on bigness and reform

"The continuing survival of classical (economic) beliefs protects business autonomy and its income and serve to obscure the economic power exercised as a matter of course by the modern enterprise by declaring that all power rests, in fact, with the market." -- John Kenneth Galbraith

Michael Sandel is a professor at Harvard, who is distinguished in the last few years for one reason; he's written on the history of American liberalism, particularly its economic roots, from an American perspective. In a new piece, he points-out how until a few decades ago, American politicians weren't so deferential to concentrated economic power. To which one can only reply, "Who would have thought?" Today, it seems groveling to concentrated economic power is a prerequisite for elected office. Nonetheless, Sandel shows how it was in the American tradition for both parties to not simply be suspicious of concentrated economic power, but actively hostile. But after WWII, this changed. The reasons for this were plenty, but an essential one was European Bismarkianism slipped into American politics, and centralized economic power became a way to provide general welfare through a centralized state.

In liberal or progressive circles, the replacement of American economic egalitarianism with Bismarkian welfarism became so total as to rarely be debated. Today, there is certainly no organized political force promoting American economic egalitarianism. In fact, it's so off the radar, after writing a nice piece about the importance of confronting concentrated economic power in American history, Sandel throws-in his lot with the Bismarkians concluding,

Social-welfare liberalism seems a more practical doctrine than the anti-bigness version of earlier progressives. It is hard to imagine how to break up the large financial institutions and corporations that dominate modern economic life.

I find this dumbfounding. Contrary to Sandel's notion of finding it hard to imagine, it is more accurately a critical lack of imagination, at a time when a continued dearth of imagination will sink us. Concentrated economic power is what is failing America. It is in fact anti-American -- anti-democratic-republican. We need to begin reviving the American system by breaking up power. You don't even need an imagination, the break-up of AT&T in the early 1980s created more economic vitality, allowing the Internet to flourish, than any other government act of the past three-decades. Even more exciting is the Internet has shown new avenues for creating distributed network order, that is, ways to start thinking about 21st century democracy and revitalizing the distributed American system, with power distributed in the states, counties, local governments, associations, and the citizen. Real reform in America starts with the breaking-up of failed power, more than imagination it requires political will and courage.

Broken Politics, Bubble Pricing, Environment, and Agriculture

Shed your fears and lose your guilt
Tonight we burn responsibility in the fire
We'll watch the flames grow higher

As I was standing by the edge
I could see the faces of those who led pissing theirselves laughing
Their mad eyes bulged and their flushed faces said,
"The weak get crushed and the strong grow stronger."
In the funeral pyre, we'll watch the flames grow higher
-- Paul Weller

However effective you think "markets" are at pricing, one thing you can say is bubbles completely distort pricing mechanisms to the point of being valueless. When you add into that a corrupt political process using government to further distort costs, you get a system that is completely dysfunctional and incapable of meeting the challenges of the times. Here's two good examples. The first is a piece in the Post about the establishment environmental groups lamenting the fate of climate legislation in DC. Any legislation to increase fossil fuels price was doomed with the financial crisis and resulting economic slowdown, though in return, the slowing economy gave you the greatest reduction in fossil fuel use in 30 years, certainly much greater than any proposed legislation at this point. Much, certainly not all, of the established environmental movement has propagated the notion that the mechanisms, culture, and practices that led us to environmental breakdown are going to be the same ones offering solutions. Let's look at one, the idea that a broken politics, without first being repaired, can get us needed change. The Post has a piece with one of the most ludicrous quotes I've seen in 30 years following politics:

"The oil industry has tremendous reach and control in the United States Senate," said David Di Martino, a spokesman for Clean Energy Works, a coalition of more than 60 groups that includes big names such as the Sierra Club, the Natural Resources Defense Council and the Environmental Defense Fund. "Our mistake was miscalculating . . . how far into the Senate it went."

Miscalculating? Really? The oil industry has power in DC? Don't misunderstand, this kind of political thinking is rampant in environmental circles. Many think they don't need to educate the public and can just pull the levers of a broken system. Try to get money from the big non-profit funders for public education on taxing oil. You can start with Pew founded by Sun Oil, then go to the Rockefeller Foundation, or if both of them don't work try the Ford Foundation. There's few funders who believe in public education, after all its expensive, and well, who wants to deal with the great unwashed. And don't worry, they won't react when the price of energy goes up, Al Gore has told them the world's ending.

Anyway, right now on energy there's two viable things to push, money for renewables and efficiency/conservation.

