. I also think that big business can afford to buy both Republicans and Democrats, diversifying their portfolios and hedging their bets. Obama is a Chicago Democrat propelled by Daley machinery into national limelight. I did “hope” for more from him, though as you may recall I wasn’t an ardent supporter.


    Comment by ktismatics — 5 August 2011 @ 10:20 pm

    • “ince it seemed preposterous that even the most austere Republicans and Tea Partiers would let the government grind to a halt.”

      But I guess I don’t see why they wouldn’t have. Without the Dems giving into everything (or at least everything they said they were defending), the Tea Partiers would have certainly let the govt. grind to a halt. There was a govt. shutdown in 1996 that Gingrich engineered, although that wasn’t the debt ceiling and talk about not sending out Soc. Sec. checks, and all that. So that big business may well be able to buy up both, but I can’t see how this can become ‘business as usual’ without disasters that have barely been imagined yet. I’m not really saying anything except that the ‘political class’ is really outlining itself in BOLD, but even that’s neither here nor there. The game is still not working for the players, in a very major sense, if you do the fight and it’s not popular. Obama, at least, is being a weakling because he’s looking to get re-elected no matter what, and it’s anybody’s guess (and he’s guessing too, I bet) how far right he can go. He seems to get a ‘buzz’ from that, more than that he really ‘believes’ the bullshit about ‘bipartisanism’. But if he can raise record levels of bundles of dough from rich people as he did a few weeks ago, what did he have to lose being tougher? Not all rich people are alike. Lots of his rich supporters wouldn’t be thinking ONLY of not closing off loopholes in corporate taxing. I guess still the only point I’m making is that there is not yet voting machine fraud to a large enough degree to insure victory for Republicans as I suspected paranoically (or reasonably) until the 2006 midterms. They hadn’t done that, but they probably are still trying, and might be able to. So that there is this ‘something or other’ in the Tea Party that does not make sense. Not that any of them are ‘standing for any principle’ or some such naivete, but that at this point, logic seems to be on the side that even wants to be popular with their own base. It’s like the Tea Party is unique in that they are only interested in the fun of the carnage, that they don’t care if they’re kicked out in the next election. And that the Bush tax cuts could definitely be allowed to expire (but I don’t give Obama the benefit of the doubt on that one, because to me, all of this was stuff that hadn’t even succeeded under Bush when he tried to privatize SS.) And the S & P report does talk about how this politically motivated maneuvering was reason to downgrade. And since this was threatened, the Tea Party is what succeeded in getting the downgrade, which is unique in the U.S. It’s never happened, and although it happened with Japan with few results, we don’t know till Monday whether the markets will react. They obviously waited till there was at least a modicum of stability, with an easy close for the NYSE today to announce the downgrade. And they do mention that the Bush tax cuts should be allowed to expire. I can’t, for the life of me, imagine that they would be. But the Tea Party people have proved that anything can happen, since they don’t seem to care about their political futures, but rather only the fun football, taking off the gloves shit.


      Comment by illegal dances of new york city — 5 August 2011 @ 11:00 pm

    • The Tea Party is pretty far right-wing, but as you point out their popularity is sinking, and there is no particularly strong far Left counterpart.

      Isn’t the “Tea Party” a post-collapse movement rather than a genuine alternative to run a government even if this is aspired by some of its prominent figures?

      You are right, there isn’t a far Left counterpart exactly. The closest proximity you get for a far Left today is parts of a politicized Open Source / Commons movement and relatives from the “hacker culture” like Wikileaks who bypass traditional political forms of representation but engage in “media and systems design” instead. It is also post-collapse and doesn’t care much about fixing either the state or the capitalist economy ( which just doesn’t work anymore, at least not in its own terms, as you’ve described so eloquently ).


      Comment by Kay — 6 August 2011 @ 1:07 am

  7. I probably am underestimating the zeal of committed Tea Partiers to shut down government altogether. As libertarian capitalists they would in principle support zero government, zero taxes. They resent not just programs for the poor, but also government interventions on behalf of private industry, including the bank bailout (“too big to fail” my ass) and the Romney-Obama healthcare program that requires people to buy health insurance on the private market (risks should have real consequences; if you guess wrong you get sick and die). I just assume that none of the true free-market purists would ever get enough corporate contributions actually to get elected. They’ll make the right noises to keep the far-right votes, but when push comes to shove they’ll toe the official Republican party line. The people on the far right are just as disgusted with Republicans as are the leftists with Obama.

    I probably also underestimate the nihilism of at least some Tea Party enthusiasts, the desire to provoke a collapse, finally to usher in the long-delayed apocalypse. This is the fascistic element: the religious fanatics and racists and xenophobes who would bring the government to a halt in order to make way for fascism. There’s widespread disgust with government, but I don’t see anything to build on in terms of alternative governance by allying with the Tea Partyists. Representative governance seems coopted by special interests, but I’d want more direct democratic participation of the citizenry more broadly rather than abandoning collective action for the common good.

