Congressional Calculus

Vile Ct. Senator Joe Lieberman makes me physically ill but I support keeping him on our side for now, and only until he screws up again, which won't be long. Here's why...

...having lived through the Sixties, when Liberals were far more likely to eat their own then figure out how to get what they wanted, I understand and agree with the carefully calculated considerations made by Senate Majority Leader Harry Reid and President-Elect Barack Obama when dealing with the backstabbing former DemocRATic Vice Presidential candidate.

Lieberman tossed out of his precious chairman's seat at this moment in history would begin the wonderful and golden Obama era with a cat-shit flinging contest that would leave everyone stinky, and an angry resentful Lieberman hell-bent on sabotage while closely allied with our Repugnican enemies.

Letting the whiny self-obsessed Senator stay where he is (chairmanship intact) keeps us close enough to 60 filibuster-proof seats to create momentum for the necessary high-wire Acts of Congress we're going to need to keep this country afloat and (hopefully) to build a progressive agenda regarding foreign policy, energy policy, infrastructure reinvestment, etc. If Lieberman plays to character and goes bad, siding with the dark forces, he can get kicked to the gutter at any moment and he knows it.

Besides, he never held a hearing while Bush was in office, he'll have far less opportunity to do so with Obama in the People's sacred White House.

Anyway you add it up, baring an act of God, Lieberman is toast by the end of his current term. (It's true, to reclaim in lost honor he could become a great hard-driving Democratic Senator, personally responsible for pushing through the most liberal agenda in America history, but that's not likely to happen.)

Alternatively, Lieberman is more likely to be Lieberman, close enough to the Democratic Party to allow us to move forward, while he best represents the interests of his true constituents, the people of Israel.

If he goes off the rails he becomes an even more damaged Lieberman, but in six months time, he has far less value to the Repugs and they'll have even less to offer him.

To see Lieberman in a few years, one only needs to look to Zell Miller, he who now lingers in Repugnican Hell, playing the sideshow circuit in their nightmare circus, strictly a freakshow character rather than a revered and respected former leader.

I can live with that.

LOVE IT OR LEAVE IT!!!!

Racism in America:Its not just in the South.

Eight years ago I worked as a front page, column-one reporter for the SF Examiner. Everyday, five days a week, I filed a story interviewing a single person. I would pick from random visitors, celebrities and locals to try to find the everyman of our community and to speak of the things that matter most.
One of the questions I used regularly was a sure fire winner: "Is San Francisco Racist?"
Overwhelmingly, if the person asked was WHITE, the answer was either "No" or "I don't know, but probably not."
Overwhelmingly, if the person was NOT white, the answer was some version of "HELL YEAH!"

To be fair, even the darkest of respondents acknowledged that racism was alive and well in all those just slightly lighter. In fact, it was part of my mission to show that no matter how isolated and discriminated the community, all people are at core racists, classists, sexists and otherwise "persons of fine discrimination."

The Executive Editor during my tenure at the Examiner was a Kentucky Colonel named David Burgin. Mr Burgin was widely reviled for many reasons, his incompetence and sense of petty vengeance perhaps foremost, but what most folks weren't aware of on a daily basis was his profound and deeply held racist views. As a reporter dealing with issues of racism on a regular basis I banged hard against the Kentucky Colonel's opinions regularly. Bergin told me repeatedly not to ask the question of whether America's most liberal city was in fact just another stronghold of racist opinion and I ignored his strictures just as readily.

Ted Fang, our publisher was both Gay and Asian and HIV infected and he told me early in the game that he thought our paper should cover all three of those issues. But in fact, after I published a front page interview with the prior owner of the Examiner, Will Hearst, which delved directly into the question of whether racism was an appropriate topic for a daily newspaper in a diverse community, Mr Bergin attempted to fire me. Unable to do that (I had a few friends higher up the food chain) Bergin took the column out of my hands and shortly thereafter it died.

Today, eight years later, we're still debating whether America (and the San Francisco Bay Area are racist (and sexist and classist and...)

