There is a popular theme in the media these days that the Trump administration is leaving us poorly prepared for the next recession. The basic story is that high deficits and debt will leave us less room to have a large stimulus when the next recession hits. This is wrong, at least if we are talking about the economics.
I am utterly confused by the facts and logic the honorable Mr. Baker presents
“Large tax cuts to corporations, so they could give money back to wealthy shareholders in buybacks and dividends is not a good use of resources. It means the rich get to spend more money at a time when we should be focusing resources on green infrastructure and energy conservation.”
Most everything else in this article was over my head. Focus resources on green infrastructure and energy conservation. That much I get. The rest is all businessman in a suit with bad shoes. Why are GM & Ford cancelling their hybrid models? Insanity?
You don’t say. According to the Jewish mystics that means you should know.
I guess there will always be a gulf between not knowing but saying and knowing but not saying, says the one who thinks he knows.
The US Government acts quickly to defend the wealth of the 1 percent. The PLUNGE protection deem was formed to prevent Stock Market crashes so as to ensure the filthy rich remain so. They deem this a “free market”.
I’m with you on both scores!
Look, I’m an economist, classically trained but never having drunk the Kool Aid, and I can seldom follow Baker’s arguments. He’s smart, he has good credentials, and he leans toward heterodox positions as opposed to mainstream/neoclassical ones. But he seems to pride himself on being a contrarian more than on being profound or even making sense. This particular article seems to be arguing for the classical assumption that markets are “self-regulating,” which if actually true would mean that asset bubbles, crashes, and depressions cannot happen, and I am not about to wade through each little snippet to uncover its particular fallacy.
Yes, all the rules have changed and we now know how to prevent market crashes. Right, and my name is Alan Greenspin. NOT!!! Actually we do understand pretty well how to tamp down bubbles and ameliorate the resulting crashes, but banksters will have none of that. They make as much money in a crash as they do in a bubble or more, because the crash drives asset prices down, allowing those who do have money to buy up assets on the cheap to sell during the next bubble. That is exactly what happened before, during, and after the Crash of 2008.
As for “free markets,” they do not exist and never have. ALL markets operate in intricate webs of laws, traditions, cultural norms, religious strictures, and other human institutions, and it cannot be otherwise. The “free market fundamentalists” have always been the first to cry for “government intervention in markets” when it benefits them, and decry it when THAT serves their purposes.
Yep. With 84 percent of all stocks owned by 10 percent of the population and the great majority of that 10 percent owned by the 1 percent, PLUNGE protection is a direct subsidy to the Rich. Mnuchin is worried about the protfolios of himself and his buddies losing too much value so will use taxpayer dollars to prop it up.
The notion that there such a thing as a free market is a fricking joke. It just one great big con.
Now while the Government has plenty of money to spend on war or prop up the stock market and can do it on an “emergency basis” acting within hours , you got people sleeping in the streets, unable to afford healthcare , into debt up the ying yang just to keep their heads above water and nothing can be done about it for decades on end.
Wait–do you know something I don’t (entirely possible)? I can’t find much information about the “Plunge Protection Team” except that it was created by Ronny Raygun (in 1988 so probably by Nancy or her astrologer) in response to a large and sudden drop in stock prices the year before. It has intervened in several such incidents since then, working in loose coordination with the Fed and other “deep pockets” to buy stocks to keep prices from falling further or as fast to avoid a panic and general crash.
But this practice has existed in several different forms at least since the mid-19th century. The Fed was created in 1913 in large part because John “Praise John from whom oil blessings flow” Rockefeller got tired of doing it himself out of his own (very deep) pockets.
The public always suffers when the high rollers blow it (for the global financial system functions essentially as a casino, instead of as a service to business), sometimes on purpose we think. And in the early years of the Great Depression many households lost all their savings when banks went bankrupt, the main stimulus for the Banking Act of 1934 (“Glass-Steagall Act”) that created the FDIC and the SEC and clamped down hard on the pure gambling operations that the big banks had been engaging in (“Bets on bets on debts” as some of us called them in 2008).
As far as I know, little actual “tax money” (US Treasury assets) has ever been used to prop up failing businesses, and when it has (as with AIG in 2008), it has been paid back promptly with interest. But in the Crash of 2008 some banks in Cyprus actually confiscated their customers’ deposits. For some time thereafter a self-taught “expert” on monetary matters named Ellen Brown was saying that regulations had been passed in secret making all or much of US bank deposits vulnerable to such actions in any future crash.
