OK, here's what I don't understand. Obama's new economic team -- Tim Geithner, Larry Summers and Peter Orszag -- are all universally acclaimed as brilliant. But they are all proteges of former Clinton Treasury Secretary Robert Rubin, the Citigroup official who worked hard to break down the Depression-era firewalls that kept what's happening now from happening, and who stood shoulder to shoulder with Alan Greenspan to keep the government from regulating new financial instruments that helped cause this meltdown. Why is nobody asking why men with this kind of past being put back in charge of US economic policy? It's like a Republican president in 2016 bringing back Rumsfeld's proteges to run national security.
Well, some people are asking. Here's Robert Kuttner:
What kind of magic does this man Rubin have? He was one of the key Democratic architects of the extreme financial deregulation that brought the economy to this pass. At Citi, he was one of the grand strategists of the speculation in securitized loans and off-balance-sheet gimmicks that has brought Citi to the edge of bankruptcy. Yet he continues to fall upwards. Surely Barack Obama must have noticed that Rubin is a false prophet. So why is his entire senior economic group a Team of Rubinistas?
Whatever. After reading this Bloomberg assessment of the current situation...:
The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.
...and thinking of the $53 trillion bill staring at us from promised entitlements and debt, I think all of us Americans are approximately in the position of these poor souls standing on a Thai beach, with the 2004 tsunami bearing down on them:
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Pyrrho:
I took a quick look at some of the links from the Jesse’s Café Americain site. That $ 7.5 TRILLION in guarantees and loans made me itch. Exactly what have the Wonderful Gang of Happy Monkeys (Throne City section) been smoking ? As far as when the spigots get turned off, I’m surprised they haven’t been already. Now I’m hearing that the Mad Monkeys are going to directly intervene to prop up the consumer-credit/student loan markets. This strikes me as being flatly insane; their target audience is way overloaded as it is.
I seriously doubt any of these clowns have the faintest idea what they’re doing. Christ help us if Obama wants to pursue this course of action after January. We’d be lucky not to be turned off before Christmas. (Note to Troops: the tax burden is going up, but not in the way you think. Look for the AMT “fix” to quietly get itself lost this summer, and don’t bet against a VAT or that confiscation-of-401(k) plan going off. Obama’s Hair Bear Bunch is a wily lot.)
Drinks: the next time you’re in Upstate NY, I’d be happy to stand you and Mrs. P to several rounds of whatever it is the two of you are imbibing these days. We’ll hit the Dinosaur Bar-B-Que and make an occasion of it. For my part, I’m partial to dark ales: Guinness for preference. Romulan if you can find some.
As to what passes for an SU football team: even a dying lion has one good swipe left in him. That game’s going to be talked about for years.
Your servant,
Lord Karth
Your Name @ 8:11 AM:
Let me try to give you that simple yet basic explanation you wanted. Here goes:
The central government has programs that it is obligated to spend money on. These are called “entitlements”. They differ from programs like the military or the Federal courts in that spending for entitlements is on a sort of “autopilot”: it goes on and on. Kind of like an economic Energizer Bunny.
These entitlement programs are going to be asked to serve more and more people as the Boomer generation starts retiring en masse. More spending for Medicare, more for Social Security, more for Medicaid and so forth. This will be in addition to other things like the military and the EPA and NASA and all the rest of the “discretionary” programs–the ones that Congress needs to vote on every year.
The central government has two options to pay for these programs: increased taxes, or more borrowing. Increased taxes cause people to work less and do more to avoid paying taxes on what they earn when they do work. More borrowing causes interest rates to rise because there is only so much money out there that is available for borrowing. The government “crowds out” other borrowers, so to speak.
When the pool of available funds is dried up, businesses can’t borrow to expand. Consumers can’t take out student loans or get mortgages. The interest rate–the cost of borrowing the money—goes up to the point where people can’t afford to borrow. As a nation, we are getting close to reaching a point where people and the government are not going to be able to borrow more. Reaching that point Will Not Be A Good Thing.
There are several ways to be prepared for reaching that point. Have some money set aside–as much as you can. Don’t have any more debts than you absolutely have to have. Make sure you’ve got some food and similar things stashed away. (You don’t have to go Mormon and have a year’s worth, but make sure you can go for a month or two without being screaming-desperate to go to the grocery store.) Above all, try not to be hooked into a lifestyle that you can’t afford to maintain easily. If you can maintain your current standard of living on one income, you’re ahead on points.