We are and will always be so. The only hope for a true experience of equality won't come from electing an African-American President. Instead, we MUST acknowledge our natural racism and discuss it openly with all of the members of our community. If we do so, we will soon discover that no matter how dissimilar in appearance we may be, we are all far more similar than different.

If we don't openly confront and discuss our inherent discrimination, we will be forced to confront its horrific results: Election spurs 'hundreds' of race threats, crimes
By Jesse Washington, AP

Cross burnings. Schoolchildren chanting "Assassinate Obama." Black figures hung from nooses. Racial epithets scrawled on homes and cars.

Incidents around the country referring to President-elect Barack Obama are dampening the postelection glow of racial progress and harmony, highlighting the stubborn racism that remains in America.

From California to Maine, police have documented a range of alleged crimes, from vandalism and vague threats to at least one physical attack. Insults and taunts have been delivered by adults, college students and second-graders.

There have been "hundreds" of incidents since the election, many more than usual, said Mark Potok, director of the Intelligence Project at the Southern Poverty Law Center, which monitors hate crimes.

One was in Snellville, Ga., where Denene Millner said a boy on the school bus told her 9-year-old daughter the day after the election: "I hope Obama gets assassinated." That night, someone trashed her sister-in-law's front lawn, mangled the Obama lawn signs, and left two pizza boxes filled with human feces outside the front door, Millner said.

She described her emotions as a combination of anger and fear.

"I can't say that every white person in Snellville is evil and anti-Obama and willing to desecrate my property because one or two idiots did it," said Millner, who is black. "But it definitely makes you look a little different at the people who you live with, and makes you wonder what they're capable of and what they're really thinking."

Potok, who is white, said he believes there is "a large subset of white people in this country who feel that they are losing everything they know, that the country their forefathers built has somehow been stolen from them."

Grant Griffin, a 46-year-old white Georgia native, expressed similar sentiments: "I believe our nation is ruined and has been for several decades and the election of Obama is merely the culmination of the change.

"If you had real change it would involve all the members of (Obama's) church being deported," he said.

Change in whatever form does not come easy, and a black president is "the most profound change in the field of race this country has experienced since the Civil War," said William Ferris, senior associate director of the Center for the Study of the American South at the University of North Carolina. "It's shaking the foundations on which the country has existed for centuries."

"Someone once said racism is like cancer," Ferris said. "It's never totally wiped out, it's in remission."

If so, America's remission lasted until the morning of Nov. 5.

The day after the vote hailed as a sign of a nation changed, black high school student Barbara Tyler of Marietta, Ga., said she heard hateful Obama comments from white students, and that teachers cut off discussion about Obama's victory.

Tyler spoke at a press conference by the Georgia chapter of the NAACP calling for a town hall meeting to address complaints from across the state about hostility and resentment. Another student, from a Covington middle school, said he was suspended for wearing an Obama shirt to school Nov. 5 after the principal told students not to wear political paraphernalia.

The student's mother, Eshe Riviears, said the principal told her: "Whether you like it or not, we're in the South, and there are a lot of people who are not happy with this decision."

Other incidents include:

_Four North Carolina State University students admitted writing anti-Obama comments in a tunnel designated for free speech expression, including one that said: "Let's shoot that (N-word) in the head." Obama has received more threats than any other president-elect, authorities say.

_At Standish, Maine, a sign inside the Oak Hill General Store read: "Osama Obama Shotgun Pool." Customers could sign up to bet $1 on a date when Obama would be killed. "Stabbing, shooting, roadside bombs, they all count," the sign said. At the bottom of the marker board was written "Let's hope someone wins."

_Racist graffiti was found in places including New York's Long Island, where two dozen cars were spray-painted; Kilgore, Texas, where the local high school and skate park were defaced; and the Los Angeles area, where swastikas, racial slurs and "Go Back To Africa" were spray painted on sidewalks, houses and cars.

