Barry, My Liege:
I watched the Republican Prseidential candidate debate last night.
You know what, it was pretty scary.
There were Romney, Santorum and Gingritch all agreeing that we should bomb Iran.
In fact it was about the only thing they agreed on.
Oh, and they agreed that you are damaging the USA because you don't want to bomb Iran.
These guys are just nuts. Seriously, they are crazy and need to be locked up and medicated. We cannot let any of them near a decision making position.
And, each of them fully intends to harm the national security of the United States beyond repair if elected by starting a war with Iran.
While we may sometime actually be in a war with Iran, it should be with great regret and only after exhausting all other options.
Just the thought of killing untold thousands of Iranian civilians and troops as well as thousands of American boys and girls......well, words fail at the horror.
On top of the death and destruction, it will just about kill our economy. We'll have to borrow the money to pay for it and that will eliminate our ability to borrow in the future.
We pray you find a way, My Liege.
Your faithful servant,
Thursday, February 23, 2012
Tuesday, February 21, 2012
Bankers Run Amok
Barry, My Liege;
In 2009, Iceland's government took over banks to help citizens. 25% of Iceland's population had home loans that were underwater. So, the government forced banks to forgive any loan amount over 110% of the home's current market value.
That was a debt forgiveness of 13% of GDP.
Additionally, the government protected all bank accounts in local currency with deposit insurance and let the owners of bank accounts in foreign currencies lose all value when the banks failed.
Result, Iceland will show nearly 3% GDP growth this year.
In Greece, bankers are in charge.
In fact, based on Iceland's experience, it can be argued that the policies in Greece will make the situation worse and not better.
The situations are not directly comparable, but do present opposite resolution strategies.
The banks which hold Greece's sovereign debt are reducing the debt by a number that is hard to establish in exchange for some cash to make debt service payments. Additionally, those bankers demand that public employment be reduced severely and that pensons be cut while taxes are raised. Youth unemployment is about 50%.
Nothing is included to help people find jobs or to grow the economy. Predictable result: GDP will decline further, there will be more riots and further debt problems.
It is reminiscent of Germany between the two 20th Century wars.
There is a simple lesson, My Liege: Do NOT let bankers run things.
Your faithful servant,
In 2009, Iceland's government took over banks to help citizens. 25% of Iceland's population had home loans that were underwater. So, the government forced banks to forgive any loan amount over 110% of the home's current market value.
That was a debt forgiveness of 13% of GDP.
Additionally, the government protected all bank accounts in local currency with deposit insurance and let the owners of bank accounts in foreign currencies lose all value when the banks failed.
Result, Iceland will show nearly 3% GDP growth this year.
In Greece, bankers are in charge.
In fact, based on Iceland's experience, it can be argued that the policies in Greece will make the situation worse and not better.
The situations are not directly comparable, but do present opposite resolution strategies.
The banks which hold Greece's sovereign debt are reducing the debt by a number that is hard to establish in exchange for some cash to make debt service payments. Additionally, those bankers demand that public employment be reduced severely and that pensons be cut while taxes are raised. Youth unemployment is about 50%.
Nothing is included to help people find jobs or to grow the economy. Predictable result: GDP will decline further, there will be more riots and further debt problems.
It is reminiscent of Germany between the two 20th Century wars.
There is a simple lesson, My Liege: Do NOT let bankers run things.
Your faithful servant,
Monday, February 20, 2012
Structural Difficulties with Recovery
Barry, My Liege:
Our recovery has started. That's all good.
But, how far will it go? That's the question.
Justice Louis Brandeis said it best: “We can either have democracy in this country or we can have great wealth concentrated in the hands of a few, but we can’t have both.” –Louis Brandeis, U.S. Supreme Court Justice (1856-1941)
In addition to a biting commentary, here's how that relates to our recovery - as a society we have chosen to have great concentrations of wealth in the hands of a few.
Aside from the obvious corruption that produces, there is an even bigger problem.
The big problem is simply this: Americans don't have any money to spend.
And, if average Americans don't buy anything, then the economy will not recover. It takes demand from consumers to fuel corporate profits - no consumer demand means no profits and further job losses.
Putting aside the rhetoric, there is real evidence that the Amercian economy is losing purchasing power from average citizens.
According to the St. Louis Federal Reserve Bank, the share of total GDP acounted for by wages and salaries - that is where consumer demand comes from - was around 51% between the late 1940's and about 1969 when it peaked at 53.5%.
Since that peak, it has declined steadily until it stands at a low 44% of GDP today.
Here is a graph: http://theeconomiccollapseblog.com/wp-content/uploads/2012/02/Wages-And-Salaries-As-A-Percentage-Of-GDP.png
Although that does not seem a large percentage, it represents a huge drop in consumer purchasing power. At a GDP of about $13 trillion, that 9% drop is a little more than a trillion dollar drop in aggregate demand.
What that means is that any recovery is likely to be shallow until more purchasing power is restored to average Americans.
Now we see why the Brandeis quote is important. It is critical because restoring purchasing power to Americans means raising our wages and salaries.
And, our concentrations of wealth in the hands of a few likely will block any increase in wages and salaries because such an increase will reduce their personal fortunes.
My Liege, there is only one peaceful exit from this situation and into a better future.
That way is to enact legislation which will raise wages and salaries and reduce the concentrations of wealth.
My prediction is that our circumstances will need to become even worse before we can align enough political power to support such changes.
I would that it were not so, My Liege.
Your faithful servant.
Our recovery has started. That's all good.
But, how far will it go? That's the question.
Justice Louis Brandeis said it best: “We can either have democracy in this country or we can have great wealth concentrated in the hands of a few, but we can’t have both.” –Louis Brandeis, U.S. Supreme Court Justice (1856-1941)
In addition to a biting commentary, here's how that relates to our recovery - as a society we have chosen to have great concentrations of wealth in the hands of a few.
Aside from the obvious corruption that produces, there is an even bigger problem.
The big problem is simply this: Americans don't have any money to spend.
And, if average Americans don't buy anything, then the economy will not recover. It takes demand from consumers to fuel corporate profits - no consumer demand means no profits and further job losses.
Putting aside the rhetoric, there is real evidence that the Amercian economy is losing purchasing power from average citizens.
According to the St. Louis Federal Reserve Bank, the share of total GDP acounted for by wages and salaries - that is where consumer demand comes from - was around 51% between the late 1940's and about 1969 when it peaked at 53.5%.
Since that peak, it has declined steadily until it stands at a low 44% of GDP today.
Here is a graph: http://theeconomiccollapseblog.com/wp-content/uploads/2012/02/Wages-And-Salaries-As-A-Percentage-Of-GDP.png
Although that does not seem a large percentage, it represents a huge drop in consumer purchasing power. At a GDP of about $13 trillion, that 9% drop is a little more than a trillion dollar drop in aggregate demand.
What that means is that any recovery is likely to be shallow until more purchasing power is restored to average Americans.
Now we see why the Brandeis quote is important. It is critical because restoring purchasing power to Americans means raising our wages and salaries.
And, our concentrations of wealth in the hands of a few likely will block any increase in wages and salaries because such an increase will reduce their personal fortunes.
My Liege, there is only one peaceful exit from this situation and into a better future.
That way is to enact legislation which will raise wages and salaries and reduce the concentrations of wealth.
My prediction is that our circumstances will need to become even worse before we can align enough political power to support such changes.
I would that it were not so, My Liege.
Your faithful servant.
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