Comments on Too late for healing by Rex Caruthers

• Who is to blame? Milton Friedman. In 1971, he persuaded President Nixon to unleash on the world paper dollars no longer redeemable in gold.

More on Stockman:
http://www.ritholtz.com/blog/2010/08/gop-destroyed-the-u-s-economy/

The details are what makes Stockman’s take so astonishing. Here are his most important observations, of which I find little to disagree with:

• The total US debt, including states and municipalities, will soon reach $18 trillion dollars. That is a Greece-like 120% of GDP.(180% according to RCAR)

• Supply Side tax cuts for the wealthy are based on “money printing and deficit finance — vulgar Keynesiansism robed in the ideological vestments of the prosperous classes.”

• Republicans abandoned the belief that prosperity depended upon the regular balancing of accounts — government, trade, central banks private households and businesses.

• Once fiscal conservatism was abandoned, it led to the serial financial bubbles and Wall Street depredations that have crippled our economy.

• The Nixon administration defaulted on American obligations under the 1944 Bretton Woods agreement.

• Who is to blame? Milton Friedman. In 1971, he persuaded President Nixon to unleash on the world paper dollars no longer redeemable in gold.

• According to Friedman, “The free market set currency exchange rates, he said, and trade deficits will self-correct.” What actually occurred was “impossible.” Stockman calls it “Friedman’s $8 trillion error.”

• Ideological tax-cutters are what killed the Republicans’ fiscal religion.

• America’s debt explosion has resulted from the Republican Party’s embrace, three decades ago, of the insidious Supply Side doctrine that deficits don’t matter if they result from tax cuts.

• The GOP controlled Congress from 1994 to 2006: Combine neocon warfare spending with entitlements, farm subsidies, education, water projects and you end up with a GOP welfare/warfare state driving the federal spending machine.

• It was Paul Volcker who crushed inflation and enabled a solid economic rebound — not the Reagan Supply Side Tax cuts.• Republicans believed the “delusion that the economy will outgrow the deficit if plied with enough tax cuts.”

• Over George W. Bush 8 years in office, non-defense appropriations gained 65%.• Fiscal year 2009 (GWB last budget): Tax-cutters reduced federal revenues to 15% of GDP — lower than they had been since the 1940s.

• The expansion of our financial sector has been vast and unproductive. Stockman blames (tho but not by name): 1) Greenspan, for flooding financial markets with freely printed money; and 2) Phil Gramm, for removing traditional restrictions on leverage and speculation.

• The shadow banking system grew from a mere $500 billion in 1970 to $30 trillion by September 2008 (see Gramm, above).

• Trillion-dollar financial conglomerates are not free enterprises — they are wards of the state, living on virtually free money from the Fed’s discount window to cover their bad bets.

• From 2002 to 2006, the top 1% of Americans received two-thirds of the gain in national income.

David Stockman,silent from 1971 to the present on the 1971 DEFAULT"

narciso wrote:
Ah Rex lets not pretend that gold is the be all and end all

What do you suggest in its place? And don't blame Gold Backing for dishonest politicians' manipulation of the Gold Standard to cover their promises/Indebtedness in any year. It's always the same game,change the rules to have a free lunch. There's two choices paper or Gold,that's it.

depressing

Really it just the laws of large #s,in the short run,anything can happen,but in the long run,like any Casino,the House always wins,and when all the BS is boiled away,Government is always,the House under a Fiat system. Under a Gold system,there is no house,because the Economy is no longer a Casino,and currency has a fixed value,rather than the flavor of the day,any attempt to unfix the value of the currency,results in very predictable outcomes,like De or In Flation.

it’s about 98.72% depressing

What is depressing to me is how difficult simple concepts are for so many smart,well educated people. Experiment:just ask anyone to define Inflation & Deflation,they usually get them wrong. Correct answers:Inflation is when the purchasing Power of the doillar decreases due to the Central Bank increasing the currency supply. Deflation is when the purchasing power of the Dollar increases due to the Central Bank decreasing the currency supply. Try it at a party,it's fun.