_Second- and third-grade students on a school bus in Rexburg, Idaho, chanted "assassinate Obama," a district official said.

_University of Alabama professor Marsha L. Houston said a poster of the Obama family was ripped off her office door. A replacement poster was defaced with a death threat and a racial slur. "It seems the election brought the racist rats out of the woodwork," Houston said.

_Black figures were hanged by nooses from trees on Mount Desert Island, Maine, the Bangor Daily News reported. The president of Baylor University in Waco, Texas said a rope found hanging from a campus tree was apparently an abandoned swing and not a noose.

_Crosses were burned in yards of Obama supporters in Hardwick, N.J., and Apolacan Township, Pa.

_A black teenager in New York City said he was attacked with a bat on election night by four white men who shouted 'Obama.'

_In the Pittsburgh suburb of Forest Hills, a black man said he found a note with a racial slur on his car windshield, saying "now that you voted for Obama, just watch out for your house."

Emotions are often raw after a hard-fought political campaign, but now those on the losing side have an easy target for their anger.

"The principle is very simple," said BJ Gallagher, a sociologist and co-author of the diversity book "A Peacock in the Land of Penguins." "If I can't hurt the person I'm angry at, then I'll vent my anger on a substitute, i.e., someone of the same race."

"We saw the same thing happen after the 9-11 attacks, as a wave of anti-Muslim violence swept the country. We saw it happen after the Rodney King verdict, when Los Angeles blacks erupted in rage at the injustice perpetrated by 'the white man.'"

"It's as stupid and ineffectual as kicking your dog when you've had a bad day at the office," Gallagher said. "But it happens a lot."

Associated Press writers Errin Haines, Jerry Harkavy, Jay Reeves, Johnny Taylor and researcher Rhonda Shafner contributed to this report.

Soros & Roubini: Real trouble ahead in the global economy

The Worst Is Not Behind US:
Beware of those who say we've hit the bottom.
by Nouriel Roubini
November 14, 2008 Forbes November 13, 2008

It is useful, at this juncture, to stand back and survey the economic landscape — both as it is now, and as it has been in recent months. So here is a summary of many of the points that I have made for the last few months on the outlook for the U.S. and global economy, as well as for financial markets:

—The U.S. will experience its most severe recession since World War II, much worse and longer and deeper than even the 1974-1975 and 1980-1982 recessions. The recession will continue until at least the end of 2009 for a cumulative gross domestic product drop of over 4%; the unemployment rate will likely reach 9%. The U.S. consumer is shopped-out, saving less and debt-burdened: This will be the worst consumer recession in decades.

—The prospect of a short and shallow six- to eight-month V-shaped recession is out of the window; a U-shaped 18- to 24-month recession is now a certainty, and the probability of a worse, multi-year L-shaped recession (as in Japan in the 1990s) is still small but rising. Even if the economy were to exit a recession by the end of 2009, the recovery could be so weak because of the impairment of the financial system and the credit mechanism that it may feel like a recession even if the economy is technically out of the recession.

—Obama will inherit an economic and financial mess worse than anything the U.S. has faced in decades: the most severe recession in 50 years; the worst financial and banking crisis since the Great Depression; a ballooning fiscal deficit that may be as high as a trillion dollars in 2009 and 2010; a huge current account deficit; a financial system that is in a severe crisis and where deleveraging is still occurring at a very rapid pace, thus causing a worsening of the credit crunch; a household sector where millions of households are insolvent, into negative equity territory and on the verge of losing their homes; a serious risk of deflation as the slack in goods, labor and commodity markets becomes deeper; the risk that we will end in a deflationary liquidity trap as the Fed is fast approaching the zero-bound constraint for the Fed funds rate; the risk of a severe debt deflation as the real value of nominal liabilities will rise, given price deflation, while the value of financial assets is still plunging.
—The world economy will experience a severe recession: Output will sharply contract in the Eurozone, the U.K. and the rest of Europe, as well as in Canada, Japan and Australia/New Zealand. There is also a risk of a hard landing in emerging market economies. Expect global growth — at market prices — to be close to zero in Q3 and negative by Q4. Leaving aside the effects of the fiscal stimulus, China could face a hard landing growth rate of 6% in 2009. The global recession will continue through most of 2009.

