Krugman krash?

Yesterday Paul Krugman wrote that the US was entering a "third depression." Being the most-read economist in the country (and therefore ensuring they would be repeated by every other financial writer) it isn't surprising such words would generate a strong response. In a half-hearted attempt to stop what they knew was coming, President Obama and Fed Chief Ben Bernanke met this morning and the President announced "we share the view that the economy is strengthening, that we are into recovery." This view apparently wasn't shared by anyone on Wall Street today where markets plunged by around 3%.

Did Krugman cause today's market tumble? No, not really, but it's probably not a coincidence, either. More likely is that Krugman named the elephant in the room and said aloud what everyone's been thinking to themselves. Bad economic reports have been coming pretty regularly but with just enough good news for people to say the overall trend is inconclusive or even that the recovery is just getting up steam. Yesterday Krugman publicly connected the dots and said there's nothing inconclusive, let alone bullish, about this picture at all. What's been even more interesting than the markets' response is the number of commentators who have said that he may be right and the near absence of anyone seriously challenging his conclusion.

Krugman goes there

Princeton Economist Paul Krugman uses the “D-word” in his regular column in today’s New York Times. “We are now, I fear, in the early stages of a third depression.” According to Krugman, this will be more like the so-called Long Depression of the 1870s than the Great Depression of the 1930s. But this is little consolation, he says, because “the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.”

Krugman has been traveling in Europe just as the German and UK governments announced deficit reducing austerity plans. In his view this is the worst possible policy at this time and will inevitably result in prolonging the economic downturn. Its affect here will be to substantially reduce European imports of American goods making our recovery that much more difficult. While in Germany Krugman very publicly made his views known and they were derisively dismissed by Germany’s finance minister. Obama expressed a similar but more moderate viewpoint at the G-20 meeting but it also fell on deaf ears.

A growing number of economists and financial advisers are warning that the US will head back into recession (a “double-dip”) in the 3rd or 4th quarter of this year. Krugman and many others warned that the stimulus package adopted last year was too small. While it would stop the economy’s free fall (which it did) it was insufficient to re-ignite the economy and start it growing.

Those predictions seem to be proving accurate. New and existing housing sales are falling and house prices are likely to follow. Retail sales are stagnant and unemployment has been stuck at about 10% for months. Perhaps most disturbing has been the fall in the money supply despite the nearly wide-open spigot of the Federal Reserve. The Fed’s money give away seems only to have fueled a run-up in the stock market but even that has finally sputtered out.

In short: the US economy is a mess, much more so than most people are aware. The same is true for much of the rest of the developed world so we’re not going to get any help from them. The picture Krugman is painting is of a long stretch of economic stagnation characterized especially by high unemployment and underemployment. Would new aggressive, massive government stimulus make a difference? It probably would but it’s also probably not going to happen for one simple reason: the people holding the economic/political cards are the ones who would have to pay for it.

A significant increase in government spending can be paid for by higher taxes or by massive borrowing leading to inflation, or some combination of the two. To cut to the chase, both of these will inevitably result in the rich taking a significant hit. Either their money will be taken via taxes or reduced in value via inflation. Republicans have essentially won the argument on both of these points, having demonized both higher taxes and deficit spending. Democrats have basically conceded the fight with the exception of a few lone voices.

The result is that we will see a few half-hearted efforts from time-to-time on both of these fronts but nothing large enough to make a real difference. As Krugman fears, the economy is heading into a long winter and spring is looking a long way off.

Update: And if you want an example of what Krugman is afraid of, check out this New York Times' story about Ireland. What a difference a recession makes.

The Earth is bleeding (Sunday Reflections for June 27, 2010)

“The Earth is bleeding.” Such words have become common as people try to describe the unfolding BP Gulf oil disaster. The live underwater video and pictures of oil on the ocean surface and washed up on shore (and now possibly coming down in rain) make the analogy almost an automatic one. Plus, we all know what unstopped bleeding means.

It’s often hard to judge or evaluate our experiences today because we are so surrounded by hype. The media constantly promotes this product or that event as amazing, unprecedented, record shattering, or “unlike anything you’ve ever seen before.” The use in movies of computer generated special effects have also numbed us to visual imagery and made it hard to judge what we’re seeing. Whereas in the past you heard people say of a movie, “It was so realistic!” today you’re more likely to hear people react to a dramatic experience by saying, “It was just like being in a movie!”

