- Are the Knives are Coming Out for Geithner?
- Charlie Rose – Stiglitz, Ackerman: stress test has any real meaning is simply living in Wonderland (Video)
- Max Kaiser Latest Appearances…(Video)
- Eric Rosenfeld on LTCM…(Video)
- Summers: Expect "sharp declines in employment"
- No More Dodgeball! (Video)
- Planet Money – Live (Video, WTF Just Happened to our Economy)
- Will The Fed Finally Move Interest Rates Below Zero
- YoY Change in European Exports
- MERS (Chart)
- So far behind Flu (Video # 3 WSJ)
- 2,000 people hospitalized with serious cases of pneumonia
The clout of the press has decayed enormously over the last 40 years. The fourth estate was feared, resented, and begrudgingly respected in the corridors of power. But rule by beancounters, savvy media spin, and access journalism (journalists who write pointed stories get frozen out) have largely leashed and collared the press. Indeed, a friend who grew up in Eastern Europe when it was Communist said as of roughly 2000 that the news felt controlled.
So to see a front page, and super long story in the New York Times honing in on Geithner’s close, as in overly close, relationship with Wall Street executives, is a stunner. In the old days, a report critical of a prominent public official would be a leading indicator that they were at least facing headwinds, perhaps in bona fide trouble. But given the new rules of the game, one has to assume a story of this sort is a lagging indicator, that Geithner is perceived to be sufficiently at risk to be fair game.
Thus what is surprising about tonight’s New York Times story, "Member and Overseer of the Finance Club," on Timothy Geithner is not its content, but that it was written at all, and moreover (as of now) is a front page item. It’s extraordinarily long for a weekday story. the number of column inches usually reserved for natural, not bureaucratic disasters.
Any reader of any remotely plugged in econoblog, or savvy enough to read between the lines of MSM reports will know that Geithner is a creature of the financial establishment. Probably the most important element in his pedigree is that he is a protege of Larry Summers and Bob Rubin. It also appears that he and Summers are working fist in glove (witness the marginalization of Paul Volcker).
At a minimum, Geithner crony capitalist policies are finally leading to a hard look at his loyalties. There is no reason to think Geithner is personally corrupt (well, there was his little tax problem) but rather that he is as die hard a believer of finance uber alles as Alan Greenspan, albeit without the libertarian zealotry.
Of course, if one were Machiavellian, this move may be Team Obama realizing rather late that they have made the success of Obama’s presidency contingent on the Summer/Geithner program, and now they are trying, even more so than before. to pin the policies on Geithner. That may work tactically but in the end, the banking mess is too central a problem for Obama to try to shift blame of policy failures onto his team. He picked the chefs, he has to eat the cooking. If the economy is still a mess in 2012, he will not escape the taint.
And as much as this piece signals that Geithner may be starting to be perceived as a liability, it seems unlikely that he is in serious trouble yet. Sadly, the programs have to flounder first (although with the PPIP, that could happen sooner rather than later…..).
And while the Times piece finally points to the elephant in the room, namely, how bankster friendly the new regime has been, it is far less pointed than it could have been. I suppose one has to treat Treasury secretaries with kid gloves The questionable incidents and relationships are diluted by a lot of narrative. But recall we never saw anything remotely like this treatment (save lots of grumblings) about Hank Paulson. Of course, handouts to the big end of town was standard operation in the Bush administration, so it was hard to work up much outrage about it (at least until the heinous TARP).
From the New York Times:
Last June, with a financial hurricane gathering force, Treasury Secretary Henry M. Paulson Jr. convened the nation’s economic stewards for a brainstorming session. What emergency powers might the government want at its disposal to confront the crisis? he asked.
From Bloomberg: Summers Says U.S. Economy to Decline ‘For Some Time’
“I expect the economy will continue to decline,” with “sharp declines in employment for quite some time this year,” Summers said today on “Fox News Sunday.”
Summers said the economy will pick up as manufacturers rebuild depleted inventories and consumers replace aging cars. “These imbalances can’t continue forever,” he said. “When they are repaired they will be a source of impetus for the economy.”
Summers said the Obama administration is “on a path toward containment and toward building a path toward expansion,” he said, adding that “even sharp plans take time” to work, perhaps six months or more.
Reuters has more quotes: Summers says no unremitting freefall in US economy
“Six or eight weeks ago, there were no positive statistics to be found anywhere. The economy felt like it was falling vertically. Today, the picture is much more mixed,” Summers said.
“There are some negative indicators, to be sure. There are also some positive indicators. And no one knows what the next turn will be,” he said. “But I think that sense of unremitting freefall that we had a month or two ago is not present today. And that’s something we can take some encouragement from.”
The "unremitting freefall" might be ending, but what will be the source of growth? Usually residential investment (RI) and personal consumption lead the economy out of a recession – and both remain severely impaired this time. There is too much excess inventory for any meaningful recovery in RI, and the process of repairing household balance sheets has just begun (I expect the savings rate to continue to rise for some time).
Krugman spoke about this in Cincinnati:
"I’m in the camp that really worries about the L-shaped recession. We level off but we don’t get the recovery. We hope it isn’t, but it has all the markings of it. This looks like the kind of slump that has all the markings of where normal recovery forces are very, very weak.
It’s hard to see where recovery comes from."
Over the last year, there has been speculation that the Fed would drop interest rates below zero, paying its borrowers to take money. Analysts believe that credit is so tight that even with interest rates at zero, the gridlock will not clear up.
Perhaps one of the reasons that the Fed has avoided making this move is that it is unprecedented and would add to the costs being taken on by the government to end the recession.
But, there are people inside the Fed making a case for dropping rates below where they are now.
According to the FT, “The ideal interest rate for the US economy in current conditions would be minus 5 percent, according to internal analysis prepared for the Federal Reserve’s last policy meeting.” The major factors taken into account in the analysis are unemployment and inflation.
Since there is no clear indication that the Fed’s current policies have done much if anything to spur the economy, the central bank may find itself cutting rates again next month, especially if the GDP numbers for the first quarter are much worse than expected and unemployment continues to move higher. The Fed and the Treasury have said that they will do what is necessary to pull the US out of its current financial and economic crisis. Keeping rates where they are means that the Fed is allowing current policy to keep it from fulfilling that promise.
The numbers for the American economy could actually deteriorate over the next several months, although government officials are saying otherwise. Job losses and housing price troubles are getting worse. Businesses and consumers still have little or no access to credit.
And, the Fed has not pulled out all of the stops.
In Mexico, the outbreak’s center, soldiers handed out six million face masks to help stop the spread of the virus. Nearly 2,000 people in Mexico have been hospitalized with serious cases of pneumonia since the first case of swine flu was reported two weeks ago.