The environmental movement is simply about looking at the human impact on natural resources and natural systems. Energy of course is fundamental, but even more so is food, you can go without energy a lot longer than without food. Now, there's been a growing number of stories about potash(potassium) appearing in the news, since BHP is attempting to take over one of the world's largest producers. Mined potash is a necessary element to modern agriculture practices. Limited increasingly by area, that is Canada and Russia dwarf all other known reserves, the price of potash, like many other agriculture commodities went through a massive price spike before the financial crisis. Here's an interesting BBC discussion on the entire global agriculture issue(tx zerohedge). Pay attention to Hugh Hendry's quote near the end. He states,

"For thirty-years, the price of agriculture has collapsed, fallen 90% in real terms. So, we haven't invested in this sector. As a society, as a world society we acutely vulnerable to the business of feeding ourselves."

Agriculture prices have been falling for a couple hundred years. Modern agriculture practices developed in the last hundred years are totally tied to fossil fuels, and no doubt, the last three decades precipitous fall is also tied to the preceding great rise in commodity prices caused by the oil crisis of the 1970s. But Mr. Hendry's point is well taken, we haven't invested in agriculture, in large part because our bubble financial system of the past quarter-century has not accurately priced its importance. If you want to bet which of the great environmental threats will be the first to bite us, I'd put money on our completely unsustainable agriculture practices.

The most important point of both these stories is what got us here isn't going to get us out.

Detroit as Leader

Stuggle after struggle, year after year
To cut down on beer or the kids' new gear
It's a big decision in a town called Malice
-- The Jam(Motown via Woking)

One could make a good case Detroit led America through the 20th century, for one reason alone, it was the center of the automobile, and nothing transformed American society more than the automobile. You could also add in the 30's organized labor came into full bloom in Detroit, while in the 1960s Motown molded American culture, and let's not forget the Stooges documenting the beginning of the decline in the early 70s. Detroit's influence has been paramount. In the last several decades, Detroit led the US in dismantling our industrial infrastructure and the resulting depopulation. The once densely populated city now has 50,000 "surplus" parcels of land. Detroit's a strange place to drive through today, but it's not alone. It represents cities and towns across the old industrial "Rust Belt" and the Midwest.

Now, maybe Detroit's going to lead in reviving America's political economy? Former NBA star Dave Bing has taken office, he averaged 20.3 points a game which is pretty darn good, though he's going to have even better numbers to get Detroit moving. In a recent article in the WSJ, he said the most refreshing thing I've heard an American politician say in decades, he didn't know exactly what he was going to do and he was turning to the people of Detroit. The article states,

One thing Mayor Dave Bing wants every Detroiter to know about his plan to reconfigure this shrinking city: There is no plan yet. But Mr. Bing is also determined to make clear to people that the city will have to change dramatically, from how it uses land to how it attracts business and jobs.

A team of Bing advisers will fan out to hear Detroiters talk about their neighborhoods and also lay out the city's case for restructuring, but Mayor Bing himself will be the face of this effort. The point, he says, is to make sure the public is aware of the profound problems the city faces, and actively engaged in the search for solutions.

"You have to get down into the bowels of city government to understand really where your problems are," Mr. Bing said in an interview last week, "and it starts with people."

Well, that's right thinking toward a good start and in great contrast to Mr. Krugman in the NYT, who grows more shrill every day, "Do something! Anything!" This problem didn't suddenly occur overnight, nor will it be fixed overnight. Over the decades, as America put itself into its current economic predicament, you'd be hard pressed to find Mr. Krugman and others of his ilk doing anything but cheer leading the car over the cliff. I guess the "geographic advantages" Detroit enjoyed in the early and mid-20th centuries became disadvantageous by the end? Which brings up the old joke,

Q. How can you tell when a Nobel Prize winning economist doesn't know what he's talking about?

A. When his lips are moving.

It brings the house down in Detroit.

American Paradox

I'm ready and hyped plus I'm amped
Most of my heroes don't appear on no stamps
Sample a look back you look and find
Nothing but rednecks for 400 years if you check
Our freedom of speech is freedom or death
We got to fight the powers that be
Lemme hear you say
Fight the power
- Public Enemy

To truly appreciate America, you have to understand its paradoxes. They are great. The first modern republic birthed in the original sin of slavery. A nation of immigrants that destroyed the native population, and time after time worries about the next wave of immigrants. The history of immigrant bashing is old as the republic, always coinciding with economic downturns. The Know-Nothings of the 1850s worried about the first great mass of German and Irish immigration, and of course the protestant nation worrying about papism. There were the Japanese interments of WWII. More recently, in order to get reelected governor of California in 1994, Pete Wilson embraced the anti-immigrant, anti-Mexican Prop 187. He won, but destroyed the Republican party in California. And of course we have the most recent idiocy in Arizona. A nation of immigrants, which every once in awhile tries to close the door, that's paradox.