    Am I anti-austerity? Not really. Presumably there will be cuts to Medicare. If the cuts constitute reductions in benefits or increased copayments by individual beneficiaries then I’m against such measures. If the plan is to cut reimbursement rates to pharmas, hospitals, doctors and so on then I’m in favor. The government should act as a purchasing agent on behalf of the citizenry, which among other things would mean negotiating tough deals with private contractors, which is how Medicare operates. Last year both Obama and Pelosi refused to cut Medicare reimbursement rates; maybe they’ll get more resolute this time around. I’m skeptical though.


    Comment by ktismatics — 6 August 2011 @ 8:59 am

    • http://talkingpointsmemo.com/archives/2011/08/highly_salient.php?ref=fpblg

      josh Marshall highlighted this part of the S & P report. I think some of the commentators I’ve read who speak so glibly about the tax cuts expiring are faking, including the ones who’ve sounded intelligent. My basic impression was that the S & P report was very smart, and surprisingly cognizant of the Tea Party’s motives. I’m not sure it wasn’t a prudent thing to do. Doesn’t the S & P report at least say ‘This SHIT really happened, and it was DIFFERENT SHIT’?. Of course, this lunatic bitch Michelle Bachman has already said Geithner should resign (maybe he should have, and I think he’s talked about it anyway, but certainly not because she thinks so–I guess she’s trying to make Ms. Palin by 1st Alternate in the Mongoloid Beauty Contest)


      Comment by illegal dances of new york city — 6 August 2011 @ 11:00 am

  8. Thanks for the link. It reads as a balanced professional report from S&P: lowered confidence that the Fed government can handle the debt constructively, deferred decisions on what cuts will be made, raising revenues no longer a front-burner option, we express no preference among policy options, etc. The question is whether the S&P downgrade really represents a lowered confidence that the Fed govt. will actually repay its debts. Other governments deem US debt to be as strong an investment as ever, or at least that’s what they’re telling their constituents — see this summary of world reactions. Even Russia, in the wake of Putin’s pronouncement that the US is a parasite on the global economy, expresses no loss of confidence. It seems that the S&P is being used more as justification to raise interest rates than as a warning. Stock prices will likely drop a bit, but not because of lack of confidence in the US economy. It’s just that US bonds will become a slightly more attractive investment option relative to stocks as interest rates rise.


    Comment by ktismatics — 6 August 2011 @ 11:23 am

  9. Yes, can be used that way as anything can, but it spells out things in a non-politicalese way that admits that the U.S. ‘governing effectiveness’ is not impressing them:“The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges,” and even if you think it’s politically neutral, it does talke about ‘political leverage’, and the ‘Republicans’ when it comes to their projection about the expiration of the Bush tax cuts. It does cut through the shit talk, if nothing else. It’s according to what’s underneath (‘on the ground’, as they say) that will determine what investors do, and whether the panic continues or not.

    And when there was talk about the 14th amendment, as it all moved to the wire, there was usually ‘there won’t be 14th Amendment by Obama until there IS default’. There really is the ‘bipartisan fantasy-fetish’ Obama has, and it’s no longer working. I see the S & P as primarily a polemic of the Tea Party, without the tone of a polemic but just by at least saying what happened, because even the half-literate Republicans weren’t rabid in quite the same way, although they do want Obama out, as McConnell kept saying. Mainly, politicians are continuing to bullshit about ‘jobs’ and such, and Obama’s a joke. He really thought he was going to be praised for this ‘deal’. And now he just looks fucked and pissed-off. There was photo in the NYT last night, in which he really looked like some fully-corrupted shithead, but it’s gone now. He’s lost his swag and the boyish charm isn’t working the half-slips either.


    Comment by illegal dances of new york city — 6 August 2011 @ 11:54 am

    • http://www.washingtonpost.com/politics/obamas-role-in-debt-ceiling-talks-scrutinized/2011/08/05/gIQAtADNxI_story.html

      This is a good summary of everything, I see now that WaPo is sometimes better at these pure-Washington stories than NYTimes, which is usually better for most things, and certainly looks better onscreen. What’s rather hideous is the final paragraph, in which it’s Eric Cantor who is spot-on. Frightful, but true. Pelosi, by the way, while trying to soft-pedal here, was known to be privately in favour of invoking the 14th amendment a couple of days before this ‘deal’. So, Cantor sums it up neatly. Obama may be taking a gamble, but the Tea Party in a sense got most of what they wanted, and Obama got most of what he really wanted, and nobody else (even the big-game players) did.