—The advanced economies will face stag-deflation (stagnation/recession and deflation) rather than stagflation, as the slack in goods, labor and commodity markets will lead advanced economies' inflation rates to become below 1% by 2009.

—Expect a few advanced economies (certainly the U.S. and Japan and possibly others) to reach the zero-bound constraint for policy rates by early 2009. With deflation on the horizon, zero-bound on interest rates implies the risk of a liquidity trap where money and bonds become perfectly substitutable, where real interest rates become high and rising, thus further pushing down aggregate demand, and where money market fund returns cannot even cover their management costs.
Deflation also implies a debt deflation where the real value of nominal debts is rising, thus increasing the real burden of such debts. Monetary policy easing will become more aggressive in other advanced economies even if the European Central Bank cuts too little too late. But monetary policy easing will be scarcely effective, as it will be pushing on a string, given the glut of global aggregate supply relative to demand — and given a very severe credit crunch.

— For 2009, the consensus estimates for earnings are delusional: Current consensus estimates are that S&P 500 earnings per share (EPS) will be $90 in 2009, up 15% from 2008. Such estimates are outright silly. If EPS falls — as is most likely — to a level of $60, then with a price-to-earnings (P/E) ratio of 12, the S&P 500 index could fall to 720 (i.e. about 20% below current levels).

If the P/E falls to 10 — as is possible in a severe recession — the S&P could be down to 600, or 35% below current levels.

And in a very severe recession, one cannot exclude that EPS could fall as low as $50 in 2009, dragging the S&P 500 index to as low as 500. So, even based on fundamentals and valuations, there are significant downside risks to U.S. equities (20% to 40%).

Similar arguments can be made for global equities: A severe global recession implies further downside risks to global equities in the order of 20% to 30%.Thus, the recent rally in U.S. and global equities was only a bear-market sucker's rally that is already fizzling out--buried under a mountain of worse-than-expected macro, earnings and financial news.

— Credit losses will be well above $1 trillion and closer to $2 trillion, as such losses will spread from subprime to near-prime and prime mortgages and home equity loans (and the related securitized products); to commercial real estate, to credit cards, auto loans and student loans; to leveraged loans and LBOs, to muni bonds, corporate bonds, industrial and commercial loans and credit default swaps. These credit losses will lead to a severe credit crunch, absent a rapid and aggressive recapitalization of financial institutions.

— Almost all of the $700 billion in the TARP program will be used to recapitalize U.S. financial institutions (banks, broker dealers, insurance companies, finance companies) as rising credit losses (close to $2 trillion) will imply that the initial $250 billion allocated to recap these institutions will not be enough. Sooner rather than later, a TARP-2 will become necessary, as the recapitalization needs of U.S. financial institutions will likely be well above $1 trillion.

— Current spreads on speculative-grade bonds may widen further as a tsunami of defaults will hit the corporate sector; investment-grade bond spreads have widened excessively relative to financial fundamentals, but further spread-widening is possible, driven by market dynamics, deleveraging and the fact that many AAA-rated firms (say, GE) are not really AAA, and should be downgraded by the rating agencies.

— Expect a U.S. fiscal deficit of almost $1 trillion in 2009 and 2010. The outlook for the U.S. current account deficit is mixed: The recession, a rise in private savings and a fall in investment, and a further fall in commodity prices will tend to shrink it, but a stronger dollar, global demand weakness and a larger U.S. fiscal deficit will tend to worsen it. On net, we will observe still-large U.S. twin fiscal and current account deficits--and less willingness and ability in the rest of the world to finance it unless the interest rate on such debt rises.