What’s happening in the Gulf of Mexico is no movie. Perhaps one thing helping make its reality more obvious is that this is one disaster Hollywood never imagined: a runaway undersea oil well. On the other hand, we are also having trouble understanding a human caused problem that can’t be fixed. When something breaks, we call in the scientists and engineers and they make the repair. In this case, however, we have watched helplessly for over two months as hundreds of thousands of gallons of crude oil pour into the ocean day-after-day. We are told a hoped-for but not guaranteed fix is still another two months away.

In the case of this genuine disaster, use any superlative you want and it won’t be hype. This is the real deal. It is a catastrophe unlike anything we have seen before. Yet as with any real disaster, words ultimately fail us. The experience hits us at too many levels and so imagery and poetry become more accurate than literal descriptions. “The Earth is bleeding.”

As when we are with a person seriously ill or dying, it’s hard to watch or be present for something we want to change but can’t. Undoubtedly there is already annoyance with this story that won’t go away and channel changing when it comes on TV. But in addition to frustration the Gulf oil disaster is causing another response: guilt, which is often disguised as anger.

The explosion and rupture of BP’s Deepwater Horizon oil rig was not an accident. It was not an “oops” but the result of human error, fueled by corporate greed. Yet beyond the specific negligence of shortcuts and ignored warnings, there is another level of responsibility—yours and mine. That’s another reason we want this story to go away.

We’re all aware of the environmental impact of burning fossil fuels. While we may debate the degree of their effect, we know that putting smoke and gas into the air is not a good thing and this is only getting worse as more of the world industrializes. We’ve been less aware, however, of the problems of getting those fossil fuels. Coal mining has been going on a long time but recent fatal accidents have reminded us that even here in the US it is still a dirty and dangerous operation.

In contrast, oil drilling has seemed relatively benign. Now we know differently but it has actually always had its problems. The necessarily corollary of delivering oil has always been risky. Enormous ships filled with oil inevitably have accidents. We’ve also been learning that oil spills and ruptures are a common occurrence in many Third World countries lacking government regulation and a watching media. The new factor now is that much of the “easy” oil is gone. Regardless of whether the world is running out of oil or not, increasingly the oil that remains is in places harder to get to and therefore more expensive and dangerous to extract. President Obama approved new offshore drilling this spring having been told that new technology made deepwater operations safe. We now know this information was tragically wrong.

“The Earth is bleeding.” Watching the live video of the ruptured well pipe, it looks like an artery has been cut and is hemorrhaging uncontrollably. I think this is an image we need to stay with, as discomforting as it is. We are being reminded yet again that the Earth is our home. We are part of an integrated eco-system. Like our own bodies, an injury or illness in one place inevitably impacts the whole.

The Gulf of Mexico is huge yet this massive pollution will drastically disrupt the delicate ecological balances and interrelationships it contains. Its impact on people of the Gulf region will be severe and it consequences could well spread out far beyond it. Whole species may well be wiped out, not to mention the heartbreak of seeing countless individual animals drowning in oil.

There have been many signs and warnings in recent years that our world is changing. As with inevitable changes in our own lives, we are usually faced with the choice of either being helpless victims of these changes or of planning for and adapting to them. When the changes seem unpleasant or too disruptive, we are always tempted to ignore them—usually with unfortunate consequences.

Perhaps the BP Gulf oil disaster will be the last warning which we finally respond to. Hopefully, the gushing oil will be stopped by the end of summer and the pollution consequences will be minimal and mostly reversible. Yet the costs of this catastrophe will be large and paradoxically that, in the long run, may be a good thing. Because watching this undersea hemorrhage, watching oil-soaked birds’ pathetic flopping, watching children on the beach crying to their mommies “Get this stuff off of me!”, watching fishermen breakdown in tears as their livelihoods disappear—perhaps watching all this and much more will finally convince us, it’s time to make a change. “The Earth is bleeding.”

Home sales and stimulus games

After yesterday's report of an unexpectedly large drop in sales of existing homes in May, today's report for May new home sales added insult to injury. Without exaggeration, Naked Capitalism titled its report "Worst Home Sales Numbers Ever." New home sales dropped by a third from the month before. The expectations and critical judgement of many independent economic analysts have proven correct. The first-time home buyer tax credit stimulus program did not increase home sales but only pushed forward sales that would have occurred anyway but at substantial cost to the Treasury. Thus, the earlier jump in sales is now resulting in a sales crash. Naked Capitalism's charts tell the story.