When I first heard of Brown from a friend a few years earlier I thought she was just a crackpot. He finally persuaded me (around the time of the Crash) to read part of her book Web of Debt, after which I was even more strongly convinced that she was a crackpot. But to her credit, she continues to expand her knowledge and understanding of how money and the financial system work.
So I have to ask: Have you seen or heard anything about any such confiscation of money belonging to the public, either in the form of direct grants from the Treasury, or of theft of bank deposits?
Well I would have to dig up all the stuff I read on it but the point remains.
If Stocks are falling the rich are losing money. If a Third party intervenes to buy those stocks and porop them up, the rich can divest themsleves of the same without losing their shirts as the Government acts as a buyer.
They canceled them because americans are still buying large suvs, not hybrids. So they were losing money trying to make cars americans were not buying. And GM and ford don’t make very good cars that can compete with foreign models.
The problem isn’t that we can’t afford a stimulus, it’s that no stimulus is acceptable to republicans. And what stimulus they do side with are all tax cuts for the rich. That was the purpose of trump’s tax cut, to act as a stimulus. Instead it resulted in buybacks and the rich just making more money.
A really good stimulus would be spent on infrastructure for repairs and modernization. Something we badly need and will be sorry when the systems start falling apart. Some of our infrastructure is over a hundred years old. And it is very inefficient.
Instead we will get more tax cuts for the rich.
The federal stimulus plan I’m most familiar with was Carter’s "Home Weatherization Tax Credit Program. Reagan cancelled it in his 2nd year, but not before it achieved significant goals of nationwide energy conservation that spurred large and small business industries in housing construction and better appliances that is still in affect. Today, homes are cleaner, more comfortable, healthier, safer, their serviceable lifetimes lengthened, their value increased. Automobile industries at the time also fell in line with what the public wanted.
I don’t buy the line that US carmakers can’t produce better vehicles, or won’t because it’s not profitable enough. There’s something more sinister going on with corporate business interests, something closer to ruling class warfare against the rest of us they consider as no more than consumers, wage-slaves and canon fodder. Denial of global warming is an act of war.
Sure, but as long as the banks are not seizing our savings accounts they’re just a bunch of rich men (and a very few rich women) playing poker. As long as they’re playing with their own money and not ours, it doesn’t cost us a cent, doesn’t put us on the hook, and doesn’t really affect us at all.
The government almost never buys corporate stocks or bonds, and the Fed only slightly more often. The Fed is not part of the federal government. It was created in 1913 by an act of Congress as a lawful cartel of the member banks (nearly all US banks today) in response to the stock market crash of 1907, following others in 1893, 1873, 1848, and earlier. It’s purpose was to avert such crashes by lending money for very short periods to banks in danger of collapsing during a financial panic. In the panic of 1929 it failed to do so, thus assuring that the panic would become a crash, leading to an extended depression. It partly redeemed itself during and after the Crash of 2008 by doing exactly what it was designed to do, leaving us with “The Great Recession” (some of my associates still call it “The Little Depression”) instead of a global financial collapse unlike any ever seen.
Financial markets are not “the economy,” and are only relevant to it when the fat cats either forget that bankers MUST be conservative or CHOOSE actions they know will bankrupt certain targets which they can then buy up on the cheap.
If you believe that they were playing with their own money in 2008 then you better review what happened. They were in fact bailed out to the tune of some 20 trillion. The Banks were also being loaned money at a discount rate which was used to both buyback stocks or loan out again at a higher rate to consumers. Pure profit and nothing to do with preserving the system. It was about preserving the wealth of the 1 percent. (see iceland as a contrary example).
The TARP itself was some 700 billion taxpayer dollars. It was not money from the banks. There were then added costs (loans/direct grants etc) that pushed this total to 20 trillion.
What should have happened is the banks should have been nationalized with the payout from the Government to existing shareholders being at a great discount.
As to what happned in Cyprus read some Ellen Brown. The laws used in Cyprus to sieze bank accounts were adopted in the western systems including the USA.
The claim that the entire system would have collapsed was one used by Paulson and crew to ensure the Assets of the one percent were protected.
