Reverse Cassandras by Tim Horras

For those of you who haven't read your Greek mythology, Cassandra was a prophet who is said to have lived during the Trojan war. The gods gave her the ability to predict the future, but doomed her to be ignored by everyone and made powerless to change anything.

Today we're faced with a glut of Reverse Cassandras.

What's a Reverse Cassandra? A Reverse Cassandra is somebody with the power to change things and who everybody listens to and heeds, but really this person doesn't have a clue and is promoting an innaccurate, rosy view of the future.

Emissaries from the global ruling classes have been telling us that we've hit the bottom of the economic downward slide. Fed Reserve Chairman Ben Bernanke said as much yesterday, President Obama has been talking for weeks about "glimmers of hope", the EU says we're no longer in freefall - the latter even going so far as to send the French minister of finance to that red-white-and-blue bastion of mainstream American liberalism, The Daily Show, to tell us that, indeed, we may have reached the bottom. Even the usually dour (neo)liberal talking-head Paul Krugman is seeing the "green shoots" of new growth!

But on what basis are they making these claims?

Now, I'm no trained economist, and I certainly don't have Cassandra's prescience, but I'd like to explain my reasons for thinking that these people are wrong.

Firstly, these people are career liars whose sole purpose is to mislead and keep down the working class.

That's an opinion, of course, but it's an opinion based on evidence. These folks bought into the neoliberal lie -- hook, line and sinker. In 2002, Bernanke said thanks to the guiding influence of that godfather of free-market fundamentalism, Milton Friedman, we would "never again" have another Depression-like economic crisis. As for Krugman, who is portrayed in the media as the far-left alternative to the status quo, you should remember that this was the same guy who thought that US monetary policy would solve all employment problems, and that folks who thought the financial and economic problems of the 1930s would repeat themselves were not "sensible people". [1]

From a more evidential perspective, having gone through the reports these bodies have published -- looking with all my little heart of hearts for the glimmers of hope -- I've found very few positive signs.

For example, the EU had to revise their predictions this month, because economic contraction has been shown to be twice as bad as they had expected. However, measures like consumer confidence are high. Well that's just great! Unfortunately, confidence has little to do with reality -- wages are likely to continue declining, meaning less purchasing power for workers, meaning even lower demand, etc. The only good news these days seems to be coming out of China, which even before the crisis was producing massive surpluses (literature on China is extensive, but David Harvey has the best analysis out there for my money).

So while the Reverse Cassandras tell us the sky is not, in fact, falling, the situation continues to get more and more dire.

If I haven't already made this clear, the existing ruling class in the US is incapable of getting us out of this mess. They're already preparing us for permanent, mass unemployment, as remarks by former Fed Reserve Chairman and current Chairman of the President's Economic Recovery Board Paul Volker indicate. According to Volker, the new, "natural" rate of unemployment will be much higher. If this indeed does come to pass, this will mean a jobless recovery which is even worse than those we've experienced before.

I'd like to end on a somber note. I'm currently reading Jeffry A. Frieden's Global Capitalism: Its Fall & Rise in the Twentieth Century, which is a flawed but comprehensive overview of global economic history from the late nineteenth century til 2000. I'm getting to the part right now where World War I has just ended, and the new postwar economic order is coming into being. This proves to be disastrous, and a young John Maynard Keynes goes on to write a best-selling polemic outlining its failures. The important thing here is this: the ruling classes of Europe failed miserably. They led their societies into a maelstrom of destruction and horror which lasted almost forty years, leading from world war to hyperinflation, to depression and world war all over again.

I leave it to the reader to draw any contemporary parallels.

After all, the only thing worse than a Reverse Cassandra is the genunine article.

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[1] The reason I'm so adamant about pushing socialism to the forefront of the public debate, is that there needs to be another set of alternatives in the discussion about our collective futures. Our current range of options leave us with little room to maneuver -- from the psuedo-Keynesianism of Paul Krugman on the "left", to the "centrist" policies of the Geithner-Summers banking elite - fully backed by the administration of Barack Obama (policies which amount to a massive robbery of public coffers to pay off the bad investments of the financial class), and on the right, the Alice In Wonderland/living-in-a-fantasy world economics of the Tea Baggers and the Republican Party.

"An angry army to give the government back to those who have always been the champions of special privilege" (Brian) by Winston

The contemporary recruitment of which could have been started at the "tea parties"??

