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Daily Digest - Jan 14

Wednesday, January 14, 2009, 9:37 PM
  • Federal Reserve Vice Chair Donald Kohn
  • Unemployment Rate (Chart).
  • The beginning of the end of Ben Bernanke
  • Accountability for the Troubled Asset Relief Program
  • Tax Oversight Dogs Treasury Nominee (Hat Tip JoeManC)

Economy

Federal Reserve Vice Chair Donald Kohn 

Unemployment Rate (Chart).

The beginning of the end of Ben Bernanke 

Someday not too far from now I expect I will have to write a similarly titled post for Barack Obama. Holding center stage in a titanic crisis breaks public figures with casual abandon, and the chairman of the federal reserve during a nascent depression is invariably in the line of fire -- all the more so if his academic background makes his operating hypothesis available for scrutiny as it fails to work in the real world. 

Yves Smith links to what is sure to be the first of a fusillade directed at chairman Bernanke and his neoclassical work on the great depression of the 1930s.

As an added bonus, links are provided to both hyman minsky's revolutionary paper "The financial instability hypothesis" and Irving Fisher's seminal "The debt-deflation theory of great depressions". professor Steve Keen of the University of Western Sydney places Bernanke's work contra Fisher's, and finds it -- and, by extension, Bernanke's credentials and policies -- divorced from the reality of our current long-wave disequilibrium and terribly wanting.

I won't bother to quote at length as Ms. Smith does. The ramifications are, of course, not entirely without hint -- policy response has treated the problem as a liquidity crisis from the start, a conclusion only reachable from the initial presumptions of rational economic actors and prevailing economic equilibrium precluding a massive debt bubble in need of catastrophic liquidation. But as these policies fail -- and as, eventually, Bernanke is ignominiously scuttled and made scapegoat for the disaster now befalling the global economy and its American subset -- i'd wager such criticisms will grow loud and resound in the empty halls of commerce. 

Accountability for the Troubled Asset Relief Program

Tax Oversight Dogs Treasury Nominee (Hat Tip JoeManC) 

WASHINGTON (Jan. 14) -- U.S. Senate Finance Committee chairman Max Baucus said Wednesday he hoped to hold a confirmation hearing for President-elect Barack Obama's Treasury secretary nominee Timothy Geithner by Jan. 21.
Baucus also told reporters he believed Geithner would win approval despite questions over his taxes and a housekeeper who worked for him briefly without proper immigration papers. 

 

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14 Comments

leo0648's picture
leo0648
Status: Bronze Member (Offline)
Joined: Oct 6 2008
Posts: 48
Re: Daily Digest - Jan 14

That video with Kohn makes me sick.  There is another one with Ron Paul asking the questions on youtube.

Ruhh's picture
Ruhh
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Joined: Nov 12 2008
Posts: 259
Re: Daily Digest - Jan 14

Some bigger news from up here in Canada, especially Ottawa...

Nortel Networks files for bankruptcy protection

and then the inevitable...

TSX benchmark index drops 3% amid Nortel news

and...

Clement pledges $30M in short-term aid for Nortel (at least it isn't billions)

 

Mike Pilat's picture
Mike Pilat
Status: Platinum Member (Offline)
Joined: Sep 8 2008
Posts: 929
Re: Daily Digest - Jan 14

Davos, you've got fewer links than usual, but the videos of Alan Grayson and Ron Paul (thanks Leo!) were very powerful to watch. I don't know how many times Kohn attempted to defend the secrecy of the $1.2 Trillion that was loaned out.

It's really sad to watch how defiant Kohn is, both of Alan Grayson and of Ron Paul. The videos pretty clearly show that the tail is wagging the dog, but at least the dog is starting to realize that it is getting wagged!

I think our Congress feels very disempowered these days, though the reason escapes me. After watching the many crimes committed by Bush, Cheney, et. al., and then doing nothing to enforce the law, it's not a shock that Congress has thus far abdicated their responsibility to take action in face of injustice. Unfortunately, their votes aren't quite talking yet. I don't agree with Dennis Kucinich on everything, but I do appreciate his true sense of understanding and independence on some of the issues. I believe he has multiple times attempted to impeach Bush and Cheney, but Congress just looked on. Likewise, Ron Paul has introduced legislation to abolish the Fed (HR 2755), but apparently Congress is sitting pretty with their recently increased salaries (oops! cost of living adjustments).

Here's one interesting concept: Whenever someone is elected to Congress or the Senate, make the nominal value of their salaries unchangeable for their lives. Thus, any votes on salary increases would only affect newcomers to the arena and once anyone took office, they would have a vested interest in real fiscal responsibility. And if things got out of control with inflation, it would cause a rapid turnover of politicians as they realize the purchasing power of their salaries is destroyed. Of course this won't happen, but it's a novel idea. Think of the inherent accountabililty in making our politicians even more closely invested in the dollar. 

Mike

jrf29's picture
jrf29
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Posts: 453
Congressman Paul on Financial Services Hearing

 

 

Davos's picture
Davos
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Posts: 3620
Re: Daily Digest - Jan 14

Hello Mike:

It is a wussy post on my behalf.

