Monthly Archives: June 2011

Lobbying and Science

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Insurance companies take global climate change VERY seriously, since they have to pay out big time as the world climate zones become more extreme. Nobody in the insurance industry is talking like petroleum industry people, casting aspersions on the science. The insurance people take it as gospel because it’s hitting them in the back pocket with a vengeance.

Of course, the petroleum industry would take a hit on profits if it had to clean things up, so it’s obvious to see how they’ve denied all the way. Their lobbyists spend about $147 million a year in getting Congressmen to try and see it their way. The insurance team drops $157 million a year, though, so it’ll be interesting to see if they press to get the USA more green. To be sure, they’re split between reducing carbon emissions and destroying affordable health care, so it’ll be interesting to see what comes of that. Still, they’re 100% behind the conclusion that the world is experiencing climate change and that those changes are a result of human activity.

She Wears a Dress Because Her Pants Are on Fire

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Hoo-boy. CBS News interviewed Michele Bachmann and she brought plenty of rope, as the saying goes. Bob Schieffer asked her about her Politifact record, which rates her as someone who lies by omission or commission in some very big ways. Yet, she’s out in front among some Republicans.

I’m listening to the interview and Ms. Bachmann definitely comes across as someone that builds castles in the air and then starts cleaning them. She thinks just paying interest on the debt will keep the US government from defaulting, so we don’t need to raise the debt limit. Actually, not paying things like salaries or social security benefits constitutes a default. We can’t just pay the interest. We have to pay everything mandated by law to avoid going into default. She also seems unaware of what “ratings agencies will downgrade US debt if it fails to increase the debt ceiling” means. Short version: It’s BAD. Yes, we need to run up more debt in the short run. If we don’t, then there goes the economy.

Cut spending… she’s going to cut spending… Oh good. That’s exactly what an economy needs with massive unemployment. Her solution: create jobs by turning the whole USA into Ciudad Juarez. The mantra about cutting taxes and removing regulation points down the road to where Ciudad Juarez is today. She’s ready to rip up the minimum wage, which could certainly wipe out unemployment as we pay folks a nickel a day to assemble circuit boards in polluted factories, 14 hours a day. Never mind Ciudad Juarez’ massive murder rate: without that, Juarez is still a hellhole created by an unfettered modern market.

Yes, we need to cut waste and fix things. No question there about that part of Bachmann’s message. The rest of what she’s saying contains elements I consider completely irresponsible and insane. She avoids straight answers when they involve truths that undercut her demagoguery. The fact that someone like this is actually out in front in the GOP pack goes to show just how far gone the bankruptcy in ideas is in that group. Never mind Hollywood being unable to come up with decent movies: we can’t come up with decent leadership.

How to Save $220 Billion

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Interested? Well, it’s quite a clever idea. Change the way inflation is calculated. With that fudge, the US government can make inflation look like it’s increasing less rapidly and, therefore, can slow down the cost of living increases in its payments. Sure, it’s a scam, but it’s a scam that saves the USG $220 billion dollars through a soft default on its promises, so it’s a good scam, right? Look for more great scams like this in the days to come!

Legalization

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I had to write the following short story after all the stuff I’ve been reading lately about connections between the financial world and the black market and pure free-market advocates. I’m totally against legalization of drugs, but then again, I’m a radical dissident.

Where Did We Go Wrong?
by Peter Groekmann
all material ©2025 The New York Tribune, all rights reserved

Legalizing drugs was supposed to be the panacea, the big cure-all for our economic woes early last decade. For a few years, it sure seemed to be that way. US GDP went up strongly, unemployment decreased, and most important for cash-strapped local governments, tax revenues returned to previous highs, no pun intended. We had it made, according to the free market proponents and their allies in Congress and the White House. The magic of the market had to be allowed to exercise itself in full freedom.