      Comment by illegal dances of new york city — 6 August 2011 @ 12:09 pm

  10. “The White House believed that as many as 100 members of Congress were prepared to block a deal even if it meant a certain default.” That surprises me, but reinforces your view. “Republicans said they saw Obama from the start as potentially soft on taxes, despite his heated rhetoric.” Right, and I’m wondering whether mainstream Republicans are soft on cuts despite their rhetoric.

    I see that Rick Perry, the governor of Texas, is hosting a stadium prayer meeting this afternoon. Presumably he wants to know whether God will endorse him for a presidential run.


    Comment by ktismatics — 6 August 2011 @ 1:58 pm

    • http://www.nytimes.com/2011/08/07/business/a-rush-to-assess-standard-and-poors-downgrade-of-united-states-credit-rating.html?ref=global-home

      This has good chronology of the week leading to the S & P downgrade, and the wrong calculation, about $2.1 trillion was something Chambers had to admit was correct. At least it was clarified, but the article is interesting because it seems nobody believed they’d really do it.


      Comment by illegal dances of new york city — 6 August 2011 @ 9:02 pm

      • http://fivethirtyeight.blogs.nytimes.com/2011/08/08/why-s-p-s-ratings-are-substandard-and-porous/?ref=global-home#

        This is excellent, I’ll finish reading it later. Mainly, the fact that S & P made that huge miscalculation is very disturbing, and very telling of all this mess. I didn’t quite let it sink in the other day, but if the govt. corrected them on that, and they admitted this enormous mistake, it’s as though there was this adorable juggernaut that the ratings agency just couldn’t. for the life of their precious asses, resist going ahead with. On the other hand, their report still did use language that, strangely, reported the facts of the political fighting, calling political parties by name, that I hadn’t expected. Furthermore, even the smartest people on the super-Dem TPM boards were saying that the Bush tax cuts will expire, which was suspicious to me, even though he was the only one capable of answering a question soberly (I hadn’t known TPM’s discussion boards were really pure chat rooms, by now as bad as the old AOL “I HATE BUSH” boards, although if you push hard, you can sometimes get an answer besides just screams that you’re a right-winger playing dumb to interrupt this sacred discussion.) I think this guy, who calls himself ‘lestatdelc’ is a diehard Obama supporter, which doesn’t work anymore, but the idea that the Bush tax cuts would ever be let to expire with such a weak president is nearly unimaginable.

        I thought there might be some mention of the difference in the 3 major ratings agencies. I worked at Moody’s in a low-level, but remarkably pleasant job, for 2 years, and that was the Rolls-Royce of agencies, according to them. It’s no more than a block or so from Ground Zero, and is on the same block with the Woolworth Tower (I’m going to post about these on IDNYC (the Bleug…). I never even heard of Fitch till I worked at Moody’s.

        I also worked at Standard & Poor’s, but I think only for a week or so, because i couldn’t master their system of whatever we were doing fast enough. After I was fired, somebody offered me pizza, and I was really awful about how tiresome it was to offer a fired person pizza. My temp agency said they had an idiot who had done better there, and it was because he knew the ‘system’, and they were in no mood to train.

        But the public has always heard about S & P ratings on the nightly news, I remember them back in Alabama, and they’re still always reported. There’s never a special Moody’s rating mention unless it’s severe, so that Moody’s luxury means nothing in comparison to even the ineptitude of S & P’s. The public doesn’t know about Moody’s, period. They never heard of Fitch unless they had specific reason. The public will not have looked hard at the $2.1 trillion mistake S & P had to be corrected on, determined to muscle in there.

        I’m going to post on this on IDNYC bleug later today, so it looks like the Tea Party won everything they wanted, and that even S & P couldn’t write a report without talking turkey about the Republicans. They couldn’t say ‘Tea Party’, of course, but this report may have been as important as the downgrade in starting to at least speak in a non-Pravda/Tass style language that even the regular front-page newspaper reports haven’t been quite doing. The Marxists like LT seem to think this was just ‘elite ruling-class move’ on the part of S & P, but I don’t think that nearly covers it. Just as the huge new stock market plunge is a ‘corrective’, so is the S & P report, despite their own miasma and their (and Moody’s as well) own guilt in falsifying ratings that led to the 2008 collapse. I remember being quite surprised at this, and this report shows at least some sanity; although whether it was wise we don’t know.


        Comment by illegal dances of new york city — 8 August 2011 @ 9:19 am

  11. Reading the 11:30 AM EDT news from Wall Street: stocks are down, prices for Treasuries are up. The first was expected, but the second surprises me. It means that, even with the downgrade, the secondary market for low-interest-rate T-bills is regarded as a safer investment than before the S&P downgrade. So there’s some sort of widespread panic on a global scale, not just disenchantment with US politics. Even other national banks around the world said that they regard US Treasuries as secure, perhaps more secure than debt issued by their own countries.