If you understand this trait in the American psyche, while it doesn't make it anymore palatable to watch the latest manifestation, it does give you some helpful context. Especially if you keep in mind that over time, America has been as successful, more so than most, using the principles and practices of this republic's founding, to mix the nationalities of Europe and more fitfully other peoples from across the planet into a relatively healthy concoction. After two-hundred years, there is little discrimination based on European nationality. The great black underclass, many still struggling for economic and cultural equality, fifty years ago stood up and claimed their full rights as citizens, a revolution that shook the entire society atop it. Even Native Americans have finally gained a little retribution with the casino industry. So, today as we struggle to incorporate new immigrants, some from Mexico, an old and continuing struggle, many more recently from Southwest Asia and the Middle East, we can draw some understanding, though not acceptance, from America's great paradoxical history.

However, the recent anti-immigrant wave is developing in a new economic environment, one that is very different from much of the past. The United States from its beginning enjoyed a massive cornucopia of land and natural resources. It developed into the world's foremost industrial power, and after WWII was far and away the planet's strongest economy. But in the last several decades, there has been a great change. The financial system with the assistance of much of the American political class, began dismantling the American industrial sector and shipping it over seas. Now, the relationship of the financial sector to the rest of the America has always had some problems, but over the last three decades, their interests have diverged to the point of outright hostility. It was Wall Street after all who profited on both sides, financing the dismantling of American industry and rebuilding it across the planet. It was also Wall Street who profited most by the resulting stagnation in American wages, replacing good paying jobs with debt.

It's time to end much of the corporate globalization experiment. There's many reasons for this, and I'll throw out that energy and environmental reasons are amongst the largest. We need to reform our economy from the ground up, and that importantly means reincorporating into the economy the advantages of locality. We need to start raising tariffs. We should start with imported oil, that would be a good signal to rest of the world of the seriousness of our intentions for reforming the American economy. Of course, no attempt at reforming the American economy can be started without first reforming American politics. Finance owns our political class. They have aided and abetted the dismantling of the economy. Remember in 1992 when Ross Perot talked(I can't more highly recommend watching Ross here) about that giant sucking sound from south of the border, he was right in hearing, though wrong in direction. That sucking sound was coming out of DC. If you hear a DC elected official advocate "free-trade", immediately vote them out.

Give us your tired, your poor, and your huddled masses yearning to breathe free, but keep your cheap goods. The country that started the corporate globalization experiment needs to end it -- another paradox.

Fun Fact and Reform

Why Courage Matters: The Way to a Braver Live --
Title of book by John McCain

Ok, pointing out hypocrisy in elected officials is shooting fish in a barrel, there's not much sport in it. But this is a good one. Senator John McCain has made a lot of noise about money in politics, though never spent much time talking about what it actually buys. The Senator was worried about reelection this year, so he opened the money spigots. Now, you may have heard a lot about the billionaire Meg Whitman trying to buy the California governorship. People have made a lot of the fact she spent $80 million in the primary, which divided by the number of votes she received equals about $74 a vote. But she's got nothing on the Senator from Arizona, as of August 4th, the Senator spent $25 million on his reelection bid and received 275,000 votes, which is about $90 a vote. That takes some effort, time for McCain/Feingold II no doubt.

In a related note, the political class of this country likes to tell itself a lot of things in an effort to reassure themselves. The most recent has been the political environment isn't really that volatile, allowing the Democratic arm of the political class to tell itself things will be OK in November. However, at this point there's nothing at all to signal the Democrats will not get their butts kicked from the redwood forests to the gulf stream waters, except, for the one point in their advantage that's remained constant, the unpopularity of the Republicans.

Elections take place in a larger political environment and the American political environment can be described as a vacuum encased in tremendous anger. After ruling the country for three decades, the Republicans are a spent political force. The Democrats, having taken power with the American people's exhaustion with Republican rule, have shown they too remain impotent. The only political life of any substance is the Tea Partyers, but it's diffuse, unorganized, and ill-defined. One certainly can't gain a handle on what they're about by reading the New York Times or watching Fox News, the sanctioned opposite ends of political establishment's media spectrum.