— In this economic and financial environment, it is wise to stay away from most risky assets for the next 12 months: There are downside risks to U.S. and global equities; credit spreads--especially for the speculative grade--may widen further; commodity prices will fall another 20% from current levels; gold will also fall as deflation sets in; the U.S. dollar may weaken further in the next six to 12 months as the factors behind the recent rally weather off, while medium-term bearish fundamentals for the dollar set in again; government bond yields in the U.S. and advanced economies may fall further as recession and deflation emerge but, over time, the surge in fiscal deficits in the U.S. and globally will reduce the supply of global savings and lead to higher long-term interest rates unless the fall in global real investment outpaces the fall in global savings.

Expect further downside risks to emerging-markets assets (in particular, equities and local and foreign currency debt), especially in economies with significant macro, policy and financial vulnerabilities. Cash and cash-like instruments (short-term dated government bonds and inflation-indexed bonds that do well both in inflation and deflation times) will dominate most risky assets.

So, serious risks and vulnerabilities remain, and the downside risks to financial markets (worse than expected macro news, earnings news and developments in systemically important parts of the global financial system) will, over the next few months, overshadow the positive news (G-7 policies to avoid a systemic meltdown, and other policies that — in due time — may reduce interbank spreads and credit spreads).

Beware, therefore, of those who tell you that we have reached a bottom for risky financial assets. The same optimists told you that we reached a bottom and the worst was behind us after the rescue of the creditors of Bear Stearns in March; after the announcement of the possible bailout of Fannie and Freddie in July; after the actual bailout of Fannie and Freddie in September; after the bailout of AIG in mid-September; after the TARP legislation was presented; and after the latest G-7 and E.U. action.

In each case, the optimists argued that the latest crisis and rescue policy response was the cathartic event that signaled the bottom of the crisis and the recovery of markets. They were wrong literally at least six times in a row as the crisis — as I have consistently predicted over the last year — became worse and worse. So enough of the excessive optimism that has been proved wrong at least six times in the last eight months alone.

A reality check is needed to assess risks — and to take appropriate action. And reality tells us that we barely avoided, only a week ago, a total systemic financial meltdown; that the policy actions are now finally more aggressive and systematic, and more appropriate; that it will take a long while for interbank and credit markets to mend; that further important policy actions are needed to avoid the meltdown and an even more severe recession; that central banks, instead of being the lenders of last resort, will be, for now, the lenders of first and only resort; that even if we avoid a meltdown, we will experience a severe U.S., advanced economy and, most likely, global recession, the worst in decades; that we are in the middle of a severe global financial and banking crisis, the worst since the Great Depression; and that the flow of macro, earnings and financial news will significantly surprise (as during the last few weeks) on the downside with significant further risks to financial markets.

Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics, is a weekly columnist for Forbes.com, from whence this article was stolen.


Deep recession inevitable, Depression possible
WASHINGTON (Reuters) November 13,2008
from George Soros' testimony at a House Oversight & Government Reform Committee hearing on Thursday. George Soros is chairman of Soros Fund Management.

Highlights:

* Said "a deep recession is now inevitable and the possibility of a depression cannot be ruled out."

...said hedge funds were an integral part of the financial market bubble which now has burst.

...said hedge funds will be "decimated" by the current financial crisis and forced to shrink their portfolios by 50-75 percent.

...said Fed, Treasury Department and the SEC must accept responsibility to prevent market bubbles from growing too big in future.

...said impossible to prevent market bubbles from forming, but they can be kept within "tolerable bounds."

...said financial engineering should be regulated and new products approved by regulators, and that such regulation should be a high priority of the new Obama administration.

...said a recent IMF credit facility not large enough to stabilize markets.

Mini Depression & Maximum-Strength Remedy

from my favorite economist, Robert Reich, former Sect. of Labor during the Clinton Administration

This is not the Great Depression of the 1930s, but nor is it turning out to be merely a bad recession of the kind we've experienced periodically over the last half century. Call it a Mini Depression. The employment report last Friday shows job losses accelerating, along with the number of Americans working part time who'd rather be and need to be working full time. Retail sales have fallen off a cliff. Stock prices continue to drop. General Motors is on the brink of bankruptcy. The rate of home foreclosures is mounting.

