Tuesday, January 26, 2010

The Other Shoe

In broad outlines, the story is very simple. In bailing out the financial system without taking possession of more than a small equity position, and then in engineering a stimulus that was deliberately inefficient—devoting a third of its cost to tax cuts at a time of massive deleveraging—the Bush and Obama administrations squandered hundreds of billions of dollars in public resources. Now, to prove his fiscal responsibility, Obama wants to cut spending on core functions of government, like public health, the environment and national infrastructure.

You can blame him for leaving the bloated Pentagon budget off the table, or for prematurely panicking over fiscal deficits. Both criticisms are entirely justified. But in a larger sense, we condemned ourselves to a generation of torturous public finance in that spasm of terrible policy. We will be paying for it, one way or another, for years to come.


r l love said...


"...the Bush and Obama administrations squandered hundreds of billions of dollars in public resources..."

Is it fair to say 'Squandered', is this money not still out there somewhere in the economy? This also seems presumptuous because it is impossible to know how things might have been otherwise.

Charley said...

Yes, Ray, it is still out there. It is invested in hedge funds right now speculating on the collapse of Greece's economy and the dissolution of the Euro union.

r l love said...


So, hundreds of billions managed to avoid any valid use, not even a tiny little bit of help to an occasional retirement account, or sideways or downward trickle.
And since you have such such acute money tracking skills, perhaps you could find some of that missing GSE looot?

Charley said...


I am a capitalist - I trade and speculate on Wall Street every day. All I do is wonder where money is flowing and follow it.

r l love said...


Well, if you are a speculator I suppose my original concern regarding the hyperbolic use of the term 'squandered' is settled. That explains everything, even the Great Depression makes sense to me now. Wall Street types 'wonder' all the live-long day and spend most of their energy evading the point and thinking that they impress the rest of us. Gee-whizzz, if you work on Wall St. that makes your previous comment mean something other than what I thought it meant.
The weird thing is that I am the one who is presumed to be defending the status quo, and you are claiming to be a capitalist. But in truth I am just longing for an honest conversation in a nation of liars, and you are at least honest in general. But that has nothing to do with my initial premise.

Charley said...

I don't work on Wall Street - I speculate there. I am a day trader.

A broader answer to your question of where all the money is going: read the 3rd quarter report from Alcoa. In it the CEO brags about having only invested in new production capacity outside of the United States - mostly in the BRICs.

US industrial infrastructure is shrinking at the rate of about 0.15 percent a month since about July. This has never happened before in US history, until 2002. And the rate seems to be accelerating. There is a net negative rate of productive investment in the US and the massive profits generated by relocating to low wage nations like China are being used to speculate on world markets.

So when you ask where is all the money, the answer is: It is being consumed unproductively, or invested abroad. That is the best answer I can give you.

TheTrucker said...


I am confused regarding your position. I see the bailout and the stimulus as necessary and the curtailment of spending on non job producing efforts to be politically mandatory. Such fiscal constraint and total focus on the near term is mandatory for political survival. The president has also said that there will be a major jobs bill and that is going to include infrastructure and tax cuts to small businesses that hire people in THIS country. The Republicans have nurtured an perception in which _ANY_ spending is toxic and they are the fiscal conservatives. The Democrats in attempting health care reform have consigned themselves to a very poor position regarding economic recovery. In the longer term it is more important to hold the congress than it is to fight climate change or pursue HCR.

It is hard to hold the populous accountable for ignorance regarding economics when the Keynesian economists themselves don't seem to grasp the true nature of fiat money. In a fiat system money must be removed via taxation that drains the hedge funds so as to control the value of money versus labor. The FED and interest rates are secondary. Fiscal policy is king. But the Keynesian economists do not seem to be inclined to actually do battle with Hayek and his ilk.

r l love said...

I think you have it about right. There is a global factor though that often gets overlooked. The bailouts were about instilling confidence, but the very people who lacked confidence had to be appeased. If they believed that money needed to be sent to the moon, that was what had to be done. The global markets had trillions vanish. But confidence was all that was needed to make those global trillions reappear. US bankers were to blame so there was far more at stake than the just the bail-out funds, and as I said above, those funds are still in play. The partisan nonsense is tiresome.

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