@ Rex Caruthers:
Rex – you really do need to stop in at Recommended Browsing more often. Have you ever? It’s set up so that you can add links yourself using a VERY simple form, and so that we all can in theory discuss stuff that no one quite feels inspired to post on.

RCARISM doesn't get relegated to the Bench. Just because the Zombies aren't comfortable/knowledgable/confident/interested with Economics,they still get the benefits. Those that knew better for a long time like Stockman,are now coming out of the Fiat Closet to survey the wreckage of 1971. BTW,the first major critic of 1971 was an Economic Journalist named ADAM SMITH(Wrote in the Sixties),who taught me a lot of RCARIAN basics. The point is that what has happened to us historically from 1963 to the Present,cannot be comprehended without the Filter of 1971,that's my job,and I'm First String on the Economic Team.

Where is his critique of the new multitrillion dollar entitlements and Old one like protruberances like the Fin Reg bill

(1) The nation’s public debt — if honestly reckoned to include municipal bonds and the $7 trillion of new deficits baked into the cake through 2015 — will soon reach $18 trillion.

(2) When it reaches $18 trillion, it will be 40 times greater than in 1970. This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts.

(3) As a result, the combined assets of conventional banks and the so-called shadow banking system (including investment banks and finance companies) grew from a mere $500 billion in 1970 to $30 trillion by September 2008.

(4)But the trillion-dollar conglomerates that inhabit this new financial world are not free enterprises. They are rather wards of the state, extracting billions from the economy with a lot of pointless speculation in stocks, bonds, commodities and derivatives. They could never have survived, much less thrived, if their deposits had not been government-guaranteed and if they hadn’t been able to obtain virtually free money from the Fed’s discount window to cover their bad bets.

It's all there,Trillion dollar Entitlements to the Financial Community,and a trickle of it goes elsewhere.

CK/Saudi Arabia’s oil resources are a small part of that all. The deal achieved what it was intended to achieve for a very long time, including up to the present moment.

Our bankruptcy wasn't part of the deal,check out Stockman's analysis above,the 1971 deal was the basis of the Deal "Achieved",it was a very bad deal for us,but as I said above,we had a choice,The Imperial Way,or the Capitalist Way,we chose to become a Bankrupt Oligarchy rather than The PAX AMERICANA,1970-2070.

OMG,Is this REX again,or a Ghost from the Reagan Admin,David Stockman?