J'Accuse! (Aug. 19, 1939) Sen. Claude Pepper (who himself later became a Cold Warrior), from The Progressive:

Obama's agenda and the conservative response (posted by Keith) by Keith

This was in todays Financial Times.

An epic battle looms over Obama's big push

By Roger Altman

Published: March 4 2009 02:00 | Last updated: March 4 2009 02:00

If leadership is measured by seizing big opportunities that others do not see, then Barack Obama is already proving himself a leader. His 2007 decision to run for president was audacious but shrewd. He saw the opening. Now, he has judged that the severe economic crisis, his own soaring popularity and Republican disarray provide a rare chance to revolutionise US domestic policy. And he is going for it right now.

His new budget calls for breathtaking change in one big step. In the modern era, only Lyndon Johnson in 1965 and Ronald Reagan in 1981 have sought and achieved comparable change. Johnson's Great Society sharply expanded the government's role. Reagan rolled that back. Now, Mr Obama is proposing a new era of progressive government, centred on expanded federal roles in energy, health and education.

This level of federal activism is anathema to Republicans. It attacks their core principles of lower taxes and limited government. If implemented, the new progressivism may rule indefinitely. The era of Reagan conservatism lasted nearly 30 years. Republicans, as Newt Gingrich, former House speaker, and Rush Limbaugh, the radio host, have urged, have no choice but to wage all-out war against it. We are about to witness an epic congressional fight - the political equivalent of the Battle of Antietam in the American Civil War.

The key fight will not occur over the spending amounts in the budget. Republicans cannot defeat those. Congressional roles require only a simple majority to approve budgets, and the ample Democratic majorities will prevail. Budgets also just allocate amounts and sources of financing for programmes. The latter must be voted on separately and later. This is where the battle will focus - on the expansion of the government role in energy, healthcare and education.

First, on energy conservation, Mr Obama's cap-and-trade proposal represents a sharp expansion of regulation and an indirect and large tax increase on industry. Caps on permissible emissions would apply to all polluting industries and tighten gradually. Those unable to comply would buy emissions credits and incur the associated costs. These credits would be auctioned by the government, raising $65bn a year. Some would finance alternative energy but most would pay for tax cuts on middle-income Americans. In other words, industry would underwrite the shift to a more progressive tax system.

Second, on healthcare the goal is universal health insurance for all Americans. The methods are likely to involve a federal requirement that all adults receive coverage from their employers or buy it for themselves. The budget projects $1,000bn of additional federal costs over 10 years to deliver universal coverage. To finance this partially, it will begin raising a $630bn "reserve fund" from tax rises on higher earners and limiting Medicare reimbursements to healthcare providers.

Finally, responsibility for financing education has always resided at the state and local level in the US. Mr Obama has proposed to double the federal role in early childhood education. Further, he has proposed expanding the grant for low-income college tuition assistance and converting it into an entitlement - the first in decades.

These proposals would dramatically expand the federal role. Moreover, the financing for this would create a substantially more progressive tax system. This is why Republican and conservative opposition will be so fierce.

The risk for Mr Obama does not lie in these proposals, but in the growing possibility that the recovery is much weaker than envisioned in his budget. It forecasts real gross domestic product growth rebounding 3.2 per cent in 2010 and over 4 per cent for the subsequent three years. On that basis, the deficit still approximates $1,000bn through 2011. But this is a rare balance-sheet recession. The asset bubble collapse caused US households to lose 25 per cent of their net worth and financial sector balance sheets to collapse. It is practically impossible for these damaged balance sheets to support a return to normal consumer spending (72 per cent of GDP) and financial lending for three to four years. The recovery, therefore, will be subnormal. This not only means even bigger deficits than the scary ones projected, but it also could weaken public support for these sweeping policy changes.

Can Mr Obama implement this audacious agenda? His current momentum and extraordinary gifts suggest that he can. We may see a generation of change telescoped into one year.

The writer is chairman of Evercore Partners and was deputy Treasury secretary under President Bill Clinton

Student Debt & The Obama Budget (Chloe) by Chloë

For many of us that are still students, we are semi-isolated from the financial crisis. We are though very familiar with the financial aid process that causes major head aches around this time of the year. Obama's new budget may change that.