When Barack Obama takes office in January, he will inherit a mess. (Because I'm an informal economic adviser, I should remind anyone who reads this blog that it reflects only my thoughts and therefore should not be attributed to him or to anyone else advising him.) What to do?

First, understand that the main problem right now is not the supply of credit. Yes, Wall Street is paralyzed at the moment because the bursting of the housing and other asset bubbles means that lenders are fearful that creditors won't repay loans. But even if credit were flowing, those loans wouldn't save jobs. Businesses want to borrow now only to remain solvent and keep their creditors at bay. If they fail to do so, and creditors push them into reorganization under bankruptcy, they'll cut their payrolls, to be sure. But they're already cutting their payrolls. It's far from clear they'd cut more jobs under bankruptcy reorganization than they're already cutting under pressure to avoid bankruptcy and remain solvent.

This means bailing out Wall Street or the auto industry or the insurance industry or the housing industry may at most help satisfy creditors for a time and put off the day of reckoning, but industry bailouts won't reverse the downward cycle of job losses.

The real problem is on the demand side of the economy.

Consumers won't or can't borrow because they're at the end of their ropes. Their incomes are dropping (one of the most sobering statistics in Friday's jobs report was the continued erosion of real median earnings), they're deeply in debt, and they're afraid of losing their jobs.

Introductory economic courses explain that aggregate demand is made up of four things, expressed as C+I+G+exports. C is consumers. Consumers are cutting back on everything other than necessities. Because their spending accounts for 70 percent of the nation's economic activity and is the flywheel for the rest of the economy, the precipitous drop in consumer spending is causing the rest of the economy to shut down.

I is investment. Absent consumer spending, businesses are not going to invest.

Exports won't help much because the of the rest of the world is sliding into deep recession, too. (And as foreigners -- as well as Americans -- put their savings in dollars for safe keeping, the value of the dollar will likely continue to rise relative to other currencies. That, in turn, makes everything we might sell to the rest of the world more expensive.)

That leaves G, which, of course, is government. Government is the spender of last resort. Government spending lifted America out of the Great Depression. It may be the only instrument we have for lifting America out of the Mini Depression. Even Fed Chair Ben Bernanke is now calling for a sizable government stimulus. He knows that monetary policy won't work if there's inadequate demand.

So the crucial questions become (1) how much will the government have to spend to get the economy back on track? and (2) what sort of spending will have the biggest impact on jobs and incomes?

The answer to the first question is "a lot." Given the magnitude of the mess and the amount of underutilized capacity in the economy-- people who are or will soon be unemployed, those who are underemployed, factories shuttered, offices empty, trucks and containers idled -- government may have to spend $600 or $700 billion next year to reverse the downward cycle we're in.

The answer to the second question is mostly "infrastructure" -- repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy, more energy conservation. Even conservative economists like Harvard's Martin Feldstein are calling for government to stimulate the economy through infrastructure spending. Infrastructure projects like these pack a double-whammy: they create lots of jobs, and they make the economy work better in the future. (Important qualification: To do this correctly and avoid pork, the federal government will need to have a capital budget that lists infrastructure projects in order of priority of public need.)

Government should also spend on health care and child care. These expenditures are also double whammies: they, too, create lots of jobs, and they fulfill vital public needs.

Expect two sorts of arguments against this. The first will come from fiscal hawks who claim that the government is already spending way too much. Even without a new stimulus package, next year's budget deficit could run over a trillion dollars, given the amounts to be spent bailing out Wall Street and perhaps the auto industry, and providing extended unemployment insurance and other measures to help those in direct need. The hawks will argue that the nation can't afford giant deficits, especially when baby boomers are only a few years away from retiring and claiming Social Security and Medicare.