But, this gets to a more fundamental point. Without an informed, educated, organized, and participatory movement, there will be no reform in this country, only ever-growing reactionary-ism. Such movements are not common through history, but they are the only way to reform. In Lawrence Goodwyn's introduction to The Populist Moment he writes:

The sober fact is that movements of mass democratic protest -- that is to say, coordinated insurgent actions by hundreds of thousands or millions of people -- represent a political, an organizational, and above all, a cultural achievement of the first magnitude. Beyond this, mass protest requires a high order not only of cultural education and tactical achievement, it requires a high order of sequential achievement....The simple fact of the matter is that so difficult has the process of movement-building proven to be since the onset of industrialization in the western world that all democratic protest movements have been aborted or limited in this manner prior to the recruitment of their full natural constituency. The underlying social reality is, therefore, one that is not generally kept firmly in mind as an operative dynamic of modern society -- namely, that mass democratic movements are overarchingly difficult for human beings to generate.

Nonetheless, that's where we are, that is what's needed.

Money, oil, and reform

Money is certainly an interesting phenomenon. It has never had a very good relation to the actual real economy -- the production and consumption of physical goods -- nonetheless it is essential for the economy to operate. When Jimmy Stewart asks his guardian angel in "It's a Wonderful Life", if he has any money, the angel chortles, "We don't need money in heaven." Mr. Stewart, just rescued from a suicide attempt instigated by bankruptcy, indignantly replies, "Well, it sure comes in handy down here Bub!" And so it does, but that doesn't stop money from being a rather queer phenomenon.

I just finished reading an excellent history on Spain in the early 17th century. Spain was in decline, the economy no longer sustainable, but it still had twice a year shipments of silver from New Spain -- Mexico and Peru. The Spaniards could rely on the shipments of silver so they could continue their military misadventures and sustain the parasitic lifestyles of the aristocracy, who by this point had pretty much destroyed the Spanish economy. The book, Count-Duke Olivares: The Statesman in an Age of Decline states, "Seventeenth-century Castile was a rentier society, with people at many social levels drawing a substantial portion of their income from rentas, in the form of annuities on state bonds and individual or corporate bonds." Sound familiar? As the real Spanish economy declined, the annual boatloads of silver from New Spain became increasingly essential to propping-up the rentier economy, even though the silver itself provided no real wealth to the economy. Sort of like our financial system and unfortunately our entire economy, without the Fed dumping boatloads of money into the system at this point, the whole thing would collapse. But, make no mistake, this continued dumping of money distorts the real economy.

An unhealthy financial system becomes increasingly useless as a measure for the real economy. One must increasingly look to real goods, particularly to natural resources, and I'm not referring to the valueless metals gold and silver, to measure the true health of the economy. For modernity, there is one resource far more valuable than all the others -- oil. It is not coincidental that you can trace the beginning of the transformation of the American economy from one of physical production to rentier at approximately the time domestic American oil production peaked in 1970, followed closely by the oil shocks of the 1970s. The American economy was irrevocably changed.

Cheap oil, not money, be it the dollar, yuan, yen or euro, is the foundation of modern life. The most astounding fact of recent American life is how for three decades, we've done everything we can to avoid the issue, thus increasingly harming the American and the entire global economy. Paul Schwartz of The Council of Foreign Relations has a good post(tx jesse) on the oil numbers and China, simply, they don't work. For years, I've been using the simple fact that if three-quarters of the Chinese used oil on the same per capita basis as Americans, and Americans continued doing the same, there would be no oil for anyone else -- no one! The nut of Mr. Schwartz piece is,

If China’s recent economic growth pace continues, it will surpass South Korea’s current per capita GDP shortly after 2020 – meaning that the world may be forced onto alternative energy sources much sooner than it realizes.

No may be about it, though it is for this exact reason Chinese per capita economic growth rate will not be able to continue its pace, call it the Oil Yoke. As soon as global economic growth reaches a certain rate, the price of oil is going to choke it right back down. This gives truth to the biggest lie of corporate globalization, that the world could live like Americans, well not even Americans can live like Americans anymore. But that's OK, we can live better, but it in the short-run certainly doesn't help the Chinese, whose centrally controlled economy went full force in building a cheap oil infrastructure, only to belatedly find out cheap oil doesn't exist anymore.