The annual rate of sales (top chart) has dropped to the level of nearly thirty years ago. The bottom chart shows how much distortion government stimulus has created in the housing market. The simple reality is that there are too many houses available at too high prices, a direct result of the housing bubble (made obvious in the top chart). Government stimulus can only temporarily hide this fact and the market will suddenly and dramatically correct itself once the stimulus is removed.

Bottom line: the first-time home buyer programs have been a complete waste of tax money. Yet these new sales drops are prompting calls for trying it a third time! The only government stimulus that makes sense at this point are programs that create real jobs producing goods and services the economy actually needs. Building more houses, or giving tax breaks to people to buy houses they would have bought anyway, does none of these things.

AA and the power of powerlessness (Sunday Reflections for June 20, 2010)

WIRED is a magazine that reports on technology and its impact on culture and society. Its articles are all about things that are hip, cool and cutting edge (including reports on words that have fallen out of favor—like all of these, I’m sure—and their replacements). So I was surprised to find in its latest issue a story about a social phenomenon that wouldn’t seem to fit any of those terms: Alcoholics Anonymous.

AA was started about 75 years ago by a New York stock broker named Bill Wilson. Battered by the Depression and in and out of detox centers, Wilson finally “hit bottom” (a key AA experience) and, in response to a friend’s urging, decided to give God a try. The result, he later said, was that “I was a free man.”

It’s interesting to wonder if this wasn’t the beginning of the now common “spiritual, not religious” movement. For while Wilson took his experience of God very seriously, he never affiliated himself or the AA movement with any particular religion or even with religion generally. Indeed, this became one of the hallmarks of AA, that it not be affiliated with any other organization, religion, philosophy or tradition. It stands entirely alone and independent.

Wilson’s best know contribution to AA is the 12 steps. Written in the past tense, they summarize the steps taken by Wilson and now countless others to achieve sobriety and health and are the cornerstone of all AA meetings. In composing them, Wilson borrowed a variety of well-known concepts from religion and philosophy, thus their appeal and usability for people across a wide spectrum of traditions and cultures.

By design, AA is enigmatic and unclassifiable. One of its cornerstones is the principle of anonymity. Participants use only their first names (hence the bumper sticker “Friend of Bill W” as in Bill Wilson). There is no formal membership and little organization. And is AA a religion, a philosophy, a treatment program? Yes, no, all of the above—yet it really is something unique.

As WIRED says this has made it difficult to understand or affectively evaluate AA’s widely recognized success. Thus it’s not really known what about AA is most important, why it works for some people but not for others, or just how successful it really is. That it clearly has saved the lives of millions of people, however, is why it continues to be popular and taken so seriously by people studying addiction and its treatment.

The value of the 12 Steps and other aspects of AA have been widely recognized and applied in many other settings. During seminary I spent my summer CPE internship working at a treatment center that followed AA principles. I found much of it very rewarding and a good overall approach to the limitations and failings we all experience, in ourselves and in others. The 12 Steps have been adapted for countless other addictions and the wisdom of one of its central principles of daily living is accepted (even if not always practiced) by nearly everyone: One day at a time.

One of the things which makes AA standout is how it doesn’t. It does none of the things contemporary culture says should be done to be important. It scrupulously avoids affiliation with any political or religious organizations or movements. It has no media presence. It endorses no products or programs. It has no recognizable leaders. Yet almost anywhere in the country you can locate an AA meeting in a moment.

To guide the movement, Wilson later wrote the 12 Traditions and opted for what WIRED describes as “organizational chaos.” In doing so, he kept AA from being distracted by organization concerns (dues, officers, internal politics, etc) and virtually forced it to focus on one thing and one thing only: helping people become sober. Remarkably, 75 years later, for millions of people, it’s still working.

We are just beginning to understand the bio-chemical nature of human addiction and science still has a long way to go. Researchers are spurred by the enormity of the problem and by the reality that approaches like AA aren’t perfect; they doesn’t work for everyone. We have learned that explaining human misbehavior is a very complicated endeavor. It’s easy to understand why in the past drunks were simply dismissed as bad people or as sinners. What we can’t explain we label.