(1)"IF there were such a thing as Chapter 11 for politicians, the Republican push to extend the unaffordable Bush tax cuts would amount to a bankruptcy filing. The nation’s public debt — if honestly reckoned to include municipal bonds and the $7 trillion of new deficits baked into the cake through 2015 — will soon reach $18 trillion. That’s a Greece-scale 120 percent of gross domestic product, and fairly screams out for austerity and sacrifice. It is therefore unseemly for the Senate minority leader, Mitch McConnell, to insist that the nation’s wealthiest taxpayers be spared even a three-percentage-point rate increase.
More fundamentally, Mr. McConnell’s stand puts the lie to the Republican pretense that its new monetarist and supply-side doctrines are rooted in its traditional financial philosophy. Republicans used to believe that prosperity depended upon the regular balancing of accounts — in government, in international trade, on the ledgers of central banks and in the financial affairs of private households and businesses, too. But the new catechism, as practiced by Republican policymakers for decades now, has amounted to little more than money printing and deficit finance — vulgar Keynesianism robed in the ideological vestments of the prosperous classes."
(2)CHECK THIS ONE OUT
"This approach has not simply made a mockery of traditional party ideals. It has also led to the serial financial bubbles and Wall Street depredations that have crippled our economy. More specifically, the new policy doctrines have caused four great deformations of the national economy, and modern Republicans have turned a blind eye to each one.
The first of these started when the Nixon administration defaulted on American obligations under the 1944 Bretton Woods agreement to balance our accounts with the world. Now, since we have lived beyond our means as a nation for nearly 40 years, our cumulative current-account deficit — the combined shortfall on our trade in goods, services and income — has reached nearly $8 trillion. That’s borrowed prosperity on an epic scale.
It is also an outcome that Milton Friedman said could never happen when, in 1971, he persuaded President Nixon to unleash on the world paper dollars no longer redeemable in gold or other fixed monetary reserves. Just let the free market set currency exchange rates, he said, and trade deficits will self-correct
It may be true that governments, because they intervene in foreign exchange markets, have never completely allowed their currencies to float freely. But that does not absolve Friedman’s $8 trillion error. Once relieved of the discipline of defending a fixed value for their currencies, politicians the world over were free to cheapen their money and disregard their neighbors.
In fact, since chronic current-account deficits result from a nation spending more than it earns, stringent domestic belt-tightening is the only cure. When the dollar was tied to fixed exchange rates, politicians were willing to administer the needed castor oil, because the alternative was to make up for the trade shortfall by paying out reserves, and this would cause immediate economic pain — from high interest rates, for example. But now there is no discipline, only global monetary chaos as foreign central banks run their own printing presses at ever faster speeds to sop up the tidal wave of dollars coming from the Federal Reserve."
(3)
The second unhappy change in the American economy has been the extraordinary growth of our public debt. In 1970 it was just 40 percent of gross domestic product, or about $425 billion. When it reaches $18 trillion, it will be 40 times greater than in 1970. This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts.
In 1981, traditional Republicans supported tax cuts, matched by spending cuts, to offset the way inflation was pushing many taxpayers into higher brackets and to spur investment. The Reagan administration’s hastily prepared fiscal blueprint, however, was no match for the primordial forces — the welfare state and the warfare state — that drive the federal spending machine.
Soon, the neocons were pushing the military budget skyward. And the Republicans on Capitol Hill who were supposed to cut spending exempted from the knife most of the domestic budget — entitlements, farm subsidies, education, water projects. But in the end it was a new cadre of ideological tax-cutters who killed the Republicans’ fiscal religion.
Through the 1984 election, the old guard earnestly tried to control the deficit, rolling back about 40 percent of the original Reagan tax cuts. But when, in the following years, the Federal Reserve chairman, Paul Volcker, finally crushed inflation, enabling a solid economic rebound, the new tax-cutters not only claimed victory for their supply-side strategy but hooked Republicans for good on the delusion that the economy will outgrow the deficit if plied with enough tax cuts.
By fiscal year 2009, the tax-cutters had reduced federal revenues to 15 percent of gross domestic product, lower than they had been since the 1940s. Then, after rarely vetoing a budget bill and engaging in two unfinanced foreign military adventures, George W. Bush surrendered on domestic spending cuts, too — signing into law $420 billion in non-defense appropriations, a 65 percent gain from the $260 billion he had inherited eight years earlier. Republicans thus joined the Democrats in a shameless embrace of a free-lunch fiscal policy.
The third ominous change in the American economy has been the vast, unproductive expansion of our financial sector. Here, Republicans have been oblivious to the grave danger of flooding financial markets with freely printed money and, at the same time, removing traditional restrictions on leverage and speculation. As a result, the combined assets of conventional banks and the so-called shadow banking system (including investment banks and finance companies) grew from a mere $500 billion in 1970 to $30 trillion by September 2008.
But the trillion-dollar conglomerates that inhabit this new financial world are not free enterprises. They are rather wards of the state, extracting billions from the economy with a lot of pointless speculation in stocks, bonds, commodities and derivatives. They could never have survived, much less thrived, if their deposits had not been government-guaranteed and if they hadn’t been able to obtain virtually free money from the Fed’s discount window to cover their bad bets.
The fourth destructive change has been the hollowing out of the larger American economy. Having lived beyond our means for decades by borrowing heavily from abroad, we have steadily sent jobs and production offshore. In the past decade, the number of high-value jobs in goods production and in service categories like trade, transportation, information technology and the professions has shrunk by 12 percent, to 68 million from 77 million. The only reason we have not experienced a severe reduction in nonfarm payrolls since 2000 is that there has been a gain in low-paying, often part-time positions in places like bars, hotels and nursing homes.
It is not surprising, then, that during the last bubble (from 2002 to 2006) the top 1 percent of Americans — paid mainly from the Wall Street casino — received two-thirds of the gain in national income, while the bottom 90 percent — mainly dependent on Main Street’s shrinking economy — got only 12 percent. This growing wealth gap is not the market’s fault. It’s the decaying fruit of bad economic policy.
The day of national reckoning has arrived. We will not have a conventional business recovery now, but rather a long hangover of debt liquidation and downsizing — as suggested by last week’s news that the national economy grew at an anemic annual rate of 2.4 percent in the second quarter. Under these circumstances, it’s a pity that the modern Republican Party offers the American people an irrelevant platform of recycled Keynesianism when the old approach — balanced budgets, sound money and financial discipline — is needed more than ever."
David Stockman, a director of the Office of Management and Budget under President Ronald Reagan, is working on a book about the financial crisis
http://www.nytimes.com/2010/08/01/opinion/01stockman.html?pagewanted=1&_r=2&ref=opinion