When we talk about reform, whether it's financial, political, or industrial, it all starts at one place, with energy. America has reached peak-energy consumption, and no amount of money the Fed pumps in the system is going to change that. We have both the necessity and tremendous opportunity to restructure the American economy based on renewable energy sources and even more imperative, design it to use a lot less energy than we use today. We have both the knowledge and capability, we lack the will. Having reached peak energy consumption, creating an economy based on renewables and design efficiency will not be adding new wealth, but distributing existing wealth, and that is going to require hardheaded political and financial reform. We could do a lot worse than starting by tying money to energy.

Shock Doctrine and the $

Foreman was a panic about to go in the insane
Trying to get the workers out the way of the train
Engineer blowing the whistle long and long
Can't stop the train had to let it roll on
-- Let It Rock, Professor Chuck Berry of St. Louis, Mo

A couple years ago, Naomi Klein wrote a book called, The Shock Doctrine. Basically, she documented the global pattern of the last few decades where a nation hit with a crisis -- natural, financial, political -- would become open game for Randian, Friedmanite, University of Chicago sociopaths, who would insist on fire sales for public assets, placing the society further under the control of mega-corporations and the local looting class. Asia, Russia, South America, and Africa the paradigm and documentation was distressing. Today's Wall Street Journal article on the fire sale of local government assets across the US demonstrates the Shock Doctrine remains alive and well, while the dominant economic doctrine of the past three decades, the worship of sociopaths, remains firmly entrenched.

The Journal's story begins:

Cities and states across the nation are selling and leasing everything from airports to zoos—a fire sale that could help plug budget holes now but worsen their financial woes over the long run.

California is looking to shed state office buildings. Milwaukee has proposed selling its water supply; in Chicago and New Haven, Conn., it's parking meters. In Louisiana and Georgia, airports are up for grabs.

About 35 deals now are in the pipeline in the U.S., according to research by Royal Bank of Scotland's RBS Global Banking & Markets. Those assets have a market value of about $45 billion—more than ten times the $4 billion or so two years ago, estimates Dana Levenson, head of infrastructure banking at RBS. Hundreds more deals are being considered, analysts say.

Let's not forget who is in the middle of all these deals -- Wall Street. Here you have a list drawn-up by the Royal Bank of Scotland, one of the biggest pigs in the pen, recipient of one of the largest bailouts in history, now listing US public assets on the block for cheap. Follow the whole story-line folks. Wall Street, with a great deal of criminal fraud, tanks the US and global economy, gets bailed out by your tax dollars, and continues to survive largely through Fed cheap money and other public subsidies. Instead of anyone going to jail, they go on a shopping-spree, using your money, buying your public assets made cheap by the economic collapse they engineered. There you go folks, that is the US economy 2010. If you can tell me how its any different than Mob activity, aside no one goes to jail and it's much much more lucrative, let me know. Don't forget, all this is aided and abetted by YOUR elected officials.

In one of the better notes of our public officials' culpability, a must watch interview(tx zerohedge) with former Fed Governor Fred Mishkin, who was paid $124,000 to write a paper on how Iceland was the picture of financial stability a year before the whole thing crashed -- good work if you can get it.

Finally, Doug Noland has a good piece in the Asia Times on the last bubble, sovereign debt. John Hussman has good piece on whether the Fed can tank the dollar with their next round of QE, remember the Royal Bank of Scotland said a couple months ago, it needed to be ten trillion dollars. That should do it! My advise, hold-off on purchasing US public assets, the deals haven't even started.

Let it Rock.

on the death of politics

Man is naturally a political animal...There is then in all persons a natural impetus to associate with each other in this manner, and he who first founded civil society was the cause of the greatest good; for as by the completion of it man is the most excellent of all living beings, without law and justice he would be the worst of all, for nothing is so difficult to subdue as injustice in arms: but these arms man is born with, namely, prudence and valour, which he may apply to the most opposite purposes, for he who abuses them will be the most wicked, the most cruel, the most lustful, and most gluttonous being imaginable; for justice is a political virtue, by the rules of it the state is regulated, and these rules are the criterion of what is right. -- Aristotle, Politics

So, Australia had an election with no conclusion. The same thing happened in Britain a couple months ago, Germany and France in the last few years. In November, we'll see the same thing in the US with the Reps taking control of the Congress, creating true stagnation, not the stagnation dressed as reform we've had over the last 18 months.

We are witnessing the death of industrial politics. One would be tempted to say Western politics is a dead medium, but that would be ahistorical. However, it would be completely accurate to say Western politics is insolvent, incapable at this point of meeting the challenges of the times, stuck in the clothes knitted for it two-centuries ago -- representative government atop an industrial infrastructure. In fact, it is only in industrializing areas of the globe that politics seems, wrongly, to have any vibrancy, for it is in these areas industrial politics can incorrectly be construed as vital.

