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Tuesday, November 23, 2010

Paul Krugman - "There will be blood"

Krugman nails it as usual. The outlook is grim for the next two years at a minimum. The economy will not, and cannot improve because the GOP will do everything in its power to derail anything, including policies they support that will help. They have one goal and that is the continued opposition and vilification of everything Obama.

He writes:

Former Senator Alan Simpson is a Very Serious Person. He must be — after all, President Obama appointed him as co-chairman of a special commission on deficit reduction.

So here’s what the very serious Mr. Simpson said on Friday: “I can’t wait for the blood bath in April. ... When debt limit time comes, they’re going to look around and say, ‘What in the hell do we do now? We’ve got guys who will not approve the debt limit extension unless we give ’em a piece of meat, real meat,’ ” meaning spending cuts. “And boy, the blood bath will be extraordinary,” he continued.

Think of Mr. Simpson’s blood lust as one more piece of evidence that our nation is in much worse shape, much closer to a political breakdown, than most people realize

He goes on to write,

The fact is that one of our two great political parties has made it clear that it has no interest in making America governable, unless it’s doing the governing. And that party now controls one house of Congress, which means that the country will not, in fact, be governable without that party’s cooperation — cooperation that won’t be forthcoming.

Elite opinion has been slow to recognize this reality. Thus on the same day that Mr. Simpson rejoiced in the prospect of chaos, Ben Bernanke, the Federal Reserve chairman, appealed for help in confronting mass unemployment. He asked for “a fiscal program that combines near-term measures to enhance growth with strong, confidence-inducing steps to reduce longer-term structural deficits.”

My immediate thought was, why not ask for a pony, too? After all, the G.O.P. isn’t interested in helping the economy as long as a Democrat is in the White House. Indeed, far from being willing to help Mr. Bernanke’s efforts, Republicans are trying to bully the Fed itself into giving up completely on trying to reduce unemployment

We have more widespread exonomic pain than we have seen in America since the Great Depression It could have been far worse. Tarp was enacted in a panicked hurry with too little transparency and far too much deference to Wall Street but without it the damage would have been far worse. Those newly minted deficit hawks including the entire GOP, who were either silent or acquiescent during the Bush years have suddenly found religion. In their view everything the government is, by definition wasteful, except the spending they like or the entitlements they dare not touch. What they will try cut or object to, is every program that helps the people who are hurting the most because they have no say nor power. They will also support everything that helps corporate America and the richest among usin their belief that this is the only way to create jobs.

We did manage to get a stumulus package that helped. It was big enough to stabilize the economy and steady the increase in unemployment bot not big nearly big enough to reach the Obama's ambition goal of it bringing unemployment under 8%, something a second stimulus of similar sizze could have reached but with the eletion of Scott Brown, that possiblity died.

We still got a far from perfect health care bill, which will not be undoone. We got a lukewarm financial reform bill that did stop some of banks and credit ard abuses and for the next two years any attempt to undo that will be met with a veto. In more danger is the Consumer Financial Protection Bureau which is a step too far for Wall Street and Republicans. We have a Consumer Protection Bureau for thast covers all products but financial products.

Until now consumers have never had a Bureau to protect them against banks, cerdit ard issuers and other financial services. The new bureau with teeth could do that, but if it survives, the GOP will make sure it has as few teeth as possible.

The Volcker Rule, without teeth will give the investment banks license to put taxpayer money at risk again in dubious, opaque financial instrument. Investment banks are paying under 1% giving them virtually free government money. The scope of the Volcker rule has yet to be determined but it's looking more and more likely that it will to Wall Street's liking and taxpayer money will be at risk in the sort of insanely reckless mortgage backed derivatives that brought everything crashing down in the first place.

There are still 7.6 trillion in mortgage backed securities, billions of which have still not made its way onto the banks books. A shotstorm of lawsuits is yet to come from local governments, pensions funds, the banks, the buyers of the derivatives. From the liar's loans issued by companies like Countrywide and Washington Mutual to the investment banks that packaged the securities, the paperless handling of the transfer of titles without following the legal requirements including paying the taxes on each transfer to the robo foreclosures every step has been masisvely fraudulent.

We may never see this level of greed and recklessness but there will be little to stop a lesser version from happening again if the moneyed interests get their way. They have felt little pain and appear to be completely embarrassment proof.

Unemployment insurance could end for 2.5 million people before the end of the year and if it is extended, it will happen only if it is 'paid for' it will be paid for, from a program that helps those who need it a lot more than any of the political puppetmasters. The Bush taxes cuts for the wealthy will be extended for at least a year or two at aminimum but that $83 billion a year will not "be paid" for because it will, as it's proponents naively claim will create so many jobs it will rescue the economy.

This toxic mess will continue little or nothing will pass a GOP controlled house that has already revealed its intentions. There is no center left so there is no point in the Democrats moving into that vacuum. Obama is in a streetfight and he has yet to prove he has the stomach or the will for it. His presidency will be defined by it. His biggest ally could be the GOP who will have to simutaneously battle the truly wacky Tea Party fringe who would be quite happy to see the US default when raising the debt ceiling has to be done next April. That will paas out of necessity but I would never bet on the GOP shooting themselves in the foot feet in the next two years. 

It's going to get ugly and nasty.  That is a given.  Obama should take page out of Harry Truman's story.  In the midterm elections during his first term the Republicans took both houses from the Democrats.   Truman chose to spend the evening on one of his favorite pastimes. playing poker with friends.   When he was told that he had lost both houses, he sent a message to his wife that nothing had changed, he will still do whatever the hell he wants to.

It's unlikely he will win much with that attitude, but he has nothing left to lose.  

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