In other words: Make sure that the financial position you’re in is one that you can HOLD.
I hope this is of some small help to you.
Your servant,
Lord Karth
You know I stood behind Obama, but I'm with you on this one Rod.
I'm of the belief that the last person I want in charge of fixing the economy is an Economist. Least of all ones who are so close to the mess in the first place.
What we need is some new blood in there who has nothing to do with a major financial institution, a previous administration, or the monetary system.
jeez. Give me Mark Cuban for all I care. - At least the Mavericks play a decent game of ball. Just don't shove some Harvard MBA or Bill Clinon's accountant down my throat.
Considering the leniency I've given to the current Administration, I am willing to extend Obama the same courtesy but this step doesn't exactly fill me with sunshine and rainbows.
Conversely, at this point Obama should realize no matter who he puts in charge - this thing is coming down and it's coming down fast. It's just damage control and if you're going to throw the HarvMBAs into the mix, it might as well be ones you know. After all, they are all essentially the same anyway.
P.S. I never studied for my Econ finals :-)
thanks Lord Karth and Jim R. So basically if you have a job that isn't likely to go away, enough money to manage your expenses, little to no debt, not counting mortgges, and savings, you are probably going to be okay. Right?
One more question? Do you see inflation or hyperinflation occurring anytime soon? I have savings, but worry that it will be wiped out by hyperinflation.
Jim R, your future scenario for the next 20 years looks bleak. I hope we don't loose that much mobility and freedom. Remember the article Rod posted about the woman in Oregon who was offered suicide drugs and denied her Doctor's prescription? That is my fear for 35 years from now when I am old.
If entitlement programs are going to become such an overwhelming burden to the young, they may wish to lighten their load through medical rationing to certain elderly facing certain conditions. Is this an unreasonable concern?
Your Name @ 0650:
It only makes sense that medical care will need to be rationed, whether by choice or by the market. Our society currently is the least prone to any type of rationing, just look at Canada and you can see the consequences of a single-payer system. People will wait longer for care, that's the definition of rationing.
We don't have a sustainable system anyway-I can't quote the number but I have read that a large percentage of our medical expenses are incurred during the patient's final year of life. I personally don't see that as a good allocation of scarce resources, but that is a tough call to make. I think we will continue to try and care for everyone to the best of our ability but that ability will whither and it will become even more common that it is now to quietly let someone pass on (or maybe even give them a little assistance) without calling it euthanasia. It doesn't have to be formalized to be widespread.
I have thought a bit more about the comments I posted above and have concluded my despair results from an belief that our basic problem as a society is that we are willing to do whatever it takes to prevent anyone from suffering from any bad decision or bad luck. I suppose it's human nature but by doing this we are limiting the upside as well in our society. If things CAN'T be allowed to get worse, well then, no "creative destruction" occurs either. Innovation is prevented. The status quo is our goal. So by definition, we are preventing ourselves from advancing as well.
This leaves us locked into our present situation, with no innovation to move us forward. Why would anyone innovate, when they can just keep doing what they are doing now and be "protected" by the nanny state from any suffering? Which I suppose would be great, except for the fact that things never just stay like they are. We can pretend, but someday we will have exhausted the resources (human, natural, and cultural) that have helped us get to the point we enjoy today. What I am saying is, if we try to stand still, we will regress. Standing still is not an option. We can either move forward, which will involve some members of society suffering and others prospering, but also result in us developing new ideas and new resources, or regress, in which case a far larger percentage will suffer and only a very few will prosper. When I say regress, I mean our standard of living.
Listen: the consequence of making heroic efforts to prevent suffering ($700 billion and counting bailout, anyone?) will be much greater and more widespread suffering in the future. It really is the old "Pay me now or pay me later" effect. And no one is smart enough or powerful enough to overcome it.
When we're going through hell, we should keep on moving-not decide to stop and set up shop. It's hard, but the long term reward is to make it out, as opposed to settling here. But I don't see any sentiment to keep moving-our country seems bound and determined to do everything in her power to establish a base camp right where we are and call this the greatest achievment of civilization and declare history to have ended. And it frustrates the H-E-double hockey sticks out of me.
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