Deflation Looms

My realtor tells me my mother's house is losing 1% of its value every month. That's not because it's falling down; we've spent almost $200,000 to renovate it. It's not because the neighborhood is going downhill, either. The land around it is held by people whose deeds, or zoning, restrict them to one house only, and across the road land is preserved through a conservation easement, allowing no additional houses.

No, the price is going down because there are too many houses and too little money--in the local housing market. And what's happening here is happening elsewhere even more dramatically. That's why so many homeowners are "underwater," and walking away from their homes. Many of them can't find jobs, so, foreclosures are increasing and a record number of people have been forced from their homes.

Foreclosures build downward pressure on house prices: banks try to unload the houses they're stuck with.

There are short-term fixes, such as renegotiating mortgages, or allowing defaulting owners to rent in the interim: both would reduce the number of under-priced houses flooding the market, but the first isn't working--many don't have jobs, or have declining earnings--and the second has hardly been tried.

Falling prices might be a good thing for someone with money, but the reason for it is: most people have too little: it's called price deflation.

Price deflation can be self-reinforcing, i.e. can trigger a downward spiral. Lower prices mean businesses make less in profits. A home-builder, for example, will have to lay off his workers, because he can't sell the houses he builds, or has to sell them at cost, or less. He's losing money, so he lays off workers, or goes out of business, which increases unemployment, so fewer, still, have money. That drives prices even lower.

Even some inflation hawks on the Fed Board of Governors are warning of deflation danger. The Fed sets a goal of moderate inflation (2-3%), which keeps the economy moving, but deflation could stop the economy dead in its tracks. It happened in Japan in their "lost decade," it happened in the Great Depression and it could happen now.

It happened in the last two centuries of the Roman Empire, too, and was a major contributor to its fall. There it happened because the wealthy, accumulated almost all the wealth, hoarded gold and evaded taxes. Here, sharp traders threaten speculation against government borrowing, borrowing needed to stimulate world economies.

The financial industry is like those Roman Senators hoarding gold. Since more demand is needed, and since interest rates are basically zero, the Fed could create more money, buying up treasuries, to curb deflation. More focused would be a government stimulus targeted on creating jobs in the public investments we need.

The latter isn't likely in this corrosive political climate, but the former could be rendered worse than useless if big banks still prefer gambling to loans.

War Absurdity

What would happen if Obama said, 'Okay, I get it,' and insists on winding down the Afghan war as quickly as possible? The right wing would be predictably outraged. However, the large majority of the electorate, according to polls, feels the war wasn't justified, or worth fighting. Could the right-wing media machine whip up enough rage to convert majority anti-war sentiment to pro war?

Almost everyone, after slogging through Wikileaks' released war documents, has already pointed out the absurdity of the Afghan war. It's the hopelessness of the enterprise that comes through, the sheer complicated, mindless destruction on all sides. The Taliban is horrible, the Afghan government is corrupt, incompetent and almost as brutal; the US and NATO are efficient killing-machines, even when policy dictates restraint to protect civilians.

And then, there is Pakistan and its ISI, often labeled "Pakistan's CIA." The ISI is Pakistan's CIA, FBI and military Intel units all rolled into one: it's closely linked to Pakistan's army. The ISI, in these released documents, has been openly implicated in supporting elements of the Taliban in Afghanistan. Neither a revelation, nor a confirmation, it just makes public what the US military thinks: that its ally, Pakistan, is playing both sides. Many experts on the Af-Pak war have said so for a long time.

This may be changing, because now Pakistanis realize: the Afghan Taliban, the Pakistani Taliban, and its allies work together. Both of the latter have attacked the Pakistani Army and the government as its enemy. The army has waged all out war against parts of the Taliban in the Northwest Frontier--but it has not attacked others. Why?

Elements within the ISI have been Taliban patrons ever since the US abandoned Afghanistan in the 1980's. They see factions within it as useful tools in their contest with vastly larger and wealthier India. A friendly Afghanistan would protect Pakistan's rear. They may be right: their strategy may pay off, when the US leaves.

It's not a question of 'if' the US will leave, but whether it will begin to leave in 2011 as Obama promises, and whether this 'beginning' will amount to really getting out, or not. The sheer, numbing reality of this stupid, awful war, as illustrated in the Wikileaks documents, argues that any sane person would begin leaving now, not a year from now.