The president is proposing an overhaul of the financial aid program, including nationalizing the lending process. Not surprisingly this will have a negative impact on lending institutions like Sallie Mae, but the plan is estimated to save the federal government 4 billion dollars. Along with saving the federal government money, the president is increasing the number of grants available to low income students and expanding eligibility to the federal loan program.

This though is a small step in terms of getting affordable education and many students will still be left with mounds of debt. It though signifies greater federal government involvement in higher education, letting us hope that free higher education will someday be a reality in the United States.

Partial Peace, Looming War (By Tom Hayden) by Keith

This essay by Tom Hayden was published in  The Nation this week. His analysis of Obama's relationship to the military establishment is interesing. I ahev soem thoughts about what he says about the anti-war movement that I posted as a comment. 

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Partial Peace, Looming War. 

By Tom Hayden

President Obama has surprised the national security establishment, and not a few in the peace movement, with his Friday commitment to pull all American troops out of Iraq by 2011. 
The Washington Post's Thomas Ricks predicted in his recent authoritative history, The Gamble, that Obama would keep 25,000 to 50,000 troops in Iraq as a "residual" force indefinitely. Ricks reports that generals like David Petraeus and Raymond Odierno were expecting at least that many troops, and predicts that the fighting will continue for decades. Obama's announced new policy must shock Ricks and the military leaders he extensively interviewed. Obama's official stance comes after many months of appearing to support the notion of residual forces, which many in the peace movement correctly believed could lead to low-visibility counterinsurgency and a permanent military occupation. Obama said nothing to dissuade the critics until Friday's speech at Camp Lejeune, North Carolina. 
In debates within the Obama camp, only John Podesta, transition adviser and head of the Center for American Progress (CAP) was publicly advocating that all troops, including trainers and advisers, be withdrawn within one year. 
Ricks' book is wrong on another related matter, the role of the antiwar movement in this process. Ricks celebrates Petraeus for having pacified Iraq in the face of considerable Democratic doubt, and for winning the political war at home in 2007-2008. Petraeus's stated goal was to speed up the Iraqi clock (the surge) while slowing down the American one (the electoral calendar). Ricks says he pulled it off. After Petraeus's appearance before Congress in September 2007, Rick says, domestic criticism faded away. News coverage of Iraq sharply declined, as networks began to withdraw from Iraq. The March 2008 antiwar demonstrations were "tiny," he writes, with fewer than 1,000 in Washington and 500 in San Francisco. 
Ricks is partly right. Democratic party leaders and big donors pulled back from the issue of Iraq after Petraeus's testimony, and after a MoveOn advertisement accusing the general of betrayal. The resulting crisis in the DC hub of antiwar advocates was never resolved, but the grassroots peace bloc in the Democratic primaries mushroomed anyway, giving Obama a needed edge in Iowa and a string of wins against Hillary Clinton. 
When there was a choice between supporting Barack Obama and attending rallies organized by various Maoists, Trotskyists and neo-anarchists opposed to Obama and electoral politics, the grassroots peace movement headed for the precincts by the thousands. What appeared to Ricks to be a failed antiwar rally in Washington was only evidence that the movement was moving on, becoming a voting force in and around the Obama campaign. 
That turned out to be the right strategy for the peace movement when John McCain was defeated in November, but many continued to wonder--with good reason--whether Obama was promising nothing more than partial peace under a new form of military occupation. Now it is clear that somewhere along the way Obama became persuaded that it made little sense to leave 50,000 troops in Iraq when the Pentagon couldn't win with 150,000, the American economy was collapsing and his hands were full in Afghanistan and Pakistan. 