After the original $700 billion bailout, the ongoing bailout was kept very secret because Chairman Ben Bernanke, argued that revealing borrower details would create a stigma — investors and counterparties would shun firms that used the central bank as lender of last resort. In fact, $7.7 trillion of the secret emergency lending was only disclosed to the public after Congress forced a one-time audit of the Federal Reserve in November of 2011. After the audit the public found out the bailout was in trillions not billions; and that there were no requirements attached to the bailout money - the banks could use it for any purpose.
I think we need a reboot here. It IS Christmas, and even the extra low key observance we practice in this household has kept me busy most of the day. Perhaps your day has been more hectic still, as you have repeated back to me at least one item that I had previously told you, and seem to be missing some others. And the entire second half of the comment forum is completely unhinged from the article upon which we are supposedly commenting!
I’m on your side, and so is Dean Baker (author of the article), loose cannon though he may be. The whole subject of finance is staggeringly convoluted and complicated (gee, I wonder why), and so corrupt and so full of lies and deception, that it is challenging even for the pros to figure out what’s really going on. But knowledge is power, and unless one has a way to slip some (radioactive) polonium into the lunchboxes of a few hundred of these guys, it is about the only power one has. Since my wife decreed that we will NOT be doing our Christmas shopping tomorrow, I will be back in the morning. In the meantime you might find this article from 2013 by Matt Taibbi interesting. I think I found it via a link you had provided that I cannot find now.
OK, let’s start over.
I would like to provide a simple explanation of the reason this so-called "Plunge Protection" is unlikely to do anyone harm and likely to do everyone at least a little good, taking the global financial system as it is rather than as we wish it were . But such an explanation is essentially meaningless without at least a little understanding of what stocks are and how financial markets work. Here is the best I can do without assuming my readers have any such background:
Herd mentality: If all the people you know are buying (or selling) a certain item, you are tempted to buy (or sell) that item too. When everybody is trying to sell an item, they know they will have to accept a lower price than everybody else, causing the “going price” to plummet. In ordinary times financial investors consider the price of a firm’s stock to be a strong indicator of its profitability, and thus of the dividends it will pay and of the price investors will receive if they sell. But if stock prices in general are plummeting, people want to sell immediately, either to lock in their gains if they bought in when the price was low or to cut their losses if they bought when the price was high.
If they fall very far below their level in the recent past, the conventional wisdom kicks back in and everyone assumes that NO company will be profitable. Rational? Yes, unfortunately, and in a highly perverse way. The bankers, whom every company depends on to finance day to day operations, make that same assumption and quit lending to them.
ALL BUSINESS RUNS ON BORROWED MONEY. This is the reason that anyone who says the government should be run more like a business by paying off the national debt is either an ignoramus or a charlatan and is not to be trusted.
The result is a recession or depression, which is bad for everyone except for people with so much money they can buy valuable assets for much less than they are otherwise worth. Households and productive businesses fear that situation and do whatever they can to avoid it. But with finance now a major part of the economy, financiers have both the incentive and the means to try to induce a recession.
The bottom line: IF Stevie Boy Munchkin is acting in good faith by helping to prop up plummeting stock prices in any lawful way, he should receive modest praise. But now there is always the possibility that he is trying to sow doubt about the stability of financial markets to trigger that "next recession." We will probably never know which for certain, regardless of the outcome.
Well Obama tried a decent stimulus plan, but was shut down on that.
I remember Carter’s attempt and Reagan undoing all of it. Such a fool Reagan was.
Oh it’s not that they can’t build better, it’s that they won’t. But the problem is also the american people. Decades of mass merchandizing have made americans think that they need the big SUVs and cars. So that’s what they buy. In other countries they buy more sensibly.
Mass advertising has worked in the US to make us a consumer society where we need to always upgrade with the newest and brightest. We have a disposable society where yesterday’s new toy is now obsolete and the next new thing must be bought.
The rich have most of us where they want us, always have. Want a war, gin it up and send the young to die. Make sure the lowest wage is paid to the majority, can’t be truly rich if some people still have wealth, yet we have to buy what they sell.
Unfortunately they are winning all the wars they fight against the rest of us. Climate change is just one.
Americans are not buying new vehicles period- that is a myth.