What will be illuminating is Obama's response, and of those on the fence in Congress (more or less pro-war Democrats). Excepting Ron Paul, all Republicans are dead-set against withdrawal, but then few of them seem rational, anyway.

My bet? The military will say withdrawal isn't practical, and Obama will be afraid to oppose them, leading us towards the kind of bankruptcy that ended in the fall of the Roman Empire in 476.

Tax Cuts For the Wealthy

That seems to be the refrain of conservatives, Republicans and Tea Party activists: they advocate making the Bush tax cuts permanent. Yet, at the same time, they rail about the admittedly huge government debt. Making the tax cuts permanent, would, it's estimated, increase government debt in the next ten years by well over $2 trillion. And Boehner, the House Republican leader, actually said the tax cuts don't have to be paid for!

Republicans are attempting to gain political traction with the "all debt is bad" crowd, while also currying favor with wealthy fundraisers, and indulging in the you-can-get-it-for-nothing thinking that created the disastrous 2007-8 collapse.

Cutting taxes has stimulated the economy, and increased revenue in some limited situations. It worked with JFK's tax-cuts, because tax rates were very high then (they are very low now), and their reduction made money available for consumption and therefore created incentives for investment (from the added spending boosting demand). They didn't work so well from Reagan through Bush II, because wages did not keep pace, increased consumption was based on adding to private debt; foregone taxes benefited the wealthy, who saw "investment" opportunities in financial speculation, or foreign production. So, the famous Bush tax cuts doubled the US debt, and led to speculative excess that caused the collapse.

Obama's stimulus spending has almost doubled the debt again, but without the stimulus we'd be calling this a Great Depression, not a Great Recession. Maintaining tax-cuts for the wealthy would create greater deficits, but would not stimulate the economy. Why? Banks and individuals are sitting on hoards of cash already, rather than investing, because there is little demand for new production: investment in the face of low or shrinking demand is usually considered foolhardy.

Conservatives have an ideological rationale for high-end tax-cuts: encouraging investment and cutting down the size of government. The former works in limited instances, but won't work now. As for the latter, when in power conservatives have increased government size, while still cutting taxes--hence creating structural deficits, i.e. deficits in good times.

A deficit in bad times is a natural outgrowth of need--people need support and can't pay taxes when unemployed--and partially counters the decline in demand: it is an investment for better times. A deficit during a boom is like living high on your credit card.

Tax cuts to the wealthy, now, would inflate speculation, but would not increase consumption enough to stimulate growth. They would balloon the deficit even further. They might also, finally, drive the world away from the dollar as world reserve currency: Americans would have demonstrated their financial recklessness once again. (The US caused the global downturn by encouraging out of control speculation).

Flight from the Dollar could end the American Empire as we know it.

US Empire Pushes String

How do you push a string? How do you make a nation govern itself effectively, when its history of governance up until now has been tribal, feudal and by self-selected warlords?

Tomes cram libraries on development, development finance, development economics, and political development. Most should be pulped. What we don't know about development could fill many more libraries.

There are many success stories, nations like China, Japan, India, Singapore, Malaysia, South Africa and many more, but there are no notable formulas. China has used government directed markets and state promoted industrialization, but it had a very strong, effective political system before its recent successes. India has a lively, if sometimes chaotic, political system: its economic development has been more a mixture of political direction and foreign investment.

Nations like Afghanistan or Somalia or, most egregiously, the Congo, don't have the luxury of established, effective political systems.

Well-meaning Americans and Europeans try to help these nations learn to govern themselves. In the case of Afghanistan, they are doing so while also fighting a persistent insurrection/revolution on behalf of its largely dysfunctional government.

Some of the development success stories, including Vietnam, tell how revolutionary movements, anti-western, or anti-American, created the necessary political foundation for development in their countries: imposed governments did not.

From the era of colonialism until now, western, or "developed" nations have attempted to impose their kinds of governance on "less-developed" nations, sometimes for their own national interest, sometimes for more altruistic reasons. Western-style "democracies" flourished in Europe and Japan after WWII, because there had been long-established and effective governments before the war.