In Iraq the situation remains unpredictable. A brutal nationalist and authoritarian state, with sectarian police and thousands of detainees, looms as the result of a seven-year war. Under Odierno's command, according to Ricks, tens of thousands of military-aged Sunni males (called MAMs) were held in preventive detention. Bob Woodward's recent book goes further, crediting a top-secret US program of extrajudicial killings for imposing a peace of the dead in Baghdad. The Sunni insurgency decided in 2007 that an alliance with the Americans would thwart their Al Qaeda rivals while providing protection against the Shi'a majority. They were right, and 100,000 of the so-called Sons of Iraq were paid $20 million per month not to shoot at Americans. On the other hand, the Shi'a who already were installed in power by the Americans had no reason to fight their sponsors, especially when even the militias loyal to Moktada al-Sadr chose to take a political path to power, at least for the moment. The Iranians will be pleased to see the US troops depart on any schedule, and enjoy good relations with whichever Shi'a party prevails in Iraq. The festering Kurdish crisis could boil over, but is localized. Things could change, but most Iraqis have an interest in seeing the Americans implement the "withdrawal agreement." Who knows, they may even throw flowers to the retreating troops instead of shoes. 
The greater danger from Iraq for Obama may lie at home politically if Republicans and the generals, echoed by the mainstream media, protest Obama's withdrawal plan as naïve or worse. In Ricks's analysis, Obama would not want to risk a confrontation with the military early in his presidency: 
"Like Clinton, Obama would also face the prospect of a de facto alliance between the military and congressional Republicans to stop him from making any major changes. " 
Since Ricks was wrong about Obama's fortitude, he may be wrong on the danger of a backlash as well. The American people are in no mood for a "forever war" in Iraq, whatever the malcontents believe in Washington think tanks. 
That leaves Afghanistan and Pakistan, both in flames. In those places, the politics are reversed, with Obama having promised to defeat Al Qaeda by using Predators in Pakistan and more ground troops in Afghanistan. So far he is keeping his campaign pledges, while still proceeding cautiously in developing an overall plan. Neither the neoconservatives nor the generals are fully happy with Obama's early approach, which they see as pointed towards a diplomatic settlement instead of "winning" militarily. On this point, Secretary Gates seems to have the president's back, repeatedly warning that no military solution is possible. 
Nevertheless, Obama is beginning an escalation with 17,000 troops bringing the American total in Afghanistan to over 50,000. Except for its political rationale, this is a puzzling military gesture. By comparison: 
• In South Vietnam, the US deployed 500,000 troops on a battlefield of 67,000 square miles containing 19 million people
•n Iraq, we deployed 160,000 troops on a battlefield of 168,745 square miles, with 26 million people 
•n Afghanistan, Obama plans to deploy some 60,000 US troops on a battlefield of 250,001 sqare miles with 30 million people 
• And in Pakistan he has 100 special ops on the ground, with $400 million allocated for 85,000 tribal paramilitaries. 
The geography and demographics are staggering. Obama cannot possibly be considering a military solution while deploying fewer American troops on larger and larger battlefields. It is hard to imagine that he plans a Vietnam-style escalation either. At the current rate of Afghanistan spending, the costs will reach over $1 trillion by the end of Obama's first term, while he risks his presidency on economic recovery. 
Until a brave few in Congress begin to catch up, the critics of Afghanistan policy will have to launch a passionate and substantive debate over the "long war" ahead, oppose the 17,000 new troops as simply 17,000 more targets for the Taliban, sketch in the content of a diplomatic settlement and propose an exit strategy. The first arena for debate, recalling the 1965 Vietnam teach-ins on campuses, will be the blogosphere. The second will be Congressional hearings, with critics at the table. And the third phase is likely to be direct dialogue and engagement in the 2010 elections, district by district. At this point, however, the movement will have to engage MoveOn and many liberal Democrats who are mired in the lingering belief that Afghanistan is the "good war." (We might ask, what does that make Pakistan?) 
There are still more battlefields in the long war. Obama will have to be persuaded to say no to an Israeli strike on Iran while he tries to engage Tehran on stability in Iraq and Afghanistan. Ultimately, Obama will also find ways to increase support for Palestinian aspirations, as the most effective approach to lessening Arab and Islamic support for jihad. It's a long way down the road, but his choices of George Mitchell as an envoy along with Charles Freeman to a high intelligence post are the most progressive and independent Middle East appointments in a generation. 