In the industrial West, politics has lost life. We have a politics of the status quo, upheld by "both" sides of the political spectrum. Western politics is controlled by large corporate interests, supported in the halls of government by a caste of political eunuchs. The cultural left and cultural right, indoctrinated in the same industrial pabulums, fight over the disbursements of diminishing returns based on various slave identities, the only real disagreement by the two sides is how active a role the government should play in societal looting.

Presently, events are the only real politics in the West. They act as a growing violent tide, each successive wave pulling out more sand, undermining the foundation. In reaction, our politics futilely attempts to replace the sand. This process can continue for a long time, but without a revitalization of our politics, a rethinking of the foundations of industrial society, politics will become increasingly reactionary.

We are political animals, we need a healthy politics.

housing

Well, they had a meeting in DC yesterday and the Treasury Secretary, Wall Street, banks, and MBS bondholders all agreed something should be done with Fannie and Freddie, as long as no one, except maybe homeowners, incurred any losses. Fannie and Freddie represent a lot that's wrong with our government. It became a bipartisan cesspool of corruption, jobbery and incompetence over the past decade, for which every public revelation only led to expressions of surprise by DC officialdom. Most recently Fannie and Freddie became dumping grounds for the worst of the real estate dreck, and that's saying something.

Fannie and Freddie played a role in the housing bubble. The last couple months the housing market, let's leave out the commercial market which is worse, has stalled. All the Fed and Treasury blowing couldn't reflate the bubble, and prices will continue their slow movement down for a very long time. Remember the NASDAQ ten years on is at 40% of its bubble peak, while Japanese real estate, 20 years on, is just over 20% of its peak value, so that leaves at lot downward room for US housing, depending on how big you think the bubble was.

Most interesting of course is how all the thinking remains quite bubbly. Bill Gross of PIMCo came out and warned last week that without any gov guarantee PIMCO would quit the mortgage market. Mr. Gross' fund sits on $36 billion in MBS, so he has a definite interest. Even more bubbly was Mr. Gross' suggestion yesterday that the US government back refinance of all mortgages currently paying over five percent:

Massive refinancing of the nearly 60% of mortgages backed by the government that are one full percentage point above today’s 4.5% mortgage rates would provide quick stimulus “as well as a potential lift of 5-10% in terms of housing prices,” he said.

I suppose a chunk of that is now held by PIMCO and the implicit government guarantee would then be explicit, or better you could just get it off your books, plus free money right? I guess that's win-win-win. I didn't hear any idea on what would be done with the 25% of the people underwater in their mortgages. It will be a long long time before real estate in this country heads up, bet on it.

Bubble, Bubble, Toil, and Trouble

Me and my baby gonna get on a train that's gonna take us away,
We're gonna live in a tent, we're gonna pay no more rent, we're gonna pay no more rates,
We're gonna live in a field, we're gonna buy me gun to keep the policemen away.
Gonna pass me a brand new resolution,
Gonna fight me a one man revolution, someway,
Gonna start my rebellion today.
But here come the people in grey,
To take me away.
-- Ray Davies

Bubble, Bubble

Gillain Tett has a must read piece(tx yves) in the FT regarding the heart of the past financial bubble. It's based on a good IMF paper, good information can indeed come from bad sources. The piece is much easier to understand if you replace the term "rehypothecation" with Ponzi. Here's the nut:

Second, as the IMF paper shows, this rehypothecation(Ponzi) activity can be so frenetic it can significantly affect the overall volume of leverage in the system. The IMF paper calculates that, by 2007, the seven largest US brokers were getting about $4,500bn of funding from rehypothecation activity, most of which was not recorded in their accounts or the US government’s flow of fund data.

That's $4.5 trillion, one third of the entire US economy and here dear reader, you see why all the blowing in the world by Mr. Bernanke and every other central banker is not going to reflate the bubble. We have a choice, we can clear the books and get rid of all the bad debt, or we can all spend the next twenty years working a crippled economy paying off a bunch of debt that was at its foundation fraudulent.

Toil

The financial press has been a gush this morning with the news that German economy grew, wait for it, a whole 2.2%. That's the largest growth rate in the German economy in twenty years. The FT describes it as "stellar". Phew! Talk about you're new normal. Just think if the Euro goes down to fifty-cents, or the neo-Deutsche Mark is released at 75 cents, the Germans might reach 3%.