But consider the case of China: the allies supported a weak, corrupt authoritarian government (Chiang-kai Shek), and attempted to counter a revolutionary movement; our attempts failed. The Communist government lurched from famine, to war, to succession crises, but it also established a political system so strong that it could mobilize nearly a billion Chinese to kill off the flies in their nation--mostly by hand! That government still governs, and by adopting western-style economics, has become wildly successful.

Ours is really a post-imperial world waiting to happen: the US can only maintain its world-straddling military by borrowing from China. Yet, it can't create civil societies in places like Afghanistan, Iraq and Somalia no matter how many troops it stations in those nations. All it can do is exacerbate tensions, which favors forces of destruction, like al Qaeda.

Yet, the military has gained enough control of American policy that it continues to expand, regardless of economic distress faced at home, or lack of success abroad.

Our foreign policy goals are wildly unrealistic: you can't push a string. Continuing our military-foreign policy abroad will not create international stability; it will only impoverish and bankrupt us.

We have a choice: a vibrant nation without an empire, or a broken nation still attempting to hold onto one.

The Politics of Resentment

The Right does resentment really well. They teach their constituents, and fence-sitters, too, that the other side is treacherous, or under-handed, unfair and taking advantage of them, in essence, taking away their American Way of Life. But they don't target the people who are doing this; they target: illegal aliens, unions, big government, regulation. While most people resent bankers and Wall Street, the Right protects them, yet attacks Democrats in Congress for supporting them. It certainly doesn't talk about inequality, or the extravagant salaries and bonuses of the financial elite. Now, it advocates tax-cuts for them!

The left doesn't do resentment well. Yet, a true left-wing populist could use the politics of resentment to good effect. Obama is no populist, nor a true lefty, but he has the potential for populism--in the run-up to the 2012 election--if he sees the electoral potential.

At this point in Roosevelt's first term, his major jobs creation program was the National Recovery Administration (NRA), which looked like Fascist central control of the private economy; it was a failure, and unanimously ruled unconstitutional by the Supreme Court. Come the election in 1936, and Roosevelt found his populist calling, campaigning against "the economic royalists of our time."

Can you imagine Obama reaching that point?

But even FDR couldn't persuade Congress to allocate enough money to truly finance a recovery. Only patriotic fervor for war did that.

I wonder what is different now, than it was in 1935. The media was less concentrated, but there were many right-wing media outlets condemning Roosevelt as a Socialist or a Communist at every turn. People of means referred to FDR as "that man in the White House." Obama is that man from Kenya, and--the epithets are legion.

Could a left-wing populist shove Obama aside? If Obama were challenged from the left, he might respond--much the way Roosevelt did, in 1936.

Someone on the left needs to exploit the politics of resentment: resentment of those Wall Street "fat-cats," first of all. They were bailed out, but help themselves to more; resentment of the subsidies oil and coal companies receive, while Americans can't get jobs or unemployment insurance; resentment of huge disparities in salaries between top executives and workers; resentment of the way they are taxed: class resentment.

While people may disagree on abortion or gay marriage, immigration, or the financial overhaul, almost all of them hate Wall Street. For good reason: Wall Street siphons off an increasing share of US wealth for no discernible benefit--except to itself.

Resentment is a negative word, a negative focus, but it has a visceral appeal, and one that could lead to a positive outcome: a more egalitarian and prosperous society.

But to get there, the Left needs to be as cynical as the Right. Is that possible?

The best lack all conviction,
While the worst are full of passionate intensity.

Pearl Harbor, Afghanistan and the Tea Party

A film version of Pearl Harbor reminded me of how the Japanese military in 1941 controlled Japan. On the other side of the globe, the Nazis preached hate, and attacked with their apparently invincible war machine. Americans didn't want to see what was coming: it took us over two years to wake up. Both systems depended on conquest; the US was at peace.

Now, the whole world system is upside down. It is the US, which makes war everywhere, has a military that dominates the nation, and spends more on "defense" than all other nations combined. It is also one of many nations in which hate and xenophobia are on the rise: both the Tea Party and anti-immigrant rage. In addition, we have one, two, many Goebbels: Beck, Fox, Limbaugh, etc., and a host of large corporations willing to spend billions to buy elections for corporate sympathizers-- "corp-symps."