AA has taught us the inaccuracy and the pointlessness of such labels. Often in frustration, we still want to classify people who do bad things to themselves or others. We’re still tempted to endorse a “lock ‘em up and throw away the key” approach to both crime and addiction. Yet we all know instinctively what Bill Wilson realized, that the line between “us” and “them” is not very thick at all. We all have those aspects of our behavior and personality which we don’t understand and can’t control. We all encounter things in this world over which we are “powerless.”

We also know the other thing Bill W recognized. When those parts of our life get out of control and we begin hurting ourselves or others, there is only one thing to do: find help. We’re not going to fix ourselves. And oddly, when it comes to problems of behavior, the people that seem able to help us the most are people who recognize they have the same problems. For by coming together and sharing honestly our weaknesses and failings comes one of the most powerful forces of healing that there is, human compassion.

President Maddow speaks

Thank you Rachel. What President Obama could have said in his Oval Office address (and the kind of thing candidate Obama led us believe he would be saying but isn't):

Speech flop puzzle

It seems to be a near unanimous verdict among commentators that the President’s speech last night was a flop. Just look at Huffington Post and you’ll find at least a half-dozen posts on the speech, all negative and all from people on the moderate to liberal side of the spectrum.

In addition to disappointment you are also hearing another reaction: befuddlement. Huffington’s own Dan Frumkin probably gets this aspect best: “The most depressing thing about President Obama's profoundly underwhelming speech Tuesday night was that the White House thought it would change everything, when there was no good reason to think it would change anything.” Frumkin is worried this shows an administration seriously disconnected from reality and I think he is right. The speech showed Obama to still be behind the curve on the Gulf oil disaster.

I’ve been thinking it was strange that Obama had not yet given an Oval Office address. The most obvious candidate would have been the announcement last fall of his Afghanistan strategy. Giving it as a speech to West Point cadets, to me, actually seemed gimmicky and almost like a way to avoid talking to the country as a whole. Last night the Oval Office came across as a prop to try to give the speech the weight it was obviously lacking.

Obama supporter and former Clinton Labor Secretary Robert Reich is also blistering in his critique of the speech: “[Obama’s] words hung in the air with all the force of a fundraiser for your local public access TV station.” Reich wonders what’s going on when a man with repeatedly demonstrated rhetorical talents lays such an egg. His suspicion is that this is further evidence of the administration’s inability and/or unwillingness to genuinely take on the business interests of the country. There is a serious danger to the country Obama is not addressing. Reich pounds it home:

Whether it's Wall Street or health insurers or oil companies, we are approaching a turning point. The top executives of powerful corporations are pursuing profits in ways that menace the nation. We have not seen the likes since the late nineteenth century when the "robber barons" of finance, oil, and the giant trusts ran roughshod over America. Now, as then, they are using their wealth and influence to buy off legislators and intimidate the regions that depend on them for jobs. Now, as then, they are threatening the safety and security of our people.

Another issue not addressed last night is the question of who to believe. During the Vietnam War, people began to talk about the Johnson administration’s “credibility gap.” As one journalist pointed out, this was a polite way of saying a lot of people thought the president was lying. Estimates of the flow have now ballooned far beyond the original figures. Few believed BP’s 5000 barrel figure in the early weeks yet the administration stuck to it until BP was forced to change it (latest estimates have risen to 60,000 barrels per day).

There are also a growing number of people, not all cranks, raising serious questions about the status of the well and BP’s efforts to plug it. (The Oil Drum is one of the best sites for not too technical information about the well blow-out.) Concerns have been expressed about how long it will take for a relief well to be drilled successfully (few seem to think it will work the first time). Others wonder if the well is seriously damaged below the sea floor and may be leaking in other places. Finally, the question is being asked whether BP is limiting its approach to methods that will allow it to reuse the well at a future date. Could an explosion (conventional or nuclear) seal the well or is the depth too great? These and other questions were ignored as was nearly the whole topic of the continuing oil hemorrhage, almost as if it had already been stopped. Again, one wonders if Obama is simply unaware how much his credibility has been dinged by this event or is he intentionally avoiding these questions because of the answers he would have to give.

Till the garden and keep it (Sunday Reflections for June 13, 2010)

Peaceable Kingdom by Edward Hicks (1780-1849)

How manifold are your works, O LORD! In wisdom you have made them all; the earth is full of your creatures.