And Trouble

A liberal education -- Barbara Ehrenreich has a piece in The Nation in which she states, "the federal government, avatar of liberal hope for at least a century, has become hopelessly undemocratic, poisoned by corruption and structurally snarled by partisan divisions." It even gets better, though there's a gratuitous slam at the Tea Partiers at the end. The final step of a liberal education will be the over, and too often badly educated left understanding it does indeed have some common ground with "angry white-boy America", that would be trouble indeed.

Liberals of the United States run from DC, you have nothing to lose but your chains.

How I Learned to Stop Worrying and Love Corporate Globalization

General Ripper: It's incredibly obvious isn't it? A foreign substance is introduced into our precious bodily fluids, without the knowledge of the individual, certainly without any choice. That's the way your hardcore Commie works.

Captain Mandrake: Tell me Jack, when did you first develop this theory?

General Ripper: Well, I first became aware of it Mandrake, during the physical act of love. A profound sense of fatigue and feeling of emptiness followed. Luckily, I was able to interpret these feelings correctly...loss of essence.

-- Dr Stangelove

One interesting thing that has happened over the last several decades is our elites view of international conspiracies. If you are unfortunately old enough to remember our existential obsession with "international communism", you will remember for the most part it was party line, both parties, to look with suspicion on things labeled international or global. Yet a funny thing happened, with the rise of corporate globalization, suddenly international lost not only suspicion, but was suddenly necessity, to the point now where a Democratic administration can cut auto-workers' pay in half in the name of international competition, which is met not only by complete silence, but approved by the workers so-called representatives, the UAW.

The Post has a story about a report released by the Congressional Oversight Panel on the bank bailouts, bringing to light one of the dirty little not so secrets, a good chunk of the bailout money went to foreign firms:

The federal government's effort to stabilize the financial system in 2008 by flooding money into as many banks as possible resulted in a boon to many foreign firms and left the United States shouldering far more risk than governments that took a narrower approach, according to a new report by a panel overseeing the Treasury's $700 billion bailout fund.

They cite as a case study the bailout of insurance giant American International Group. While the Treasury committed up to $70 billion to AIG through its Troubled Assets Relief Program, the report states, much of that money ended up in the coffers of foreign trading partners in France, Germany and other countries. The cash that the United States poured into AIG alone equaled twice what France spent on its total capital injection program, and half what Germany spent.

There's that word again AIG,(see good piece by Greider) a hole big enough to save the world, call it "loss of essence". Corporate globalization's impact on the planet has pretty much been the same as nuclear bombs, entirely rearranging the globe, good for neither those "controlling" matters, or those on the receiving end, beneficial only in the short-run for the bomb-makers. At some point, we will realize this is simple madness.

pushing on a string

So, let's understand one thing, Mr. Bernanke and the Fed, Treasury Secretaries Paulson and Geithner, and our other assorted financial messiahs saved nothing. What they did was prop-up a no longer viable way of doing things, and the only question from the beginning was how long the props would last. With yesterday's Fed announcement that they would keep the Fed balance sheet above two-trillion dollars, it's obvious none of the props can be taken away, and no doubt, over time will be added to, again not for revitalizing anything, but simply propping a no longer viable system.

What's been amazing about the last three years is how little the dialogue about the economy has changed in anyway. The monetarists are not simply fully in charge, but still completely dominate all economic thought and policy. Let's understand what happened in this country over the past three decades. We undertook an experiment that the best economy was one that concentrated wealth and assured not high paper asset prices, but bubble prices. Each time the bubble deflated, more money was thrown into the system to inflate a new and bigger bubble. Unfortunately, the girth of the last bubble was so large, it became impossible to blow a new one, instead the Fed has focused on trying to keep parts of the last bubble inflated. This is a losing game, which will come apparent to all over time.

Yesterday's Fed announcement will soon be followed by others, it has one end in mind,(tx yves)

The Federal Reserve’s decision to buy Treasuries and keep interest rates low will support “risk assets” without bringing down unemployment, said Anthony Crescenzi at Pacific Investment Management Co.

Raising asset prices has been the number one goal of economic policy in the last thirty years. As former Fed Chair Alan "Bubbles" Greenspan stated last week:

I don’t know where the stock market is going, but I will say this, that if it continues higher, this will do more to stimulate the economy than anything we’ve been talking about today or anything anybody else was talking about.

The question is how long can the Fed and Treasury continue propping? Looking at the Japanese experience one could say indefinitely, but with ever decreasing returns. Japanese stocks and real estate, twenty years past the popping of their bubble, remain at 20 - 25% of their peak bubble values. Think about how far that's going to get you in your 401k retirement. Its hard to see how the Fed's propping will end any differently.

