Sequestration

Is a fancy word: it means, in the memorable phrase of Congressman, Sean Maloney, "Congress screwing up the economy for no reason."

It's true that the projected government deficit is over $1.1 trillion, a mind-boggling number, but cutting spending would make that number worse. Why? As the miniscule retreat in GDP last quarter demonstrated, when we cut government spending, the whole economy is negatively affected. We teeter between recovery and renewed recession. Further, the experience of European countries, demonstrates that austerity does not create prosperity; it created renewed recession in the UK (triple dip) and depression in Greece.

The "sequester" has the Republicans worrying about cuts to Defense, complaining that this will cost jobs (it will), but they're not worrying about, and want to increase cuts to domestic programs. The cuts already mandated would not only cost even more jobs (civilian programs create more jobs per dollar than defense), but they would hurt our most vulnerable, and our future prosperity.

Cuts to domestic programs will: cut 70,000 children from Headstart, deny treatment to 373,000 mentally ill (adults and children) and reduce small business loan guarantees by $540 million. In addition, the $85 billion in cuts on Mar 1, could include, according to Congresswoman Nita Lowey, "furloughs of air traffic controllers, food inspectors, border patrol, reduced investment in safe drinking water and medical research, diminished military readiness and embassy security."

Think about this logically: if you reduce expenditures March 1st by $85 billion, how is that going to help us recover from the Great Recession? It will cut that amount of money (US multiplier estimated at 1.29 to 1.73) from flowing into the economy, cutting jobs, cutting purchases--as well as needed services. It won't "grow" the economy; it will shrink it by at least $109 billion--in one month.

Greece, subjected to radical austerity, has seen tax receipts plummet with government cuts: its ability to pay back debts is reduced, not enhanced by austerity.

Austerity proponents speak as if "business confidence" will be restored by cuts, and prosperity and jobs will magically return. Why? If everyone, except for banksters and one-percenters, have less money, who's going to buy what businesses sell? The wealthy are too few to create enough demand, so there's no reason for businesses to hire more workers, or produce more goods, if austerity means everyone--except the wealthy--will buy less than they did before. So where are more jobs to come from?

The Roman Empire was in a centuries long depression before it collapsed; its gold standard prevented expansion of the money supply; further, when Senators hoarded gold, money contracted, deepening the depression. Today, the Federal Reserve can expand the money supply, as can the Federal government. When demand is lacking, Government should build demand, not cut it. Only during a full recovery, should long-term budget deficits be cut, by tax and health care reform and withdrawal from an empire the US can no longer afford.

Job Destroyers II

In a previous post, I wrote that CEO's and takeover specialists like Mitt Romney are the very opposite of job creators: they are job destroyers when they lay off workers, "downsize," pit American workers against foreign workers and "offshore" jobs.

The banks are job destroyers, too, as is the Pentagon.

The banks provide capital to enable CEO's to offshore, for example, and loot industries through the kinds of scams that brought about the derivatives collapse. That particular scam, precipitated by the sub-prime implosion, dried up the booming construction sector, killing many more jobs. Banks also finance the corporate takeovers that cause companies to shed thousands of jobs. They promote these job-killing programs, because they can make handsome profits from them.

The Pentagon is also a job destroyer. That may sound strange, because politicians, especially those with defense industries or military bases within their districts, instantly complain that area jobs will be lost when anyone proposes cuts to defense programs.

The economic principle here is 'opportunity cost.' Numerous studies have found that defense jobs require twice as much capital per worker as non-defense jobs; they are capital intensive. They also don't produce things that enrich the nation; they produce instruments for destruction, mostly for use elsewhere. Incidentally, the move to legalize indefinite detention or assassination of American citizens in the US might mean that the destruction we finance could be our own.

In any case, it costs twice as much to employ a defense worker, or a soldier, as it does to employ a non-defense factory worker and three times as much as employing a teacher or healthcare worker. In some cases, the opportunity cost is much higher: a soldier in Afghanistan costs $1 million a year; it's probable that same million could employ ten teachers. The non-monetary cost is even greater: teachers educate the next generation, soldiers kill people abroad, or terrorize them, or, at best, help foreigners maintain security in their own countries. Meanwhile, children at home are crammed into larger and larger classes, getting less and less of the attention and help they need.

What benefits do we get for sending our military all over the world? Oil is probably cheaper here because of it, but think of what it costs us to accomplish that: three quarters of a trillion dollars a year. Walmart gets its goods mostly from China, where we don't have military influence, but perhaps imported goods would be costlier if there were no global American military presence.

Considering the effect cheap imports have had on our economy and our jobs, I rest my case: the military destroys millions of jobs.

Who benefits? The military brass and the owners of defense industries: the latter are our contemporary Roman Senators, described by the OWS as "the 1%."

Republicans call them "job creators!"

Predator Banksters

Predator Banksters

There has been outsized brouhaha about Goldman's and other bankster bonuses--made possible by Fed and bailout (taxpayer) money. There has also been some attention paid to the kind of "investments" that have bloated Goldman and JP Morgan profits: huge bets using the Fed's free money.

Now, it turns out that those same kinds of bets are behind a lot of the continuing instability in international financial markets. Greece is an especially egregious example.

It is likely that the Greek government has been feckless, and its public employee unions have been unreasonable. It is also true that Greece is in the exact same position as California, New York, and many other American states: it can't create its own money, so it can't do what the US Federal government can do: issue money to cover shortfalls (and more). Its currency, the Euro, is controlled by the limited government in Brussels, itself steered economically by its two largest players: Germany and France. Both major countries are understandably reluctant to follow even easier money policy than they already have: in Germany's case, its Mark meltdown in the 1920's and '30's makes it doubly wary.

However, there is something else going on, and it has to do with the banks, or rather the banksters. An article from the New York Times, 2/25/10 pinpoints the problem: Credit Default Swaps (CDS).

"As banks and others rush into these swaps, the cost of insuring Greece’s debt rises. Alarmed by that bearish signal, bond investors then shun Greek bonds, making it harder for the country to borrow. That, in turn, adds to the anxiety — and the whole thing starts over again."

That is, CDS's raise interest rates that Greece (and Portugal, Spain, Ireland, etc.) will have to pay to fund their obligations. That will make their budget-balancing task harder, and the misery of the ordinary man/woman in the street that much greater: governments will have to lay off millions in order to pay off their debts, and will have to curtail the public services that have raised their nations' standards of living.

But Wall Street doesn't mind. Why? Because, its traders can make outsized profits on the backs of Greek (and other nations') misery.

Wall Street did the same thing to Lehman and to AIG, and its traders are probably sharpening their knives for Portugal, Spain and so on.

This is only one more reason why financial regulation is imperative: banks will only return to the civilized world, and abandon their rapacity, when deposits and Fed/FDIC guarantees are stripped from their speculative arms, when the wall between depository and speculative institutions set up by Glass-Steagall is re-established and when CDS's (and other "exotic" financial instruments) are regulated.

If the banksters succeed in defeating reform, they will eventually succeed in bringing down the whole financial system, something they almost succeeded in doing in 2007-8.

And then?