They may all come together. The right-wing Tea Partiers support the dominant military against any civilian threat, and can blame all our troubles on "terrorists" and illegal aliens--mostly Hispanic, or Arab: America's equivalent of the Nazi's Jews. Other scapegoats, or targets, can also be marshaled to draw in homophobic right wing Christians, or….

So, in the US now, we have: a military just barely contained by civilian leadership, and the rise of a political movement, which in its use of propaganda and racism, looks eerily like the Nazis. So far, neither Sarah, nor anyone else has been as successful as Hitler at whipping up militant fervor. But then Hitler took awhile, too (more than 10 years--1921-1933).

It's hard not to see Obama and Congress as the ineffectual Weimar Republic, which could not withstand the Nazis' popular mobilization and intimidation. Passive Germans, lying propagandists and charisma defeated Weimar. Could it happen here?

In Japan, the military took over the government behind the scenes. No one could withstand its power; Tojo was a military dictator controlling a civilian administration.

If radicals gain control of the Republican Party, and then the government, a short-lived march to greater imperial conquest could doom this country either to defeat, like Germany or Japan, or more likely to impoverishment and bankruptcy--possibly both.

The result could look like the declining Roman Empire of the Fifth Century: and no wealthy will reach into their pockets to fund our survival, any more than the Roman Senators did in 476.

The US will not prosper if the Zanies gain power, but some people will: corporate leaders, wealthy owners of capital, a small political elite. The same was true of Nazi Germany--and of the later Roman Empire. Ordinary people will have a choice: join the military and/or the movement, or be increasingly impoverished.

We need to take the corporations, the military and the Tea Party seriously: together they are a threat to Democracy.

Heat and Idiocies

It's high 90's; the humidity is climbing. We try to shelter in our cooler houses, go to air-conditioned movies, or are almost thankful we're at work in air-conditioned offices.

It's hot here in the northeast.

Do people ever consider the plight of people in places like Baghdad? There, the temperatures soar into the 120's and 130's, and, in the city, where you'd expect air-conditioning, most people consider themselves lucky if they get a few hours of electricity.

Why? Before the US invasion, Baghdad had power outages, but electricity was generally available. The US, back in 2002, was going to make things better for the Iraqis, by driving out Saddam Hussein. We drove him out; his own people executed him. Meanwhile, Baghdad suffers heat we can hardly imagine. It has no air-conditioning, because when we invaded, we destroyed their power plants. Many billions of dollars later, many power plants have not been successfully repaired, nor the distribution system.

Meanwhile, American troops in their big bases have air-conditioning, hot and cold running water, all the amenities. Probably, in most forward operating bases, Americans enjoy air-conditioning and hot showers.

But the Iraqis do not.

The story is probably similar in Afghanistan, except that there was less to destroy, so Afghans may be less worse off after our invasion than the Iraqis.

What have our invasions accomplished? In Iraq, we got rid of a bad guy, who had been a CIA client, and we also killed a lot of people, destroyed a lot. We so totally destabilized the society that we had to stop a civil war. It could break out again once we leave.

In Afghanistan, we drove the Taliban from power, restored education for girls in a very few places, and put in place an ineffectual government that is one of the most corrupt on the planet. We also killed (and continue to kill) many Afghans, both combatants and non-combatants. But we failed to destroy the Taliban. Despite its unpopularity, Afghan majorities now believe it will return to power in some form; they also want the US and NATO to leave, because we're repeating Vietnam: destroying villages "in order to save them."

Which Afghans want us to stay? The ones who have grown fat on US contracts, or US-funded bribes, are maintained in power by our military, or are allied with those who are: a small minority.

Why do we stay--in either place?

Is it because our military craves large budgets and opportunities for promotion? Is it because defense contractors sell larger and larger contracts?

Meanwhile, the long-term unemployed can't get jobs, and the Senate refuses to extend their benefits--because of budget deficits. The largest discretionary budget item is Defense: $680,000,000-1,300,000,000. (Social Security/Medicare is larger, but self-funded and not discretionary).

Our best plan for a stimulus would be: cut bases worldwide and get out of both wars; spend the money at home.

When Government is Small Enough

We've heard a lot about the conservatives' drive to cut government spending, and functions. Famously Grover Norquist said that his aim was to make government small enough that he could "drown it in a bathtub."