Yet, here we are again, staring down the depths of another depression. It’s all thanks to that supposed panacea, no less, and this time there’s no magic bullet left in our arsenal. Whenever the economy goes through the wringer, it’s the duty of every self-respecting economic columnist to ask the question that is the title for this op/ed and then walk his readers through the steps that led to the Great Fall so that This Won’t Happen Again. Again. As a self-respecting economic columnist, I shall be happy to avail myself of my deconstructing duties, even though my critics will no doubt fill up my comment pages with ideological babble that has no grounding in reality. So be it: I still like writing about the economy so my marginal utility of writing one more article exceeds the marginal cost. Therefore, even the most ardent free-market opponent of mine would have to agree that the laws of economics compel me to write on.
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Africa and the Myths of the Free Market

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Emergent promises a great return on their African funds. The Oakland Institute would like you to know that, yes, the great returns exist, but that you might not like the way in which the returns are attained.

Basically, the people of Africa targeted by Emergent’s investors are stripped of their lands and left to starve as their subsistence farms are plowed under to make way for plantation economies. Lands that supported 50,000 people are bulldozed to “create over 2000 jobs” that support no-one. To throw a wrench into the minds of ultra-conservative Christian free-market boosters, the bulldozing included the largest Christian church in East Africa. Seriously, people… Jesus wasn’t kidding when he said between God and money, you can serve only one. You either have unfettered free marked capitalism OR you have Christianity (or any other religion, for that matter), but you can’t have both. But I digress, even if it is with a purpose.

The “job creation” is a mask for paying basement-level wages that are just enough to avoid laws against chattel slavery. It was the same in Juarez when the maquiladoras went up there. Should workers ask for more money, the labor organizers are fired or murdered and the rest are told that the factory jobs will go elsewhere if wages go up, so shut up and get back to work if you want to earn enough so 75% of your family can have enough to eat. Maybe.

It’s outright plundering disguised as a solid, sane retirement plan. Free market cheerleaders will say that the people are better off with those jobs: that’s an outright lie. What they had was subsistence, which I admit is a harsh existence. What they get is unemployment, starvation, marginalization, wage slavery, and a industry-government partnership we used to call “fascism.”

More Mess for the Euro

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Looks like the EU finance ministers are asking a basic question… IE, “Anyone with ideas?”

By requiring Greece to implement additional austerity measures (such as hiring the proper accountants Edinburgh to rake up proper numbers), the EU finance ministers have pulled a Pontius Pilate move. If Greece doesn’t implement the measures, it’s not their fault. Technically, their hands are clean.

Greece won’t implement the measures and it will have to default. After defaulting, it will have to pull out of the euro if it wants any hope of recovery, and the EU ministers will need to recognize that. The euro is a political currency that’s supposed to tie Germany economically to every nation on the continent so it won’t start another war, sort of the opposite of the idea after WW1… Now, though, the rest of Europe doesn’t necessarily want a tie with Germany if it means hampering the local economy. The political will to hold the euro together seems woefully lacking.

I’m not going to provide timing signals, but you can bet the number of currency trading newsletters that will advise readers to short the euro is going to increase with each passing week. It’s going to lead to a speculative run on the euro, which will last until the involved governments defend it no more and impose financial tyranny on the speculators. Those that get in at the start will make some tidy sums, those that run the game in the middle will get big rewards, and those at the very end will make all or nothing, depending on how good their internet connections are at the time the EU pulls the plug on it.

I recall the currency runs of 1997. Indonesia, Thailand, Taiwan… all the little tigers fell, one by one. Then the raiding funds targeted Hong Kong and lost big when the PRC said it would defend the HK dollar. Back then, it had the means to do just that. Now, in 2011, we have a set of governments that are ready to defend the euro. They say, “whatever the cost!”, but we all know their financial systems are weak from the fallout of the 2007-8 crisis. The euro will fall, they will prop it up, it will fall some more, they will prop it some more, all the while with the euro losing value over time. Once the EU banks can defend it no more, there will be a time period where the euro falls mercilessly and everyone shorting it will laugh all the way to the US-owned bank… I suppose the last laugh will be Europe’s, though, after the US banks collapse because of they way the US financial system was insuring European assets.

