Monday, July 11, 2011

Where I Stand

The Republican party, its leadership, and its governing philosophy have run amok. Their politics are fear based. First it was the War on Terror. Now it is Big Government with its assault on Liberty and Economic Survival. There is no vision of what the future should look like. They are against many things, and for nothing much except lower taxes and smaller government.

There has been not a word of self criticism, reflection, or apology for the ruin their efficient market/low regulation/self correcting market philosophy has caused. The level of control fraud that pervaded Wall Street during the housing boom is difficult to imagine. The Pimco/Blackrock,NYFed $8.5billion settlement with BOA is the tiny tip of the iceberg: Up to 60% of the mortgages in these 530 trust files did not meet the reps and warranties. And guess where the discount on the mortgage purchase prices went - to investors? Of course not. To the control fraud managers. And why in 2004 did the entire mortgage securitization chain (investment banks, banks, trust banks, law firms) stop following their own PSAs' for the trusts so that no one really knows who owns much of anything anymore, and the foreclosure and housing markets are backed up, because the notes and the properly endorsed mortgages are simply not there, where the Trustee Banks have every year certified that they were. I have a VP friend in a major servicer who told me they stopped sending the original notes to the trusts a long time ago. Not a word about this from Republicans. And all they could do in the final FCIC report is blame Fannie and Freddy and disassociate themselves from the overall and excellent report from the Commission. 

Republicans care not a whit about the income inequality that has grown so strongly in the past 30 years. Ryan's budget, which the President properly called "neither courageous nor serious" simply ends Medicare as a defined benefit program, and converts it to a defined contribution program, where the premium support will grow well below the rate of medical cost inflation. We can't control costs of healthcare says Ryan, so let's not try. Let's shift the costs to Seniors. Petersen and Walker have been very effective in terrifying everybody about unfunded entitlements that we cannot afford, so we had better go ahead and shred the social safety net.

In addition to fear, the Party operates out of Myths - Big Ones that are absolutely impermeable to facts. I'll just mention four: the Bond Vigilantes Who Will Any Day Now Trash the Bond Markets Because of Inflation; the Confidence Fairy (without whose presence businesses will not invest); the Expand by Contracting Myth (the way to grow is to cut government spending) and the Myth of Sovereign US Default (either when China gets tired of holding US Treasuries or when the massive unfunded entitlement liabilities swamp our poor grandchildren's ability to pay). I will take each of these on in detail in blog entries, but, for now, a few facts:

*Inflation arises when demand bumps up against resource constraints. We are so far away from that scenario that it is hard to measure the distance. Oil, food and other commodity prices may jump, but core inflation will not any time soon. How can it when housing prices have not yet hit bottom, and true unemployment is 15-20%? Be happy to bet with you re 10 year Treasury price ranges over the next 3 years.

* If we continue to run a current account deficit in trade, and the consumer (unlike during the housing boom) wants to keep saving, we will have significant deficits, and we must by national accounting identity, not by my political choosing (Looking at Sectoral Balances, if the Private Sector is Saving, and the Net Export Sector is in deficit, the Government Sector must be in deficit, by accounting/mathematical identity.)

*Deficits are not inflationary, unless the economy is at full capacity. Look at Japan: 20 years of mostly deficits, near zero interest rates, no inflation, and Debt/GDP over 200%. No sign of Inflation nor Sovereign Default. Nor will there be.

*The Confidence Fairy does not cause businesses to invest. Demand for the products business makes and sells stimulates investment. Republican economics seems to leave Demand out of the equation, no matter which economic issue we are looking at.

*Expanding by Contraction - utter hogwash, and a subset of the Confidence Fairy crap. We expand when demand goes up. The tortuous logic that the Expansion/Contraction folks have cooked up is ridiculous on its face: When Government spends, the Private players, for fear of future taxes that are coming to pay for this spending, withdraw an equivalent amount of money from the market, so demand does not move. When Government contracts, the opposite happens, and demand goes up. Bull crap. Take a look at England. How's that contraction stuff helping to boost the economy? And Greece, Portugal, Ireland, even Spain. Contracting causes contraction. Thinking the opposite is dreamwork.

* Sovereign default is not in the cards for the US, with its own fiat currency. We will never run out of money. And yes, I can counter the Weimar hyperinflation story too. Sovereign nations, especially one whose currency is the reserve currency of the world, will not default.

Keeping us, without research or facts, stuck in these Myths, keeps us in fear, and we cannot chart a course forward. These are all Republican myths. They work to keep a fair portion  of the country in thrall.

I have concluded that the Republican Party and its leadership are corrupt - their interest is no longer the general welfare of the country; their loyalty is to the business elite, the wealthy, and their own political power.


  1. Bravo! So well-stated. The disasters of Republican policies are hitting us hard, continuing them can only make it worse. The corruption and lack of consideration for their fellow man is beyond description at this point. There is no conscience involved. At a writer's lunch today there was a discussion of pathological narcissism. It is clearly rampant among politicians who have the gall to look people in the face and tell bald-faced lies with no regret whatsoever. It is one of the telling symptoms of mental disease. And these are the people who are trying to run away with our country!

  2. Extraordinary and excellent analysis of a confusing and ugly situation. Thank you, Jim. We choose our poison these days without much fear of the consequences and these poisons have dangerous consequences.

    This didn't start with politics. For the past 30 years, we have narrowed our view in business to the next Board of Directors meeting, the next quarterly report, the next Annual Report. We have loaded cash onto CEOs without regard to their competence, laid off the sensible established employees who don't swallow the MBA double-think and set up our business community to fail. And fail it has done! Why? Because there is such a narrow view of the world where business operates.

    Now, expand that thinking to the political realm, where it has become established in the GOP. The method is 1)eliminate the source of the problem rather than the cause of the problem; 2)Focus on negatives rather than building positives; 3)Look for the quickest route to "winning" the next vote or the next election, without regard to the consequences of following that route.

    It is a bumpy road they follow and we cannot smooth it for them. So let's just vote and remove their power until they get the message!