    I had another thought about high corporate profits. In times of growth, profits are plowed back into hiring, infrastructure, etc. So the fact that companies have been accumulating profits could mean that they’ve purposely restricted expansion. Stock prices are based less on current profits than on future growth, so the high profitability doesn’t necessarily translate into higher stock prices.

    One thing I can’t figure out is why corporate borrowing is so high. When interest rates are low it’s cheap to borrow money: that’s understood. But if the companies are already generating huge cashflows, and if they’re not expanding, what are they doing with all that borrowed money? Are they building up their own investment portfolios — stocks, bonds, etc. — figuring that they can earn profits off the difference between low borrowing costs and investment returns? But what are they investing in if the corporate world generally isn’t expanding? Maybe they’re just buying and selling other companies’ stocks — speculating rather than building. And since they’ve got money to spend on Wall Street these big companies with extra cash on hand are driving up demand for stocks, which artificially inflates stock prices. Here I too am speculating, but like the sign on Mulder’s cubicle wall used to say, “The truth is out there.”


    Comment by ktismatics — 8 August 2011 @ 10:00 am

  12. From this article:

    official global unemployment stood at 205 million in 2010, essentially unchanged from 2009, that is 27.6 million more than on the eve of the global economic crisis in 2007. The ILO [UN International Labor Organization] projects a global unemployment rate of 6.1 per cent, equivalent to 203.3 million unemployed, through 2011… Some 55 per cent of the rise in global unemployment between 2007 and 2010 occurred in what ILO terms the Developed Economies and European Union (EU) region, which only accounts for 15 per cent of the world’s labour force. In several developing countries, such as Brazil, Kazakhstan, Sri Lanka, Thailand and Uruguay, unemployment rates have actually fallen below pre-crisis levels.


    Comment by ktismatics — 8 August 2011 @ 12:11 pm

  13. http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html

    I’m sure you saw this one too, but it’s also a good ‘new summary’. We keep trying to find a silver lining, like when I tried to ignore the outrageous mistake S & P made and concentrate on what they did say in the report. But Krugman goes ahead and points out that S & P is a crock of shit too. And he points out Japan’s downgrade as having been so stupid. But still, that’s the number that’s going on, another one of those ‘Step I’ things. Krugman is definitely a Step II kind of guy, but seems to know that most won’t do that–they prefer pre-mat-yooh e-jack-oo-lay-shoon, as Dr. Ruth used to say, that Wise Old Sage.


    Comment by illegal dances of new york city — 8 August 2011 @ 6:25 pm

  14. But the United States has far higher health costs than any other advanced country, and very low taxes by international standards. If we could move even part way toward international norms on both these fronts, our budget problems would be solved.

    True. Thirty years ago, when taxes were more progressive, there was also less discrepancy between the highest-paid and lowest-paid workers. If you’re raking it in but you have to leave half or more of your winnings at the table, are you more willing to step away and try your hand at something else? I doubt it — there’s also the power and prestige that goes along with the big money.


    Comment by ktismatics — 8 August 2011 @ 7:28 pm

  15. Investors are buying US federal debt as a safe haven, so even if the S&P downgrade helped trigger the selloff it’s not fear that the US government is going to default. Also, the stock selloff is worldwide, not just on Wall Street. The issue I think is whether corporate policies for raising profit margins short-term are hurting expansion and total profits long-term. Jobs are being exported from the high-wage EU and US to low-wage labor markets, but profit margins on sales remain highest in places like the US and the EU. Spending in those markets has been kept artificially high via massive borrowing — by consumers for a long time, and now mostly by governments. If 1st-world governments stop borrowing, there won’t be enough money available to keep demand high at current prices. Demand goes down, which means either sales or margins go down, or both. Pay scales in the third world are so low that those markets can’t compensate for losses in the first world. For individual corporations the strategy remains sound: outsource jobs to cheaper labor markets in order to keep costs down and profits up. But for the economy as a whole this strategy is counter-productive. Further borrowing by 1st-world governments will keep corporate sales propped up, but rising EU interest rates and austerity measures are drying up that source of spending “stimulus.” The S&P downgrade adds more incentive for the US government to cut spending, re-emphasizing to investors the negative effect such moves will surely have on demand for private-sector products.


    Comment by ktismatics — 9 August 2011 @ 5:58 am

    • There’s also the curious fact that the 2-week descent by the markets has brought about very low mortgage rates. One guy was so swamped he had to put the calls on ‘ignore’. That’s not expected to last, and I forget exactly what in trading caused it even though I read it last night, but that was interesting.

