Does Ben Bernanke make any connection between the asset bubble in a commodity like corn, and the economic pressures this creates for the middle class or poor people? Given their lofty and isolated position, and the fact that Fed officials talk only to businessmen and millionaires in Congress, one of the things most lacking in Fed policy debates, public or private, is any concern for the average person in the US. It’s as if these are the people of least concern to the Fed, or if they are of concern, it is only as economic factors in econometric models. You get the impression that the Fed has, for a long long time, forgotten about the real, and often immediate personal consequences its policies have for the average person. Numerian (more…)
“Macroeconomics has returned to the discredited Treasury view with some modern embellishments (Ricardian equivalence etc). The major attacks on the of government fiscal stimulus to conquer unemployment now resonate almost exactly with the bunk that was trotted out by the conservatives during the 1929 British election campaign. The modern proponents (centred at Harvard and Chicago) also appear largely unaware of the arguments and seem content to peddle their nonsense oblivious that their “knowledge” ceased to be such 80 odd years ago.
The White House snatched back one of the few bones it’s thrown to the people outraged at the looting of the United States Treasury by failed financial concerns – the big banks and Wall Street. The promised appointment Elizabeth Warren as head of the new agency to protect consumers from the financial services industry has been seriously downgraded. Instead of running the Consumer Finance Protection Agency, Warren’s role has been diminished to that of special assistant to the president and adviser to Treasury Secretary Tim Geithner.
“President Obama, sidestepping a possibly heated confirmation battle, will appoint Harvard law professor Elizabeth Warren as a special advisor to the Treasury Department to launch the government’s powerful new Consumer Financial Protection Bureau, according to two Democratic officials familiar with the decision.” LA Times, Sept 15
An interim appointment would have given the no-nonsense Warren the full authority to structure consumer bureau in the interests of the people. A special adviser role is defined in a New York Times article as follows:
“Ms. Warren will be named an assistant to the president, a designation that is held by senior White House staff members, including Rahm Emanuel, the chief of staff.
“She will also be a special adviser to the Treasury secretary, Timothy F. Geithner, and report jointly to both men.” September 15
The title of the Times article says it all: Warren to Unofficially Lead Consumer Agency. (more…)
We’ve often talked here about the bank practice of extracting equity from customer accounts. Now comes a 90 page ruling from Judge William Alsup of the Northern District of California against Wells Fargo Bank, showing in detail exactly how the bank engaged in “gouging and profiteering” when it managed customer checking accounts. Nor is this one of those polite judicial rulings where the judge waits to the end to conclude whether or nor the defendant engaged in bad behavior. Judge Alsup is biting and nasty throughout his ruling, barely able to hold his disgust at what he concluded was a deliberate attempt by Wells Fargo to profit off a system that trapped customers into overdraft hell.
How the System Was Rigged to Create Overdrafts
Prior to 2000, Wells Fargo did its best to minimize overdrafts in customer accounts. Its computers processed all credits to the account first, followed by ATM withdrawals and debit card purchases, followed by checks and then Automated Clearing House transactions (the ACH is used by banks to process debits such as PayPal charges or monthly mortgage or rental payments where the customer has agreed to an automatic debit). In every step, Wells Fargo used low to high sequencing; the smallest debits would go first and the largest would go last. This entire process mimicked the way the consumer managed their account using a traditional checking account balance, which ranks all transactions in chronological order. When an overdraft occurred on the bank’s records, the consumer would have known had they been keeping their checkbook balance up to date. (more…)
The Federal Reserve, in announcing the results of this week’s meeting of the Open Market Committee, surprised the market by revealing it will begin purchasing US Treasury notes and bonds with the principal income it receives from its vast holdings of Fannie Mae and Freddie Mac mortgage securities. This practice – wherein the Fed buys up US government securities and injects cash into the public market as payment for these securities – is a form of monetizing the debt.
The last time the Fed did this on a big scale was back in the 1960s when it attempted to mop up the excess Treasury securities that were flooding the market as a result of Lyndon Johnson’s efforts to finance the Vietnam War. That Fed program was viewed at the time as a failure, since the cash the Fed put back into the economy in exchange for the securities was a big reason – perhaps the major reason – why price inflation accelerated from the late 1960s until a decade later, when Paul Volcker managed to squelch inflation once and for all with forbiddingly high interest rates. Fraught with risk (more…)
The graph to the right is from the Center for Budget Policy and Priorities. It shows the relative contribution of various factors to the deficit. It’s not a full exposition, but take it for what it’s worth. If we stopped the wars, restored the Bush tax cuts on the wealthiest citizens, and ended TARP, we would make a huge contribution to reducing the current deficit.
So why hasn’t that happened? Congress and the White House would rather kill people overseas, reward Wall Street failures, and coddle the wealthiest citizens than reducethe deficit.
The solutions aren’t that hard. Will they take action? Of course not.
Those who should be leading this country, and contributing to its development, have spent the past 25 years joining the parade of looters and predators who have found ways to extract wealth from the middle class and the poor in this country. Numerian
The whole history of civilization is strewn with creeds and institutions which were invaluable at first, and deadly afterwards.Journalist Walter Bagehot
Banking reform measures are moving rapidly through the U.S. House and Senate, so much so that bills may be voted on as early as next week. This is one reform effort where even President Obama is engaged from the start with ideas and recommendations. As with health care, the two chambers have different proposals they are looking at, so now is the time for interested citizens to put forth their own views.
The big U.S. banks were the source of the global financial crisis, in part because their bigness and their practices were copied by major banks around the world. What happens in this reform effort is being watched avidly in many countries, because it will say much about how global finance is to be conducted.
What is often missing in these discussions are the assumptions people make about banking and its role in a modern economy. We should begin therefore with some first principles. (more…)
Part #2 of Understanding Capitalism and Socialism
Now that Republicans are starting to talk about restoring Reaganomics, it is a good time to review Reaganomics; i.e., Supply Side Capitalism. This is number two of my technical essays about how the world works. Today we will explore how supply side economics will save the world. So let’s get to it.
Supply side economics became so powerful that it was renamed Reaganomics in honor of the president and WW II movie hero. Reaganomics helped poor Americans understand what rich people have been telling us since the Middle Ages i.e., Robin Hood was doing it wrong.
Some people call Reaganomics “Trickle Down theory”. Its kind of like when I went to college; most of the students studied hard to get in to our college and were from middle class families like me, but this one guy got in because his parents bought a new building for the school. (more…)