They're wrong. Government spending that puts people back to work and invests in the future productivity of the nation is exactly what the economy needs right now. Deficit numbers themselves have no significance. The pertinent issue is how much underutilized capacity exists in the economy. When there's lots of idle capacity, deficit spending is entirely appropriate, as John Maynard Keynes taught us. Moving the economy to fuller capacity will of itself shrink future deficits.

The second argument will come from conservative supply-siders who will call for income-tax cuts rather than spending increases. They'll claim that individuals with more money in their pockets will get the economy moving again more readily than can government. They're wrong, for three reasons. First, income-tax cuts go mainly to upper-income people who tend to save rather than spend. Most Americans pay more in payroll taxes than in income taxes. Second, even if a rebate could be fashioned, people tend to use those extra dollars to pay off their debts rather than buy new goods and services, as we witnessed a few months ago when the government sent out rebate checks. Third, even when individuals purchase goods and services, those purchases tend not to generate as many American jobs as government spending on the same total scale because much of what consumers buy comes from abroad.

Fiscal hawks and conservative supply siders notwithstanding, a major stimulus is in order. Government is the spender of last resort, and the nation is coming close to its last resort.

The Mini Depression and the Maximum-Strength Remedy

This is not the Great Depression of the 1930s, but nor is it turning out to be merely a bad recession of the kind we've experienced periodically over the last half century. Call it a Mini Depression. The employment report last Friday shows job losses accelerating, along with the number of Americans working part time who'd rather be and need to be working full time. Retail sales have fallen off a cliff. Stock prices continue to drop. General Motors is on the brink of bankruptcy. The rate of home foreclosures is mounting.

When Barack Obama takes office in January, he will inherit a mess. (Because I'm an informal economic adviser, I should remind anyone who reads this blog that it reflects only my thoughts and therefore should not be attributed to him or to anyone else advising him.) What to do?

First, understand that the main problem right now is not the supply of credit. Yes, Wall Street is paralyzed at the moment because the bursting of the housing and other asset bubbles means that lenders are fearful that creditors won't repay loans. But even if credit were flowing, those loans wouldn't save jobs. Businesses want to borrow now only to remain solvent and keep their creditors at bay. If they fail to do so, and creditors push them into reorganization under bankruptcy, they'll cut their payrolls, to be sure. But they're already cutting their payrolls. It's far from clear they'd cut more jobs under bankruptcy reorganization than they're already cutting under pressure to avoid bankruptcy and remain solvent.

This means bailing out Wall Street or the auto industry or the insurance industry or the housing industry may at most help satisfy creditors for a time and put off the day of reckoning, but industry bailouts won't reverse the downward cycle of job losses.

The real problem is on the demand side of the economy.

Consumers won't or can't borrow because they're at the end of their ropes. Their incomes are dropping (one of the most sobering statistics in Friday's jobs report was the continued erosion of real median earnings), they're deeply in debt, and they're afraid of losing their jobs.

Introductory economic courses explain that aggregate demand is made up of four things, expressed as C+I+G+exports. C is consumers. Consumers are cutting back on everything other than necessities. Because their spending accounts for 70 percent of the nation's economic activity and is the flywheel for the rest of the economy, the precipitous drop in consumer spending is causing the rest of the economy to shut down.

I is investment. Absent consumer spending, businesses are not going to invest.

Exports won't help much because the of the rest of the world is sliding into deep recession, too. (And as foreigners -- as well as Americans -- put their savings in dollars for safe keeping, the value of the dollar will likely continue to rise relative to other currencies. That, in turn, makes everything we might sell to the rest of the world more expensive.)

That leaves G, which, of course, is government. Government is the spender of last resort. Government spending lifted America out of the Great Depression. It may be the only instrument we have for lifting America out of the Mini Depression. Even Fed Chair Ben Bernanke is now calling for a sizable government stimulus. He knows that monetary policy won't work if there's inadequate demand.

So the crucial questions become (1) how much will the government have to spend to get the economy back on track? and (2) what sort of spending will have the biggest impact on jobs and incomes?