Cancer Babies

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I used to work with a great guy, Cali Ruchala, who ran the online ‘zine Sobaka, which isn’t online anymore. Cali isn’t online anymore, but I’m pretty sure he’s happy where he is. Or, at least where he said he was going to be… but that’s not my point. I want to bring him up to cite the origin of the idea of a “cancer baby” and how it applies to authoritarian dictatorships everywhere.

Ruchala defined a cancer baby as the ineffective son of a ruthless dictator. The only reason the son rises to power is because he’s the son of a ruthless dictator. Said son is nowhere nearly as ruthless or politically sharp as his father, who usually dies from cancer, and proceeds to lose control of his nation. Bashar al-Assad in Syria is one such cancer baby, and his grip on power there is as bloody as it is slipping. Mubarak’s son in Egypt and Ben Ali’s boy in Tunisia were two cancer babies that lost power even before their dads died: the ruling cliques did not want to have them running things and thought it best to take care of the arrangements as the public rose up in rebellion. Had the ruling cliques in Tunisia or Egypt been more strongly allied to the authoritarian dynasty, the blood in both those nations would be on the level of at least Libya or Syria.

Speaking of Libya, there’s another place where the cancer baby won’t be able to take the stage, it seems. Qaddafi the Elder will fight to the death, but his son lacks the ability to rally people behind him. When the dad dies, the son won’t be far behind.

Monarchies are different, in that they can handle successions with existing institutions. They don’t suffer as badly from the cancer baby phenomenon. But wherever a strongman has taken over and ruled by the sheer force of his personality, his nation is forever one tumor away from collapse.

Now take a look at North Korea. That is an interesting place in this discussion, as one must ask if that nation is ruled by its Communist Party and the military, or if the dominant force there is still Kim Il-Sung, who is still named as North Korea’s head of state. He’s dead, but he’s the head of state and enjoys godlike status in North Korea. Kim Jong-Il, the cancer baby, has ruled over an erratic North Korea of late, and one wonders aloud if he’ll successfully transfer power to his son. If not, then what is happening in the Arab world could suddenly unleash itself in North Korea. One slip of the iron hand in that nation, and the power players in North Korea may find that they have a popular uprising they can ride to to the top with – but will it sustain them there?

Moreover, what happens if North Korea goes the way of Libya, with an actual civil war in and around the nuclear warheads? Have the nations of China, Japan, South Korea, and the USA discussed what they would do if a desperate regime opened fire on its own people? The law of the cancer baby says something is bound to happen, and I can guarantee it won’t be a minor event.

Hardly a Defense…

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As Moody’s rating service placed the three largest French banks under review for a possible downgrade due to their exposure to Greek debt, they attempted to make their situation seem not all that bad by pointing out how Germany’s banks were way more exposed than they were…

In other news, Greece’s largest private bank has started to sell all of its Greek government bonds. Greece’s prime minister might be forced to resign and in between riots, Greek citizens are shopping for forks to stick into their country, because it’s done.

There are rumours that Elton John is considering re-re-recording a version of “Candle in the Wind” to commemorate Greece’s brief flirtation with the euro. Other rumours say he’s holding off to see if he has to re-re-record it to commemorate Europe’s brief flirtation with the euro.

Michele Bachmann

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The Seven Dwarfs of the Republican Party had a debate last night and Michele Bachmann managed to get on the media’s radar screens in a big way. This is not good. The woman is insane, misinformed, and ready to sell us all out to the banks.

Yes, she opposed the bailout plan for the big banks in 2008. But she’s also dead-set against regulating the banking industry, and it’s deregulation that got us into the mess we’re in – that is yet to resolve. She’s worried about too much government, I’m worried about not enough. I like that police will investigate murders and bring criminals to justice: we need more of them on the financial end, and we need more bankers in jail instead of on yachts purchased with bonus money. Bachmann’s not in favor of that: indeed, she’s ready to get rid of as many rules as possible so the wolves in the banking industry will be able to be as rapacious as they want to be. This is not a good thing for America. Supporting Ms. Bachmann is a dangerous thing for that reason alone.