If we invaded Saudi Arabia as is your preferred want

As a Mature world Empire,we needed to make an Imperial Decision on the Question "Who is best qualified to be in charge of the World's Energy Supply,A Western Democratic World Class Empire,or those ridiculous "Royal" families that via an accident of Geology,"OWN" those resources. Well,we made that decision,and that decision determined our short term viability as a First Class Empire,2nd and 3rd class is now our short term prediciament,unless we change our minds,if its not too late.
We have a lot to learn from Augustus Caesar about how an Empire operates,but we are still too Immature to admit the Hard Realities of Empire Stewardship,much less even admit that we are Imperial.

narciso wrote:
So much has actually been produced in terms of goods and services, that is the fundamental question, that would be the true measure of GDP

That would be great if we had an accurate way to value those Gs&Ss,but we don't,we have a paperbased floating system that changes daily,making "value" into a subjective factor,an opinion,this reality has turned our economy into a Casino.

What next? Those damned Uppity Moslems have opinions on our Documented Victory in Iraq,TROUBLEMAKERS!

US watches from sidelines as Iraqi leadership unravels
Mohamad Bazzi
"Last Updated: August 01. 2010 7:01PM UAE / August 1. 2010 3:01PM GMT In the middle of last month, US military officials handed Iraq’s interior minister a large, gold-coloured key to mark the transfer of Camp Cropper, the last prison in Iraq under US control. “Now there is some rule of law,” one Iraqi official gushed at the ceremony.
But just five days later, four prisoners who were leaders of one of Iraq’s most violent insurgent groups escaped. Iraqi officials believe that the detainees, members of an al Qa’eda offshoot called the Islamic State of Iraq, were driven out of the prison by the new warden, who has also disappeared"
http://www.thenational.ae/apps/pbcs.dll/article?AID=/20100802/OPINION/708019958/1006/

REX ON ECONOMICS:

Here's a breather before we get back to the Islammaniacs. NRO finally has an economic opinion that is truthful. Narciso,you should be appreciative of efforts to bring relevant info to ZC,in some cases years before the Official channels.
"The problem with the way we count economic growth is that it focuses on SPENDING*, not investment, efficiency, entrepreneurship, or technological innovation. Anything that boosts SPENDING* is automatically assumed to produce growth. SPENDING*, no matter what the source, is the lever government pulls to produce jobs and income.
This is the GROWTH ILLUSION* embedded in economic forecasts and in the way we calculate GROSS DOMESTIC PRODUCT, and we are seeing its negative effects in the anemic numbers posted by the general economy. Increases in nondefense spending are almost exclusively redistributions of revenue from one group (working individuals, or future generations through debt) to current non-earners or non–wealth producers. Even the business spending may be illusory, particularly if the increases in inventory built by domestic manufacturers were based on distortions from gimmicks — cash-for-clunkers, housing tax credits, or stimulus infrastructure projects that literally involved digging holes and then filling them back in again. That’s hardly a recipe for growth, but the GDP estimates and economic models forecasting future growth don’t take this into account; they report these expenditures as spending and therefore economic growth"
http://www.nationalreview.com/corner/242159/growth-illusion-samuel-r-staley
****My estimates of a Ten Trillion $ economy as opposed the the Official 16$Trillion # is looking good,BUT IT MAY BE TOO HIGH. The disparity between the official #s and the "TRUE" #s is the structurial reason for large entities like Empires to collapse SUDDENLY
as did the USSR. Narciso if you care as much as you claim about your nation,how about joining me in the TRUTH ABOUT OUR NATIONAL ECONOMICS CLUB which is headquartered right here at ZC. So far most of the Conservatives that post opinions here have rejected membership,but as you have shown more sticktoitivness than JEM,JED,Geoffrey Brittain,and so many others,your joining would be a victory for truth in #s.