Yonder is the sea, great and wide, with its swarms too many to number,
living things both small and great . . . .
All of them look to you
to give them their food in due season.
You give it to them; they gather it;
you open your hand, and they are filled with good things.
When you hide your face, they are terrified;
when you take away their breath, they die and return to their dust.
You send forth your Spirit, and they are created;
and so you renew the face of the earth.  (Psalm 104)

When I consider your heavens, the work of your fingers,
the moon and the stars you have set in their courses,
what are mere mortals that you should be mindful of them,
human beings that you should care for them?
Yet you have made them little less than divine;
with glory and honor you crown them.
You have made them rule over the works of your hands;
you have put all things under their feet:
all flocks and cattle,
even the wild beasts of the field,
the birds of the air, the fish of the sea,
and whatever passes along the paths of the sea.  (Psalm 8)

And God said, "Let the waters bring forth swarms of living creatures, and let birds fly above the earth across the dome of the sky." So God created the great sea monsters and every living creature that moves, of every kind, with which the waters swarm, and every winged bird of every kind. And God saw that it was good. God blessed them, saying, "Be fruitful and multiply and fill the waters in the seas, and let birds multiply on the earth."… And God said, "Let the earth bring forth living creatures of every kind: cattle and creeping things and wild animals of the earth of every kind." And it was so. God made the wild animals of the earth of every kind, and the cattle of every kind, and everything that creeps upon the ground of every kind. And God saw that it was good. Then God said, "Let us make humankind in our image, according to our likeness; and let them have dominion over the fish of the sea, and over the birds of the air, and over the cattle, and over all the wild animals of the earth, and over every creeping thing that creeps upon the earth."  (Genesis 1)

In the day that the Lord GOD made the earth and the heavens ... the Lord GOD formed man from the dust of the ground, and breathed into his nostrils the breath of life; and the man became a living being. And the Lord GOD planted a garden in Eden… [and] the Lord GOD took the man and put him in the garden of Eden to till it and keep it.  (Genesis 2)

I’ve been thinking a lot about animals lately and these texts. The Psalms were used just a few weeks ago on Pentecost and Trinity Sundays. The Genesis texts, of course, are from the two creation stories that open that book.

The Bible doesn’t often step back to think about the natural world or the plants and animals that inhabit it. This is because they are, in a way, taken for granted though not in a dismissive way. Far from it. The natural world is taken for granted because it simply is the world of biblical people. It surrounds them at all times and they are totally dependent upon it. No one forgets for a moment that their survival depends upon the plants and animals they grow, tend, and hunt. And as these passages show, the Bible does not forget that they are all gifts from God for human use and for which humanity is responsible. Human beings have been placed in the “garden” of this world “to till it and keep it.”

One of the consequences of modern life has been a weakening of our appreciation of our garden home. Few of us have the daily experiences ancient people took for granted that connected them to the natural world on which they depended. We have little interaction with the animals which provide much of our food, perhaps seeing them in the distance as we speed by on a rural Interstate.

The meat and dairy products we consume are all neatly packaged and give almost no reminder of their actual origin. Indeed, we’re slightly disgusted if too much of that “red juice” oozes out of our meat and gets on our fingers. How would anyone who didn’t know better associate restaurant chicken tenders or a hamburger patty with anything that actually lived and breathed? Robert Pirsig, in his 1970s blockbuster Zen and the Art of Motorcycle Maintenance, recalls his children’s shock and sadness when they discovered the gruesome truth that cattle don’t “give meat” the way cows give milk.

Yet even that milk giving is often not as passive or innocent as it sounds. Recently a Chicago-based animal welfare group released a horrific video taken inside an Ohio dairy farm. It showed workers there needlessly and sadistically beating and torturing cows and calves. At one point the owner is present, watching with bemusement. Reportedly he is a third-generation farmer. One person has since been arrested and a police investigation is ongoing.

What had happened to these people and their perception of these innocent animals that led to such inexplicable cruelty? It’s easy to jump to conclusions but at a minimum it’s obvious that in some way these animals had become entirely “other, not me, foreign, alien.” And when we create such distance between ourselves and something else, we give ourselves permission to treat it any way we want. Thus, Nazi propaganda emphasized again and again that Jews were not human and frequently used images of rats and other vermin when talking about them.

My memory is also plagued by the heart wrenching photos of oil-soaked birds, flopping helplessly in their death throes. We have only gotten a glimpse of the catastrophic results of the ongoing hemorrhage from BP’s Deepwater Horizon oil well. We know that most of the carnage is happening out-of-sight beneath the Gulf’s surface thought that toll will be discovered soon enough.