She’s got the same ideologically blind stridency that Palin has, with the added bonus of being able to find Libya on a map. That doesn’t make her suddenly qualified to be in government, let alone as our nation’s president. I don’t want to compare her to Hitler just because she’s right-wing. I want to compare her to Hitler because she’s insane like that. The USA is going through some horrible economic times and we’re bound to see extremists emerge in the political field. The key to survival is to reject that extremism before it has a chance to enter government and enact legislation to make what is now criminal into standard operating procedure. Bachmann sees un-Americanism everywhere, yet cannot offer specifics when pressed: that is a sign of an addled mind.

When I point a finger of accusation, I back it up with facts or I don’t point at all. This is what separates me from the political nutcases. I make sure my facts are in order, by the way. I don’t make them up and I alter my ideas when I get new information that adds to what I already know. Bachmann just heads on out with her half-baked ideas and believes every single word of her own press. This is not good.

I could make other criticisms of Ms. Bachmann at this time, but I’ll pass over them. I think identifying a paranoid that will hand the nation entirely over to the banking interests stands as criticism enough. No, hold on. I’ll get one more criticism in there.

She claims to be Christian, but wants to let the poor starve. That’s totally not what Jesus taught to do. Sorry, Ms. Bachmann, but I don’t want someone who draws near to Jesus with her lips but who is far from him in her heart to be my president.

It is henceforth the editorial policy of this website to oppose Ms. Bachmann’s political aspirations.

What Happens if Greece Defaults?

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Our entire economy, for better or worse, depends upon an active banking sector. Should that sector freeze up, then the entire economy begins to freeze up as well. People are still having a hard time getting money together for a down payment on a home, now that lending requirements are significantly tightened up. My friends in real estate can sell homes, but they can’t get loans approved like they used to: that’s a banking issue.

Now, say Greece defaults later today, just to get it over with. (Greek debt is now CCC and costs more to insure than *Pakistani* debt. Yikes.) OK, first, how do they default? If it’s a soft default, then only European banks take most of the hit, as such a default won’t trigger insurance payouts. On a hard default, US banks are left holding the bag, because US banks are the ones insuring Greek debt. European banks finance it, US banks insure it.

So let’s say the default is bad and hard: the Greek PM resigns and the new guy from the “We’re Not Gonna Take It” party says everyone can take a flying leap into a lake of their choice, they’re all going back to drachmas and autarky. As the financial advisors from North Korea land in Athens, European banks now have to face a drastic reduction in their balance sheets. They will need an infusion of emergency cash to shore up their positions or they’ll be insolvent. Both the cash infusion and the insolvency will be bad things, but the cash infusion allows more room for maneuver, so that’ll happen… until the governments run out of cash. If it’s not there, they’ll have to turn to the ECB, and the ECB itself lacks solid-enough assets to provide a general bailout. That means banks go insolvent and the money-creating ability of banks heads south. That’s deflation, and the economy follows along, with five-cent apples for sale to people that don’t have a dime.

Over here in the USA, debt insurers face a host of claims… not all will be able to pay out 100% of those claims, so they’ll have to get that cash infusion or default. Sure, we got lots of cash in the USA, but we’re already at a discount rate barely above zero. The discount rate has to be that low to avoid hyperinflation: any higher relative to the money supply, and the prices march inexorably upward across the board. With a massive increase in the money supply to bail out a banking system a second time, we cross that discount rate:money supply limit and enter a hyperinflationary environment.

Now maybe we’re lucky enough to withstand the stress of a Greek default. Then we get a Portuguese default, an Irish one, and… oh no, a Spanish one. There’s an analogy to this situation in the game “Buck Buck.” A YouTube video shows what happens to a system that faces repeated stresses… it eventually collapses. While those are kids playing in that video, Bill Cosby tells the story of how his bunch of friends back in the day always won the game of Buck Buck because they had a ringer in one Fat Albert. Fat Albert could crush any competing Buck Buck squad, with ease. Even if Greece is a feather, Portugal feels like a fly landed on us, and Ireland is a leaf, Spain is the Fat Albert of the potential defaulters in our financial game of Buck Buck.

This is why I’m reading Der Spiegel’s reporting on the Euro Crisis religiously.