In other words, the ideal was no government at all. It's an interesting idea, especially since we see examples of it in various places around the world.

Somalia, for example. In Somalia, there is a government, but its writ is extremely limited even in the capital city of Mogadishu. Nevertheless, the US and the UN are supporting it--even though it has been caught using child soldiers in its national army. But there is virtually no security, except in some of the rebel-held areas, where strict, extremely brutal "sharia" law is arbitrarily enforced. If someone is starving, and he grabs a loaf of bread, having no money--there is no viable currency--he could have a hand and foot hacked off by al Shabaab, a fundamentalist insurgent group.

So, if you travel in Somalia, you need at least a couple of bodyguards, armed (at least) with AK47's. If you want to send a letter out of the country, you're out of luck. If you're near one of the local businessmen-warlords, who has a local private mail service, you might be able to send a letter within parts of Somalia.

If you want to send your children to school, in most of the country you'll just have to forget about it. One of the reasons for Somali piracy is that there is no security for the nation's fishing areas, so the international fishing industry has moved in, and the Somalis make a living by commandeering unprotected shipping. It's become a big business.

Nations without governance for large parts of their territories are vulnerable to freelance armies like the LRA (Lord's Resistance Army), which bills itself as a rebellion to replace Uganda's government with a Christian theocracy, but ranges over four nations, killing, raping, looting, and recruiting boys to fight and girls as sex slaves. The LRA reminds me of the worst aspects of medieval freelance armies: it really isn't interested in holding territory, simply in maintaining (and enriching) itself. It has ranged free for years, because northern Uganda, southern Sudan, Central African Republic and DR Congo have large territories without government control. The LRA is like Attila's Huns.

The Congo has also been vulnerable, especially its eastern territories, to the same kind of freelance armies (a lot of them): government hardly functions there. Africa (and other ungoverned parts of the world) are like the period during and after the fall of Rome in Europe, when barbarian hordes roamed free, ripped off whatever they could carry, killed any resisters, recruited malcontents and kept on moving. That era has been labeled "the Dark Ages."

They illustrate what No government looks like. Is that what Grover wants?

Gulf of Mexico: Only Oil Wells!

Gee, why don't we just write off the Gulf of Mexico as anything but an oil production site? Why stop drilling?

We've already committed ecocide there. Dead zones all over the place as oil and gas escape at huge volumes from BP's blowout. They'll continue to spread and there doesn't seem to be any end in sight. Even if the first relief well succeeds in tapping into the blown-out well, there is still the possibility that BP won't be able to plug it, and we won't even know if that's a success until August--if more hurricanes don't disrupt the process until after the hurricane season (June-November).

So, we should simply write off the whole non-oil Gulf Coast economy. Just open the whole Gulf to extensive oil drilling, and who cares if there are more blow outs? America needs the oil. Isn't that what Republicans, tea-partiers and others are saying? We can't have a moratorium! Oil drillers' jobs will be lost.

Since we've already screwed the Gulf, we might as well just continue doing it. Shrimpers, et al, aren't going to recover for years, so expand the oil patch and hire them as oil drillers.

We should not, under any circumstances, sanction those poor oil companies: they have so much on their plates, and if we look cross-eyed at them, why they might go and despoil the Nigerian delta, instead.

Oh. They already have.

Well, all the more reason why all oil-drilling regulations and limitations should be removed. We're competing with Nigeria, but we want the oil in our backyard. Who cares if a little bit is spilled?

Is anyone calculating the effects of the trillions of cubic feet of methane being released by the blowout? Will it accelerate global warming? But then there is no such thing. One of my favorite right-wing bloggers warns that the criminal conspirators who control the world--including Obama's White House, of course--have decided that they haven't been able to sell global warming, so they'll try to persuade everyone that the real danger is Global Cooling!

Now, if it's global cooling, then the oil spew disaster is no disaster, at all: it helps solve the problem. It releases huge quantities of methane into the atmosphere, thereby helping to hold in the precious heat this planet is in danger of losing. And polluting industries, cars, etc. all help stave off the imminent ice age.

Now that we've solved that problem, let's move on to the financial system: obviously, there should be no regulation of those poor banks. Who knows how much profits Goldman would lose!

Right-wingers unite! You have nothing to lose but your tenuous grip on reality! Somalia is our new model: no government at all.