We’re reminded here, too, how we have become distanced from the sources of the products we consume. We swipe our credit card and the gas magically pours from the hose into our car. Do we think at all of its true origin? Perhaps now we will with the image of those birds burned into our conscience.

The Bible says we “rule” over this world and have “dominion” over all its creatures. Yet the huge qualification of such statements is that we do so as stewards. We have been appointed by God to oversee his creation, the Bible says. We are in the garden to till it and keep it on God’s behalf. Ultimately none of this belongs to us; it is all on loan. And as Jesus reminds us in multiple parables, God is coming back to check up on our stewardship. We will all be held to account.

What does that “B” stand for again?

The Gulf oil catastrophe is also becoming an international relations problem. While many major corporations have an international existence, most still have a national home. BP, aka British Petroleum, is no exception. BP is one of Great Britain’s largest corporations and as such has a significant presence in the investment portfolios and retirement plans of millions of UKers (and not a few US plans as well, for that matter). As a result, the increasingly hostile rhetoric from the White House is raising eye brows at 10 Downing Street and in the British press. That BP should pay for its mess is not disputed but now there is open speculation about bankruptcy and/or foreign take-over. Should BP’s liability be limited to reduce the damage to British investment plans and to avoid damaging diplomatic relations with Her Majesty’s government? Or should investors learn that just because a company is big—even REALLY BIG—does not mean it can’t be required to pay the full consequences for its irresponsibility?

What would Adam Smith say?

Mark Thoma (Economist's View) shares an extended excerpt this evening of a fascinating blog post by Maxine Udall, aka "girl economist." She speculates how the great 18th c. economist Adam Smith would view recent events in the world's advanced economies. At the end of her essay, she says that Smith's greatest concern would be for the downward affect of the rash of irresponsible actions for which there has been little or no accountability. If the people at the top can wreck the economy or wreck the Gulf of Mexico with impunity, it is unavoidable that popular awareness of this will lead to a detioration of social relationships and interactions at all levels. Thus, we are confronted again with the ancient biblical question: "Am I by brother's keeper?" It's worth an extended quote:

I find myself asking: how are the recent failures of large corporations, recently granted by law the right of a citizen to participate in and shape political discourse, sentiment, and outcomes, but apparently exempt from a citizen's obligation to refrain from harming others (even in the absence of alert regulators) shaping norms and institutions in the 21st century? How does failure to hold investment bankers and rating agencies accountable affect the hard-wired sense of fairness and the moral sentiment of resentment that many of us feel? If BP is not held accountable, how will that trickle down and shape the moral sentiments of the citizenry? Will our inner impartial moral arbiter waiver as we confront decisions about how we should act toward our neighbor, our community, and our nation?

Adam Smith believed humanity (or at least England) was progressing in wealth and in ethics. To date, we have all tended to focus on the financial aspects of these crises in corporate judgment and management. I'm pretty sure Adam Smith would also have noticed that the potential for moral hazard extends far beyond the relatively unscathed main players. There will almost certainly be a moral trickle down that corrupts production and exchange at all levels of our society. An advanced, technologically complex nation that cannot or will not achieve the basics of accountability and restitution (aka justice) with financial and corporate entities that have harmed its citizenry deeply and lastingly is (I very much fear) evidence of the beginnings of a failed state. That the failure will be economic and moral, as well as political, is probably no coincidence.

The full essay titled "21st Century Regress" can be found at Udall's blog.

Now you see it, now you don’t

Most economists’ long-term fear is that the federal government’s wild deficit spending and bailouts will lead to inflation. Right now, however, deflation seems to be the order of the day. Wholesale and retail prices are generally flat or declining as is personal income. House prices also seem set to drop some more. What’s puzzling about this is that the federal government has been flooding the economy with cash from several different hoses. Where’s it going?

A lot of the money is going into the TBTF banks where it is being stuffed under the mattress. Despite their rosy claims, these banks are still in precarious shape with lots of near-worthless financial junk on their balance sheets. Much of this paper is still listed at their pre-collapse valuations rather than what they are truly worth. This is often called “mark-to-fantasy” rather than standard practice of “mark-to-market.” That mattress money is there (and growing) for the day of reckoning when the fantasy has to end.