      I couldn’t really experience the sense of ‘real panic’ this time, because although the S & P downgrade is a mixed bag of tricks, and Krugman was right to point out how egregious a $2 million mistake is, and they say nothing but ‘you’re right, but anyway…’ which would have meant that S & P was as concerned as much with its own ass as the Tea Partiers are, and are amenable to wholesale destruction as well (though not to that degree.) But I couldn’t feel it in the same way as the 2008 one, because these people don’t have to be ‘Step II’ to know that that’s more embarassing than anything else, the S & P downgrade, and that it may yet do some good; mainly, that doesn’t have the automatic unstoppable machine that the foolhardy Lehman mess did. I hadn’t known about S & P having given Lehman an A rating just the month before it collapsed, and that they had said ‘we’ve done nothing wrong’. So we know something more about the ratings agencies than we did even in 2008. When the first material about the ratings agencies falsification of ratings came out in 2008, I was very surprised. They seemed to be ‘above it all’, and they do strive for that detached, professional pose, but they’re not.really so peerless and pristine after all, and this incredible mistake was at first, when panic first really set in Thursday, and then Friday and the weekend after the announcement even more so, something that didn’t seem to affect us quite as much as what the markets themselves did, but now it really has surely embarassed S & P, despite their defensiveness about it. Buit Lehman Brothers was a much bigger deal, and people that used to argue that it didn’t immediately trigger the hugest kind of panic were wrong. That wasn’t just a matter of prestige. There were even people talking about it months later, saying that ‘it would have been illegal to bail out Lehman’s’. Unbelievable. How appalling to perform an illegality to keep the world afloat. I recall some old English drama in which the king’s life is saved by someone who breaks a law to do it, and the king indeed thinks he is obliged to consider the possibility of continued imprisonment of his saviour. I hadn’t thought about such things until relatively recently. I’m sure some arm-twisting at the G-7 over the weekend occurred, because this kind of continued downward plunge wouldn’t benefit any potlicians, although some would argue it would. I just think the ‘benefit’ would be unnecessarily gotten that way, and it’s still not a contest as to who can cause the most suffering for most, although the Tea Party definitely is like that–Cantor’s statements yesterday prove that, he is clearly crazed and very frightening. Of course, by the end of trading today, there could have been another mad sell-off, but before stabiizing in 2008, the Dow went down to the 8000s, didn’t it? or even 7000s? That’s a lot further, and I did read someone talking about the likelihood of a thousand-or-two-thousand plunge as a ‘corrective’ even before the S & P thing.


      Comment by illegal dances of new york city — 9 August 2011 @ 11:59 am

  16. I see that US worker productivity is down 2% so far this year, reversing a 4% rise in 2010. Maybe overstretched workers, their ranks depleted by layoffs, can only keep it up for so long before they burn out. Maybe also the workforce expected their heightened productivity to earn them pay raises that never materialized. So I suppose the employers’ choices are three: try to weed out the lowest-productivity workers to increase efficiency; outsource more American jobs, since efficiency dropoffs in doing so won’t be as steep as previously; hire more American workers to ease the burden on a fatigued workforce.


    Comment by ktismatics — 9 August 2011 @ 9:47 am

  17. This morning the market was up 200 points. Then the Fed said it would keep rates low for 2 years and the market sank. Why? Did they expect the Fed to do something more than that? I read earlier that some were hoping that the Fed would come up with some new stimulus plan. What could that possibly have been? The Federal Reserve doesn’t do stimulus; the Federal government does stimulus, then borrows from the Federal Reserve to pay for it. Is it possible that big investors were confused about this? Maybe the morning runup was just an anticipation by those in the know about what the Fed was planning to do, so that by the time the formal announcement was made the market had already reacted beforehand. Oh, but now I see the market is back up again… maybe it took investors an hour or so to realize that the Fed had given the best news for business and financial institutions of which it was capable.


    Comment by ktismatics — 9 August 2011 @ 1:17 pm

  18. http://www.nytimes.com/2011/08/09/opinion/nocera-while-the-markets-swoon.html

    I like Nocera here too. He’s been doing these not quite 2 months, and it may well be that the S & P report’s advantages, in definitely singling out the Tea Party, outweigh its disadvantages.


    Comment by illegal dances of new york city — 9 August 2011 @ 4:46 pm

    • Meant to add that I so agree that yesterday’s Obama remark ‘We’re still a Triple A nation’ was about as pathetic as it gets.


      Comment by illegal dances of new york city — 9 August 2011 @ 5:02 pm

  19. WASHINGTON (AP) — The 12 lawmakers appointed to a new congressional supercommittee charged with tackling the nation’s fiscal problems have received millions in contributions from special interests with a direct stake in potential cuts to federal programs, an Associated Press analysis of federal campaign data has found.

    The newly appointed members — six Democrats and six Republicans — have received more than $3 million total during the past five years in donations from political committees with ties to defense contractors, health care providers and labor unions. That money went to their re-election campaigns, according to AP’s review.