My apologies.

This week, Wednesday, and today are really bad days for me. It's now 4:20AM and I can already tell I'm behind the power curve. I will be back to a "normal" schedule by Friday.

Take care 

pinecarr's picture
pinecarr
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Posts: 2244
Re: Daily Digest - Jan 14

Davos, no need to apologize!!!  Anyone who makes such a big a contribution to the site, making relevant information available to us, certainly has no need to apologize.  We can handle a couple low volume days now and again!  Thank you for all you do for the rest of us!! 

Mike Pilat's picture
Mike Pilat
Status: Platinum Member (Offline)
Joined: Sep 8 2008
Posts: 929
Re: Daily Digest - Jan 14

Ditto that, pinecarr.

Davos, I in no way intended to complain. I greatly enjoy the Daily Digest and it has become one of my own primary news vehicles. I should have perhaps said that what was a little shorter in quanitity was surely made up for by quality.

Thanks again. 

Davos's picture
Davos
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Posts: 3620
Re: Daily Digest - Jan 14

Hello Mike and PineCarr:

Thanks. I didn't take it as a complaint, it is a personal reflection, for me, this is like showing up for work with two different color shoes on. Take care 

Gregory K. Soderberg's picture
Gregory K. Soderberg
Status: Bronze Member (Offline)
Joined: Jan 8 2009
Posts: 32
Re: Daily Digest - Jan 14

The Crisis is an easy one to solve. Creating all new money as loans created the problem and the corruption, injustice and economic servitude. More borrowing won't correct the problem. We cannot pay debt with debt and get rid of the debt nor help our 'lquidity' problem. To pay debt, we must have money that is not a debt. Congress can simply pass a law that enables the Treasury to create new money and spend it into circulation for some form of production that benefits everyone equally. Perhaps for maintenance and building of public roads. No new debt. No new taxes. No inflation. Liquidity.

When the money supply increases with productivity gains there can be no inflation. Additionally, as old loan principal is repaid money is extinguished. So the idea of spending it in is similar to laundering the debt out of the system.

 

straight's picture
straight
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Joined: Aug 25 2008
Posts: 103
Re: Daily Digest - Jan 14

"When the money supply increases with productivity gains there can be no inflation. "

Greg, this is the part I dont have a firm grip of.  Is inflation not an increase in the amount of money?  atm we have lots of money with no velocity and we have no inflation, so i guess the money has to move to contribute to inflation.  how does increased productivity decrease inflation ie decrease the amount of money?

Can we have a government making money instead of the banks?  Would this end Treasuries of all kinds?

Thanks,

Stewart Brisbane.

Damnthematrix's picture
Damnthematrix
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Foreclosures soar 81 percent in 2008

http://uk.reuters.com/article/burningIssues/idUKTRE50E1KV20090115?sp=true

Foreclosures soar 81 percent in 2008

Thu Jan 15, 2009 2:36pm GMT
 


by Lynn Adler

NEW YORK (Reuters) - U.S. foreclosure activity jumped 81 percent in
2008, with one in every 54 households getting at least one filing
notice, suggesting various state laws and private programs to slow the
process have been ineffective, RealtyTrac reported on Thursday.

Nearly 3.2 million foreclosure filings on 2.3 million properties were made last year, the Irvine, California-based research firm said. Filings include notice of default, auction sale or bank repossession.

"Clearly the foreclosure prevention programs implemented to date
have not had any real success in slowing down this foreclosure
tsunami," James J. Saccacio, chief executive officer of RealtyTrac,
said in the report.

Foreclosure activity did slow in the fourth quarter overall,
declining 4 percent from the third quarter, but jumped nearly 40
percent from the fourth quarter of 2007.

And foreclosure activity last year was up 225 percent from 2006, the
year home prices began a deep slump that prevented many homeowners from
selling or refinancing.

Home prices have plunged more than 20 percent from the summer of 2006, according to Standard & Poor's/Case-Shiller measures.

<snip>

Damnthematrix's picture
Damnthematrix
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The shape of the recovery by Richard Heinberg

http://www.energybulletin.net/node/47659

Published Jan 7 2009 by Post Carbon Institute
Archived Jan 7 2009
The shape of the recovery
by Richard Heinberg
An article on the Bloomberg website today suggests that Asia will
have a "V-shape" recovery from the current economic crisis,
rebounding in 2010. This is opposed to a "U-shape" recovery, which
would presumably take a little longer.

May I suggest another alphabetic possibility? What if
the "recovery," not just in Asia, but globally, is shaped more like
a big capital L?

No doubt the suggestion that we have reached fundamental limits to
economic growth is as unpalatable today as was the initial forecast,
issued back in 1972, that such limits would be met during this
century. The famous Club of Rome report, which sold more copies than
any other environmental book in history, was vilified almost
immediately by pro-growth think tanks in Washington, which organized
a highly successful PR takedown during the 1980s. Today, it is
impossible to mention the phrase "limits to growth" in public
without hearing a dismissive outburst from somewhere within earshot.
Never mind the follow-up studies that have shown that the primitive
computer-based analysis on which the original report was based was
on the right track—which is to say that the freight train of
industrial civilization is on the wrong track, and headed for
history's biggest "splat."