Case in point is this announcement today from tottering bond insurer Ambac. An agreement has been reached with owners of insurance it had issued on CDOs (collateralized debt obligations) of ABS (asset backed securities, presumably mostly mortgages) that have plummeted in value. The settlement amounts to $ 0.28 on the dollar for over $16 billion worth of CDOs. Thus, with the swipe of a few pens, $16,400,000,000 became $4,600,000,000. Now THAT’S deflation. Incidentally, it was just such insurance issued by AIG to the TBTF banks which was redeemed at $1.00 on the dollar thanks to the generosity of the US Treasury. Not all debt, insurance or banks are treated equally.

Not a tune-up but an overhaul

A theme of many economic critics of President Obama is that he missed an opportunity presented by the financial crisis for systemic economic change. That’s putting it too timidly: they actually say he missed the moment for necessary economic transformation. Brad DeLong agrees with many that one result was that the Obama 2009 stimulus was too weak to really jumpstart the economy. The result is an economy stuck in the mud spinning its wheels but not really moving. These critics say Obama essentially trusts the old order and believes it only needs reform. But what if the 2008 credit crisis was actually the last warning of an economic system on the verge of going critical? Many forecast an indefinite period of unemployment and under-employment of 15-20%. Thus Mark Thoma asks, “Where are the good jobs to come from?”


We are very soon to reach the milestone of the federal debt equaling GDP. Can this ever be paid off or will there be a real or de facto (via inflation) US sovereign default? If the national credit card is maxed out, how can a stagnant economy produce the revenue to pay rising energy costs, provide equitable universal health care, keep up with education and training, give retirement benefits to an aging population, and maintain the largest military in the world? Here is a fine, compact piece from a previously unknown blogger showing how we got in this mess and what needs to happen to get us out of it. At the end he references a post by Yves Smith which shows how current efforts to “go green” will fall far short and need much more drastic applications.

Thoughts & links

Not surprisingly, my goal of posting "Thoughts & links" daily will be just that: a goal. Busy days will happen but I will try to keep at this. Today, just time for one item but it's a big one.

Multiple reports are casting doubt on nearly everthing about the "official" view of the current state of the BP oil disaster. This post on Zero Hedge gives a good summary of the concerns and doubts, especially if you follow the other links provided (including some in the comments). Two points are most significant: 1) the oil flow from the Deepwater Horizon site may be much closer to the worst case scenario of 100,000 barrels/day than previously thought and 2) there may be significant leakage from one or more places on the sea floor. Sen. Bill Nelson (D-Florida) is one source for #2 and has generally been reliable on such matters. In addition, there are reports of leaks at other drilling sites. It gets very confusing to follow all this but this is due to having only BP and a few intrepid reporters and independent investigators as sources. If US government or military resources are tracking any of the developments, their information is not being shared. Watching the video on the left, it's obvious a lot of oil is still escaping and BP has certainly not turned the corner on this catastrophe.

Thoughts & links

ABC News reports that video of BP's hemoraging well was in the hands of the US Coast Guard very early on. The video clearly shows oil gushing at a much higher rate than BP was claiming. Yet at that same time, the Coast Guard and other Federal officials were telling people not to focus on the quantity of leaking oil. These revelations along with much of the visible behavior simply adds to the suspicion that the government is trying to protect BP as much as it's trying to protect the environment and the Gulf coast economy.

The Federal economic stimulus effort has turned out to be much like filling a leaking bucket. While Federal stimulus has been creating work projects around the country, state and local governments have been cutting back their budgets and payrolls. Now, just as the Federal stimulus is winding down, regional governments are pulling back even more, including with potentially hundreds of thousands of teacher layoffs.

Meanwhile, the proportion of unemployed who have been without work for more than a half-year is the highest it's been in over a half-century. This is a key difference between this and other recent recessions and raises the danger of creating a new permanently unemployed or underemployed population.

Finally, the Civic Opera Building of Chicago would like to thank the American taxpayer for coming to its rescue, along with a few other prime downtown Chicago addresses. Tishman Speyer Properties of NewYork is the owner of these properties, having acquired them from real estate tycoon Sam Zell when Sam decided to go into the newspaper business. Partial financing for the purchase came from Bear Stearns, whose collapse then passed the mortgage on to the Federal Reserve Bank of New York. This week the FRBNY agreed to restructure the loan, meaning take less money for it, meaning take a loss on it, meaning the Federal Treasury eats it, meaning Federal taxpayers will now subsidize Tishman Speyer's foolish overpayment to Sam Zell (who has since lost much of that money on his foolish overpayment for the Tribune Co.) And this is what the ongoing Federal bailout looks like behind closed doors. Why did this happen? Apparently because Tishman Speyer is--you guessed it--too big to fail, especially since it already lost a fortune when it defaulted on Stuyvesant Town, the largest single residential property in Manhattan. Oh, and one other factor: TS's CEO Jerry Speyer is a board member of--you guessed it again--the New York Federal Reserve Bank.