    Supporters say the lawmakers were picked for their integrity and experience with complicated budget matters. But their appointments already have prompted early concerns from campaign-finance watchdog groups, which urged the lawmakers to stop fundraising and resign from leadership positions in political groups…

    The lawmakers represent a large swath of political ideology and geography, but they have some things in common: They received more than $1 million overall in contributions from the health care industry and at least $700,000 from defense companies, the AP found. Those two industries, especially, are sensitive to the outcome of the committee’s negotiations because the automatic spending cuts could affect them most directly.

    You’d be hard-pressed to find 12 members of Congress who have not been heavily supported by healthcare and defense lobbies. The White House dismisses the issue as “silly criticism.” I wonder how much Obama “earned” from these special corporate interests when he was in Congress?


    Comment by ktismatics — 12 August 2011 @ 7:56 am

  20. Yes, he’s clearly as corrupt as the rest. B. told me that’s why there was a helicopter circling us for a long time last night, he was down here fundraising. I said ‘that’s all he does’, and didn’t realize how disgusted I was, as I was speaking very sharply and with raised voice, and said he was clearly no different from the others in most ways. Real Chicago pol, and people don’t even care about the grin anymore.


    Comment by illegal dances of new york city — 12 August 2011 @ 8:48 am

  21. From the Washington Post:

    Some of the country’s best-known multi­national corporations closely guard a number they don’t want anyone to know: the breakdown between their jobs here and abroad. So secretive are these companies that they hand the figure over to government statisticians on the condition that officials will release only an aggregate number. The latest data show that multinationals cut 2.9 million jobs in the United States and added 2.4 million overseas between 2000 and 2009.


    Comment by ktismatics — 23 August 2011 @ 1:49 pm

  22. http://www.nytimes.com/2011/09/02/opinion/krugman-eric-and-irene.html?hp

    Did you know about this? I guess I haven’t been following very closely this week. I like the way Krugman singled him out, as that is very appropriate. Eric Cantor is as vile as possible, like a pit bull on amphetamines.


    Comment by illegal dances of new york city — 2 September 2011 @ 5:48 pm

  23. And then this:


    I liked Krugman’s use of the word ‘nihilism’ in the previous link. PLUS, the jobs report, the market falling again, and Obama becoming a total fucking clown to Boehner. I’ve never seen such total lack of dignity even among this sort of pols. Boehner is disgusting, but Obama has really lost it by now, he just does fund-raisers.


    Comment by illegal dances of new york city — 2 September 2011 @ 6:08 pm

  24. I don’t really know about the mortgage-backed securities situation, but is it possible that the US government is guaranteeing these loans now? AIG backed them before, and the US bailed out AIG. Even if these securities are US-backed, that guarantee would have to be paid for by US Treasury borrowing, which is… a lower rated investment? I don’t get it.

    I’d not seen this about Kantor. Krugman is right in his summary: there are a lot of useless Democrats in Congress, but no one with quite the asshole rating of Kantor.


    Comment by ktismatics — 2 September 2011 @ 9:02 pm

  25. And then this. S & P made the connection yet? Well, I declare. We know they’re so smart they make trillion-dollar mistakes, and then, without a pause, say ‘well, even so…’ More chaos than can be managed, although this is a good development, and what has long been delayed:



    Comment by illegal dances of new york city — 2 September 2011 @ 10:01 pm

  26. Here is a long but good summary of the economic situation by Robert Reich. Though each individual company maximizes profits by cutting workers, hours, and salary, across all companies this strategy chokes power from the real engine for economic growth, which is consumer purchasing power.


    Comment by ktismatics — 5 September 2011 @ 9:13 am

  27. http://www.nytimes.com/2011/09/04/magazine/what-the-left-doesnt-understand-about-obama.html

    Worth reading, but not very convincing. I put it because Reich is mentioned. Yes, people aren’t buying, but the 1937 analogy didn’t seem to be anything the Step I types were going to pay any attention to. Maybe Zero Jobs of the other day may make some headway, and we’ll see the speech tomorrow night. Very true that the ‘court of popular opinion’ being opposed to Beltway lunacy is the important thing, because can’t last if things continue to plummet. Tea Party very different sort of thing, though, and the country seems hysterical right now.