Deflation is not simply a monetary problem. The 1930s Depression wasn't caused by the Fed. Milton Friedman was wrong on this, as he was most things. All deflations arise from large financial bubbles that precede them, and these bubbles are signs of serious imbalances in the economy. In the end, deflation is not going to be addressed until the the imbalances are dealt with, and we're a long way from that. The American trade deficit is once again up to record highs -- so much for doubling exports -- wages continue to sink, military misadventures continue to drain the public purse, and our oil addiction continues unabated. Now when you add to that, despite all the best of the Fed's efforts, a slow grind down in asset prices, you would think at some point we'll reach a point to begin a real discussion on change, if so, we're not there, yet.

a donnybrook

Is this a private fight or can anyone join?

Let's face it, what a America needs is good clean fight. A fight that brings in everyone, redefines categories and alliances, cleanses our putrid politics, and establishes a healthy politics for the 21st century. At this point, there's just no way around it. Our politics is so defiled, our economy so completely in the clutches of a rabidly greedy few, and our government wallows in incompetence to the point of criminality, that the only cure is for the American people in unison to stand up, take responsibility, and claim what is rightfully ours. History shows this is never done without a fight.

I've always hated the term "American exceptionalism", more for how it was defined, than the concept itself. In the last decades, American exceptionalism has too often been defined as industrial capitalism, ribald consumerism, and militarism. But if we've learned anything in the last decades, these traits were easily transferred across the globe. However, what was not so easily transferred, and what historically is truly exceptional is this republic. In recorded history, the existence of republics, of self-government, has been the exception, and this republic with all its faults has indeed been exceptional. Here the masses of Europe, who for millenia tore each other part, united under the banner of universal equality, intermixed, intermarried, and thrived. Over the centuries, fitfully and in small steps, and with still a ways to go, people from every other part of the world have slowly in some cases, and more rapidly in other, been brought into the mix.

In the last decades, under a confused, and too often misguided segregation into political individualism, call it identity politics, we have lost the more encompassing definition of what it is to be an American. Most importantly, and to our great detriment, in this quest for hyper-individual identity, we have lost our egalitarian ethic, that uniting and necessary glue in what can sometimes be the babble of republicanism. In the great declaration that announced the birth of this republic, before its proclamation of "life, liberty, and the pursuit of happiness", before "unalienable rights", comes the foundation for this democracy, for all democracy, the principle that "all men are created equal". And it is whenever aspiring to this principle, and often as not falling short, that America has turned to our better selves, when we are indeed exceptional.

Today, one can say for the first time in this republic's existence, the egalitarian ethic, the very foundation of this republic is itself endangered. You could have a very long discourse listing reasons on why this is, but I'll use one example. We are at the point of institutionalizing a financial aristocracy in this country and make no mistake, that will be the end of this republic. Yves Smith has a nice piece on one aspect of institutionalizing aristocracy in this country, their pathetic attempt at founding a sense of noblesse oblige, which has always been one of history's great inside jokes. Across times, all aristocracies have been predatory, parasitic, and ruthless. Yet any aristocracy, if it is too last long, must develop a sense of noblesse oblige. You can only bleed the little people so much, without "noble" limits, the vast bottom will collapse or rebel. A sense of noblesse oblige has always been missing from the United States for it was born destructing aristocracy in all its forms, being against aristocracy has always been an American unifying element. It is an illusion that America's neo-aristocracy seems more greedy and gluttonous than others through history. This illusion exists only because there is no facade of institutionalized noblesse oblige, simply because noblesse oblige is antithetical to the republican ethic of egalitarianism. An egalitarian ethic is defined by equal opportunity, fairness, and an understanding of general welfare. In operation, it depends on the republican mechanisms of checks and balances for all manifestations of power be they political, economic, or cultural.

Across our democratic system, we have lost checks and balances. We have watched the burgeoning of an obscene aristocracy. The foundational check and balance for any republican system is the citizenry itself, and whether voluntarily or through coercion, this check and balance has badly deteriorated. It is time for us to unite as citizens, and uniting against aristocracy is essentially American, no matter what our backgrounds or situation. We must redefine not that what makes us individuals, but that which makes us citizens of this republic. It is time to stand up to this nascent aristocracy and reclaim our power. Make no mistake, this will not be done without a fight, so ladies and gentlemen, let's have at it. It is your right, more importantly, it is your responsibility.