"For a long time now, the ADL seems to have assumed that it could exempt Israel from the principles in its charter and yet remain just as faithful to that charter inside the United States. But now the chickens are coming back home to America to roost. The ADL’s rationale for opposing the Ground Zero mosque is that “building an Islamic Center in the shadow of the World Trade Center will cause some victims more pain—unnecessarily—and that is not right.” Huh? What if white victims of African-American crime protested the building of a black church in their neighborhood? Or gentile victims of Bernie Madoff protested the building of a synagogue? Would the ADL for one second suggest that sensitivity toward people victimized by members of a certain religion or race justifies discriminating against other, completely innocent, members of that religion or race? Of course not. But when it comes to Muslims, the standards are different. They are different in Israel, and now, it is clear, they are different in the United States, too"
http://www.thedailybeast.com/blogs-and-stories/2010-08-02/the-anti-defamation-leagues-ground-zero-mosque-hypocrisy/2/

narciso wrote:
What id really the point of Walt’s essay

For every action/opposite equal reaction
no action/no reaction
laws of History as well as Physics

narciso wrote:
My quarrel in this instance is with Rex, who brought Walt’s ham handed
essay to the forefront.

Your problem is with Walt,not me,is it his "facts" or his interpretation of those "facts" that is the matter? Actually,what is the matter is your belief that we are never responsible in any way for the bad stuff that happens to us. Because the TRUE God is on our side?

How many Muslims have we killed in the last Three Decades?

http://walt.foreignpolicy.com/posts/2009/11/30/why_they_hate_us_ii_how_many_muslims_has_the_us_killed_in_the_past_30_years

***
"PARTIAL List of Muslim 9/11 Victims:
Note: This list is as yet INCOMPLETE and UNCONFIRMED. It has been compiled from the Islamic Circle of North America, the Newsday victims database, and reports from other major news organizations. The victims' ages, employers, or other personal information is included when available, along with links to further information or photos.
http://islam.about.com/blvictims.htm

We still don't have a complete list of Muslim victims after nine years? What the hell is that all about?

"The ADL tried to explain it in personal terms to the dim set:
We are ever mindful of the tragedy which befell our nation there, the pain we all still feel — and especially the anguish of the families and friends of those who were killed on September 11, 2001. …
[U]ltimately this is not a question of rights, but a question of what is right. In our judgment, building an Islamic Center in the shadow of the World Trade Center will cause some victims more pain — unnecessarily — and that is not right."

JRUB quoted the above to support her opinion,but as a lawyer,she knows that Constitutional RIGHTS trump what some individuals' opinion is about "what is right".
Question:How many innocent Muslims did the 9/11ers murder?***

Who gets to say no to the Islamic Bldg? The City of New York gets to first,then they go to court and the "NO"is challanged in State and Federal Court. If the "NO" is upheld,The Islams prepare their brief for SCOTUS,if the "no" loses,NYC goes to SCOTUS,so SCOTUS may be the decider. In my opinion,there is no Constitutional reason that SCOTUS can say "NO".

PS,who owns the land the Islams want for the bldg? The City or Privately owned? If Privately owned,isn't this just a Free Market issue,Zoltan?