The answer to the first question is "a lot." Given the magnitude of the mess and the amount of underutilized capacity in the economy-- people who are or will soon be unemployed, those who are underemployed, factories shuttered, offices empty, trucks and containers idled -- government may have to spend $600 or $700 billion next year to reverse the downward cycle we're in.

The answer to the second question is mostly "infrastructure" -- repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy, more energy conservation. Even conservative economists like Harvard's Martin Feldstein are calling for government to stimulate the economy through infrastructure spending. Infrastructure projects like these pack a double-whammy: they create lots of jobs, and they make the economy work better in the future. (Important qualification: To do this correctly and avoid pork, the federal government will need to have a capital budget that lists infrastructure projects in order of priority of public need.)

Government should also spend on health care and child care. These expenditures are also double whammies: they, too, create lots of jobs, and they fulfill vital public needs.

Expect two sorts of arguments against this. The first will come from fiscal hawks who claim that the government is already spending way too much. Even without a new stimulus package, next year's budget deficit could run over a trillion dollars, given the amounts to be spent bailing out Wall Street and perhaps the auto industry, and providing extended unemployment insurance and other measures to help those in direct need. The hawks will argue that the nation can't afford giant deficits, especially when baby boomers are only a few years away from retiring and claiming Social Security and Medicare.

They're wrong. Government spending that puts people back to work and invests in the future productivity of the nation is exactly what the economy needs right now. Deficit numbers themselves have no significance. The pertinent issue is how much underutilized capacity exists in the economy. When there's lots of idle capacity, deficit spending is entirely appropriate, as John Maynard Keynes taught us. Moving the economy to fuller capacity will of itself shrink future deficits.

The second argument will come from conservative supply-siders who will call for income-tax cuts rather than spending increases. They'll claim that individuals with more money in their pockets will get the economy moving again more readily than can government. They're wrong, for three reasons. First, income-tax cuts go mainly to upper-income people who tend to save rather than spend. Most Americans pay more in payroll taxes than in income taxes. Second, even if a rebate could be fashioned, people tend to use those extra dollars to pay off their debts rather than buy new goods and services, as we witnessed a few months ago when the government sent out rebate checks. Third, even when individuals purchase goods and services, those purchases tend not to generate as many American jobs as government spending on the same total scale because much of what consumers buy comes from abroad.

Fiscal hawks and conservative supply siders notwithstanding, a major stimulus is in order. Government is the spender of last resort, and the nation is coming close to its last resort.

Obamacons go off the tracks

Obama Win Causes Obsessive Supporters To Realize How Empty Their Lives Are

What now?

It’s so critical that the House and the Senate work with rather than against the new Obama Administration.
We don’t have a filibuster proof majority in the Senate, nor do we have a Republican-style, lock-step House. The Repugnicans used the filibuster more in the last two years than any other time in American history.
They’ll use the filibuster even more in the next two years.

Leadership must come from the people, clearly stated to our President and to our Representatives in Congress regarding the most important issues that need to be addressed.


Already the ‘mainstream media’ is claiming there’s not enough money to actually address any of the critical issues we’re facing.


Already the ‘mainstream’ media is setting up a meme to force the President-Elect to distance himself from the ‘extreme left-wing bloggers’ who helped build this amazing and beautiful coalition of America loving patriots.


Write your representatives, write your newspapers, write to the blogs you read to demand that ‘America Can’ end our dependence on irrational imports like centralized energy systems such as oil...
....that ‘America Can’ end our health care crisis with a single payer system....
....that ‘America Can’ end ignorance by reinvesting in our schools....
....that ‘America Can’ create a new local, state and national public transportation system....
....that ‘America Can’ end voter suppression ....
....that ‘America Can’ rebuild our cities and our infrastructure....
....that ‘America Can’ rebuild our economy by going green and by going local....
....that ‘America Can’ protect our food security by going green and by going local....
....that ‘America Can’ end our meddling in the affairs of foreign governments....
....that ‘America Can’!

Don't just hope. VOTE!

FIRE IT UP!!!