    Comment by illegal dances of new york city — 7 September 2011 @ 1:34 pm

  28. From Wikipedia:

    Chait, a doctor’s son, grew up in the suburbs of Detroit and is a graduate of the University of Michigan… Chait strongly criticized the editorial staff of the Detroit Free Press following a controversial article by Michael Rosenberg that alleged systematic infractions of NCAA Rules by the Michigan football team. Chait suggested Rosenberg’s editor should “lose his job” and called the investigation’s methodology “journalistic malpractice.” On February 22, 2010, following an investigation stemming from allegations raised in Rosenberg’s article, UM announced that the NCAA has found probable cause that the school committed five major violations, corroborating some but not all of the allegations in Rosenberg’s article. On Tuesday, May 25, 2010 the University of Michigan responded to the NCAA Notice of Allegations; after which Chait claimed that Rosenberg’s allegations that coach Rich Rodriguez “operated a football sweatshop has been totally debunked.”

    Clearly this Michigan grad’s critical acumen is flawed and uncorrectable by empirical evidence. The earlier stimuli failed. Government borrowing went up, taxes went down, and so domestic spending went up. However, domestic unemployment also went up. The net result: corporate profits increased and the rich got comparatively richer, effects that were exacerbated by lowering taxes on corporations and on high incomes. Everybody else got peanuts or worse, as Reich said. Why should another round of stimulus generate any better results? Low taxes on high income and on capital gains and on corporations provides a stimulus for corporate profitability, not for increased employment or wages or standard of living across the board.

    What can the government do instead, short of a fundamental restructuring of the economy? Invert the incentives: increase taxes on capital gains, on high income, on corporations. Spend the increased revenue on massive FDR-style government hiring for schools, alternative energy, pollution abatement, and so on. Facing higher taxes, shortsighted corporate bosses and owners might actually start acting in their own long-term best interests. Instead of skimming low-tax profits, they might reinvest excess revenues in workers, thereby expanding capacity for growth as well as broad-based purchasing power.


    Comment by ktismatics — 7 September 2011 @ 2:24 pm

  29. I didn’t see Obama’s speech on stimulus, but my first reaction is largely negative. Cutting workers’ contribution to payroll taxes means shifting workers’ existing income from savings to spending. Personal savings rates have generally trended down over the last 40 years, and while there’s been a bit of an uptick over the past 3 years it’s almost entirely attributable to the highest income brackets. But then also, employers’ contributions to payroll taxes are also being cut: this amounts to a direct decrease in wages for existing employees. On the spending side, much of the money is to be spent on refurbishing schools — this following hard on the heels of massive layoffs in education nationwide. So instead of using the Federal money to pay teachers and other workers who actually educate, it will be spent on construction contractors to modernize the bricks and mortar.


    Comment by ktismatics — 9 September 2011 @ 6:04 am

  30. http://hurryupharry.org/2011/10/06/on-wall-street/

    This is surprisingly well-balanced, and the super-leftist bleugers who follow Seymour just have their ‘club’. This is maybe the best thing I’ve read about OWS thus far (at this point.) I read Naomi Klein’s speech, but that was mostly to fire up the protesters. For chrissake, she’s definitely in the 1%, although she definitely does more than Twitter, I’ll give her that. Problem with the far-left is that they have turned all the foreign policy into an out-of-proportion concern for not only Muslims, but fanatical ones. It’s the very fanaticism that appeals to them, and even the ones who don’t like the fanatics won’t say much. Chomsky has lost all credibility for me after his incredibly stupid remarks after OBL was shot. I’m glad I’ve linked Harry’s Place, that’s a British version of TPM maybe, actually even more leftist. There was a strange hypnosis that these far-left bleugers had on me, and thank god it’s gone. I consider them unbelievably stupid, and never moderate. They seem to automatically conclude if you don’t worry at all times about racism against Muslims (and even use terms like ‘Muslim moderates’ sarcastically) that you are exactly the same as the Tea Party. What a fucking truckload they’ve turned out to be. Harry’s Place is staying on my bleugroll. So they’re right that Fox News is something that ought to be specifically described, that the OWS people at least know what they’re against, and that Fox wants to just mock them, while talking about the Tea Party as if they were something that isn’t dangerous. I don’t think the OWS will last that much longer, as businesses and residents in the neighborhood are tired of the squalour–very congested down there, and a very tiny park. Surprised there’s a legality that protects them at all, Bloomberg mentioned it today.


    Comment by illegal dances of new york city — 7 October 2011 @ 9:45 pm

  31. I had meant to say that I posted the Harry’s Place post because it reminded me of the way you saw things, I believe it was on this thread. Krugman is excellent, adding some new dimension, and pointing out the Real: that it will be the Dems who may get a chance out of this, not a bunch of British hard-Marxists, even if they do bore me out my skull (obviously an effort for the common good, as we know): http://www.nytimes.com/2011/10/07/opinion/krugman-confronting-the-malefactors.html?hp The Real is the mainly not accepting how the bankers’ did all of the mess, then spit on the Dems for acting like assholes (as well they might, of course.)