 

Obama on Nationalization (Jim) by der Augenblick

Looks like Treasury overpaid last fall when buying up troubled assets under TARP.

Elizabeth Warren, chairwoman of the Congressional Oversight Panel for the bailout funds, told the Senate Banking Committee on Thursday that Treasury in 2008 paid $254 billion and received assets worth about $176 billion.

This is bad, but what's worse is that the bad banks plan will probably repeat the mistake.

A lot of people hoped Obama would be a super-star coming right in, and there'd be quick, correct, decisive action that would produce real results. Unfortunately the reality is that there's a learning curve—a collective learning curve that involves shifting the political-economic paradigm in the United States step by step, out of necessity. You can think of it as a Bildungsroman with your retirement, livelihood, and, uhhh, food and water supply playing a supporting role.

The question right now is, how long until nationalization? Roubini, as quoted on Calculated Risk, says:

So, the current strategy – Plan A - may not work and the Plan B (or better Plan N for nationalization) may end up the way to go later this year. Wasting another 6-12 months to do the right thing may be a mistake but the political constrains facing the new administration – and the remaining small probability that the current strategy may by some miracle or luck work – suggest that Plan A should be first exhausted before there is a move to Plan N. Wasting another 6-12 months may risk turning a U-shaped recession into an L-shaped near depression but currently Plan N is not yet politically feasible.

This basically fits with my understanding of what's going on right now. There are political barriers right now—barriers reinforced by the "culture" in America—but necessity is going to remove them. And very shortly.

ETA: Roubini and Taleb discuss the crisis:



I think what Roubini and Taleb are saying represents the next "stage" in the development of the mainstream's attitude toward the crisis. It's the logical continuation of the outrage at the mismanagement and greed, coupled with the inability of the current managers of finance capital to do their jobs. There's a general feeling that we need to move away from the debt-centered economy to something more "robust", and Taleb reflects that attitude here. Of course it's going to turn out that "robust" means moving toward a system the sole focus of which is not the valorization of value but rather the delivery of the means of subsistence to people in general. That may seem modest, but it will in fact require a massive overhaul—a revolution—of the current way we organize and carry out the production of our lives.

Class struggle developing in the White House? (Jim) by der Augenblick

Article in the New York Times today: Geithner Said to Have Prevailed on the Bailout. And over whom has Geithner prevailed? Dissenting voices in his own administration:

In the end, Mr. Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including David Axelrod, a senior adviser to the president, according to administration and Congressional officials.

Mr. Geithner, who will announce the broad outlines of the plan on Tuesday, successfully fought against more severe limits on executive pay for companies receiving government aid.

He resisted those who wanted to dictate how banks would spend their rescue money. And he prevailed over top administration aides who wanted to replace bank executives and wipe out shareholders at institutions receiving aid.

Yves Smith at Naked Capitalism is calling the Geithner plan a fiasco:

In other words, Geithner followed the Paulson script of pushing hard to make the bailout industry friendly, to the extent of compromising the effort to get the plan fleshed out in adequate detail.

Smith is probably right that the plan won’t be much better than the one we got last fall from Paulson, though I think her general pessimism is misplaced. Geithner’s plan prevailed over countervailing opposition from David Axelrod and others within the Obama administration pushing for far more radical control over the banks we’re bailing out. It makes sense that the Obama administration would divide internally over how to deal with this problem and many others. Obama wasn’t elected by the left on a platform of social-democracy. He was elected by a coalition of students, white collar workers, blacks, and disaffected Republicans. The economy is the issue where mainstream American politicians tend to be the most conservative. The fact that the Obama administration is governing from the center and even from the same position as Bush on these issues at the moment shouldn’t come as a surprise.

Nevertheless, due to the severity of the situation we’re facing—the worst economic disaster of a generation, possibly a century—I expect the tone coming out of the White House to change rapidly. If this banking bill doesn’t sufficiently turn things around, it’s going to strengthen voices of opposition within the Obama administration, and we can expect even a drastic push to the left: not just caps on executive pay but also greater control over what institutions can do with bailout money. Geithner could easily be gone in a year.

The problem with Smith’s analysis and the analysis of those who take a “screw the Democrats” line isn’t that their criticisms of the plan are flawed but rather that they don’t take a nuanced-enough attitude toward politics in general. The Obama administration is hardly a homogenous body—to say nothing of the Democratic Party as a whole. The diverse interests present in the administration reflect the diverse class interests that brought Obama to power. While the interests present in the Bush Administration were uniform by comparison—representing a Dukes of Hazard mentality toward the world—one can begin to see the rudiments of actual class struggle playing out in the White House. I say “rudiments”, because there is hardly an open struggle right now between the interests of the people and the interests of the bourgeoisie. But it’s going to be impossible for Obama to continue to govern in the interests of a portion of his constituency which is growing in power while at the same time catering to the received wisdom of the financial markets that got us where we are. People are really fed up not just with the greed but with the seeming arbitrariness of the whole system, they want substantive change, and they’re not going to be able to get it so long as the Obama administration keeps one foot in the policies of the Bush administration. The class conflict we see playing out in the open is going to push him further to the left.