But how can we know that the current economic crisis represents our
ultimate encounter with ecological limits, and not merely a major
case of the financial hiccups that have recurred frequently over the
past couple of centuries? Might the global economy rebound for a few
years, maybe even a decade or more, before really hitting the wall?
In that case, wouldn't a premature declaration of limit-hitting lead
to further humiliation of ecological prophets by the mainstream
media? Gloomy talk about an "L-shaped" non-recovery is likely to
provoke tar-and-feathering in any case, simply because people who
are already suffering economically want good news, not bad—and they
especially do not want to hear the REALLY bad news that the era of
cheap and easy abundance that they have been told is their
birthright is gone forever.

It is the situation with world energy supplies that leads to the (in
my view) inescapable conclusion that what we are seeing now is more
than a hiccup, worse than a "U-shaped" recovery, and better
characterized as the beginning of an adjustment to a new long-term
state of much lower energy flow, declining population, and reduced
resource consumption. True, the evident cause for the seizing up of
the growth machine is a series of Ponzi schemes piled on top of one
another, administered not only by the world's largest and most
respected investment banks but by central banks and governments
themselves. But that machine needs oil as much as it needs money.
Currently, with oil prices low and surplus amounts sloshing around a
bloated market, it seems (to many commentators) ludicrous to
conclude that tight oil supplies could constrain future economic
growth. For the mainstream analysts, it's all about money. But as my
colleague Daniel Lerch and I have argued (Peak oil still relevant?
More than ever., Whither Oil Prices, The End of Growth), the
economic crisis was at least partly triggered by the oil price spike
of 2008, and now, with demand being crushed and prices so low, not
enough investment is going into the energy sector to prevent a far
greater oil supply crisis from erupting as soon as demand picks up
again.

Oil is by no means the only limit to growth—we are in the era of
Peak Everything: topsoil, water, fish, minerals, you name it. But
oil is the single limiting factor that will matter most, soonest.

So if we have indeed hit the wall, should those of us who understand
the fact keep quiet in order to avoid being branded as alarmists,
doom-sayers, or worse?

That's a tactical question, and it deserves some debate. There are
those who would argue that we who do "get it" should minimize the
gloom and lead with positive messages, visions of how we can all be
better off in a low-flow world. We should help people adapt to the,
uh, downturn and not rub their noses in it.

In general, that's good advice. And I intend to spend much more of
my writing time this year identifying and describing what some folks
are doing to help them get by in ever harder times.

But it's also important to understand the bigger shape of the
historical moment we occupy. If we all think it's a V or a U, we
will be wasting most of our effort, just as the US government is
currently wasting hundreds of billions of dollars propping up the
balance sheets of investment banks that should simply divulge their
toxic assents and close their doors. There's only so much money and
time available to us, and we need to use it strategically to manage
the contraction phase of the industrial bubble that we have all been
part of.

If we understand the historical moment and act intelligently, there
is at least a chance we can avoid the fate of the Easter Islanders,
the Mayan cities, the Roman Empire. But that's going to require
quick learning and adaptation—and a willingness to hear some bad
news.

mesaboogieman's picture
mesaboogieman
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Joined: Jan 16 2009
Posts: 42
Re: The shape of the recovery by Richard Heinberg

 

  Hi,   I'm a newbie here and am just getting my head round all this, apologies if this is in the wrong section.

  The thing I'm having trouble getting to grips with (and probably no one really knows, but I'd like to hear some theories) is what will actually happen to currency when it crashes.  People at the top of these financial 'institutions' (aka ponzi schemes) are hoarding cash so they have a vested interest in making sure that it is still a valuable asset, but with it being an unstable situation, the dollar or the pound could be of no value at all when the real crash hits rendering their funds useless.

Of course they're probably putting half or more into gold, but you can't eat gold bars.  Maybe they're stockpiling food.  Can you imagine a day when a bag of rice is worth a gold bar?

Food for thought you might say.

Just like to take the opportunity to say a huge thank you to Chris and all involved in this site for opening my eyes, will do my best to spread the word.

 

 

Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 3998
Nortel files for bankruptcy

Small world.....  and obviously some people saw this coming.  Here's a post from my Aussie Peak Oil list:

Do you know what (in my opinion) killed Nortel? Growth.

I was at Nortel from 1998-2001. When I left, I gave up $40,000 of
unvested share options (share options were the "golden handcuffs"
that Nortel used to make suse that valued people didn't leave the
company).

At the time the CEO (John Roth) had grown the company in an
unsustainable way. Growth was meteoric - Roth was the golden child
of Canadian IT. It was talked about as an economic miracle. But from
the inside, I could see that the growth was an unsustainable sham.

I gave up my share options and told my wife that they would be
worthless within 6 months. Actually, it took 9 months...but they
were worthless before they vested - so I was close enough.

Now, once again, I'm looking around me as unsustainable growth
brings a system to its knees....

But this time the "golden handcuffs" are hard to give up.....my
whole way of life.

David C.

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