    Comment by illegal dances of new york city — 7 October 2011 @ 10:12 pm

  32. I agree with your assessment of the Harry’s piece. Wall Street is limiting its own growth by overemphasizing profit margins over growth. From one of the links:

    Michael Cembalest, the chief investment officer of JPMorgan Chase, wrote in July of this year (in a clients-only newsletter obtained by Washington Post columnist Harold Meyerson) that “profit margins have reached levels not seen in decades,” and “reductions in wages and benefits explain the majority of the net improvement.” (Cembalest printed the latter quote in boldfaced lettering.) “US labor compensation,” he explained, “is now at a 50-year low relative to both company sales and US GDP.”

    So here’s an investment banker agreeing with the 99%’s diagnosis, but not recognizing the shortsightedness of the strategy for the 1%. But then there’s the investment analyst quoted later in the piece:

    Even conservatives must acknowledge that return on capital investment, and the liquid stocks and bonds that mimic it, are ultimately dependent on returns to labor in the form of jobs and real wage gains. If Main Street is unemployed and undercompensated, capital can only travel so far down Prosperity Road. Long-term profits cannot ultimately grow unless they are partnered with near equal benefits for labor.

    Increasing the purchasing power of labor is in the long-term interest of the capital class, at least if they continue being more interested in amassing wealth than in barricading themselves off structurally from the lower and middle classes. Realizing their self-interest would mean taking advantage of the crisis to consolidate their position (per Naomi Klein), but it would also bring a net cumulative improvement in the 99%’s economic situation. Obama and Biden seem to be cozying up to OWS, and from a revolutionary perspective that amounts to a co-optation. But any incremental move leftward on taxes and benefits has to be an improvement, I would think. OWS is probably fun and affirming. Many on the left would agree with Krugman that OWS’s lack of concrete demands is a big problem. Even agreeing on a manifesto isn’t going to change anything without some sort of tactics. The Tea Party has been shrewd in that regard, and dangerous. Maybe OWS will morph into a more viable force, but just the rhetorical act of comparing it to the Tea Party rather weakens its distinctiveness, as if it’s just a balancing act being manipulated by some other deep-pocketed interest group.


    Comment by ktismatics — 8 October 2011 @ 2:13 am

  33. Jodi Dean, commenting on some of the OWS commentators, says this:

    The problem with the Zunes’ contribution is that it presumes an ongoing capitalism… Why not seize corporate agri-business, eliminate the mass feed lots, redistribute to the animals and land to people who are interested in and have experience in farming? Why not let a new agri-sector work with other sectors to set food production goals with an eye toward sustainability and healthier food? In the first year or two, shortages would likely occur. So, it would be important to seize corporations that make unhealthy snack foods, and that use food products in new plastics and other things, and dismantle them, basically to make sure that people didn’t starve. No doubt this kind of project is more complicated than I can suggest in a couple of sentences–but if one begins from Zunes’ assumptions, one never even thinks about it.

    Her readers can certainly think about seizing corporations as intensely as she does, but she can write an infinite number of sentences and it won’t get any closer to happening. Complicated? To do that sort of seizing would require a lot of guns and ammunition and thousands of people willing to die for healthy snacks. If we’re really going to talk about seizing corporations, then I want to hear the strategies and tactics for accomplishing it, as well as how and by whom those corporations are going to be run after the seizure.


    Comment by ktismatics — 8 October 2011 @ 2:35 pm

  34. Obama said that he wanted to put a tax surcharge on everyone making $250K or more. So Harry Reid, Democratic majority head of the Senate, says that he wants to limit the surtax to millionaires because people making $250K – $1M don’t really see themselves as rich, many live in places with high standards of living, and so on. Lame.


    Comment by ktismatics — 10 October 2011 @ 9:17 am

  35. I didn’t even see your comment till just now on Jodi’s ranting. It’s unspeakably childish. “why not Celestial Seasonings”? “Why not “forced volunteer work for CEO’s during vacations till we get past the 2-year famine?” She doesn’t even pretend to care about practicality any more. About the only result she can get this time (if Obama doesn’t produce even for sympathizers) is “always vote 3rd-party, no matter how bad”. Yes, I don’t want to hear about ‘seizing corporations’ from Miss Birdseye of H. James’s ‘The Bostonians’ either. So this is how people get tenure in ‘media studies’.


    Comment by illegal dances of new york city — 13 October 2011 @ 5:24 pm

  36. Sam sent me a link to this graph comparing jobs data during the GWBush and Obama administrations. The numbers for Obama look better than I expected. Curious to see what GW’s numbers looked like before the meltdown, I found this graph. It looks like the jobs change rate over the past two years is about on a par with the first 3 years of GW’s second term. There has been no recovery of lost jobs; instead, the baseline unemployment rate has stabilized at around 8% — twice what it was before the meltdown.


    Comment by ktismatics — 24 January 2012 @ 1:56 pm

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