Thoughts & links

In part to get me writing more regularly, I am going to try putting out a daily collection of thoughts and links. I come across a lot of stuff worth sharing and commenting on. The discipline will also be to keep these pieces short. I hope you find them worthwhile—and don’t hesitate to comment, including sharing your own discoveries.

The monthly government jobs report released this morning was, in nearly everyone’s judgment, a big disappointment. Everyone, it seems, except for the President. The raw numbers were mediocre but what made them much worse was the news that 95% of the modest increase was due to temporary Census Bureau hiring (these jobs will typically last about two months). President Obama was on the air shortly after the announcement to trumpet them as evidence of the economy’s recovery. Obviously he knew in advance how bad the report would be and decided to try to spin the story. It didn’t work and the DOW dropped more than 3% to again close below 10,000. I don’t know what Obama is trying to do with a stunt like this. The signs are growing steadily that the recovery (such as it is) is stalling and economic growth could well turn negative in the fall or winter. Pretending otherwise makes appear foolish or trying to pull the wool over our eyes. Tell the truth, Mr President. Any else will only turn around to bite you.

The DOW’s hiccup today was a response to a number of economic warning signs. The euro fell below $1.20 for the first time in four years as Europe’s credit crisis continues. Today’s new wrinkle was a statement by a Hungarian official that the possibility of his country’s default “isn’t an exaggeration.” Bottom line: most of the poorer, peripheral EU countries are in hock up to their ears to the banks of the stronger central countries, notably Germany and France. And like their Wall Street counterparts, they also are TBTF.

This morning Huffington Post’s front page was dominated by a huge, grotesque picture of a sea bird covered in oil. I'll spare you the sight but it and a collection of such pictures can be found here. Pathetic and sickening but a statement of the price of this catastrophe. Meanwhile, the oil keeps flowing.

I am playing hooky from my church synod assembly (convention) today and tomorrow. My congregation cut the budget line for such meetings this year and I couldn’t justify to myself spending $165 for this gathering. How can I be charged to attend a legislative meeting to which I am a delegate and at which my presence is supposedly required? One more sign what a weird organization my church has become.

Letting go (Sunday Reflections for June 6, 2010)

Jim Stuck is the retiring bishop of the ELCA’s Indiana-Kentucky Synod. He recently penned a farewell message to members and congregations of his synod. While he concludes hopefully, his feelings about the church and its future are nonetheless troubled and ambivalent. Bishop Stuck is distressed by the state of the church and, by his own admission, grieving the death of the church he grew up with. While last summer’s dramatic ELCA churchwide assembly brought all this into focus, he recognizes the church’s troubles began much earlier.

And as I prayed about this and meditated on what was happening to my church, I began to realize that this death of the church was not something that started with our decision last August. The church has been dying for many years. The church that I grew up in the 50’s and 60’s is gone. Our pews are half full. We have fewer and fewer young people. Many congregations no longer have a Sunday School. As our facilities age, the cost per person to maintain and run them is becoming prohibitive. It seems that fewer and fewer people are being called upon to do more and more of the work of the church. Many are feeling over worked and under appreciated. How long can we sustain our congregations, our synodical ministries and the wider church with all its ministries?

The church Stuck grieves for is the church I grew up in as did most in the congregations I have served. After World War II, churches of all kinds grew dramatically and sustained that growth for about 25 years. In the late 60s and early 70s, however, those same churches began a long steady decline that continues to this day. Most of these denominations have now lost a third to a half of their membership. In addition, the current membership is older, more female and more Caucasian than the general population.

On pretty good lutherans, the blog where I first read Stuck’s statement, some comments criticized him for being too revealing of his grief. I applaud him for it. Unfortunately I think there has been a lot of denial throughout the ELCA about its true state. One thing we have learned in dealing with dying people is that we do them no favors pretending their condition is something other than what it is or talking endlessly about the next therapy, treatment or drug to be tried. In reality, such avoidance is more about protecting the sensibilities of family and friends rather than the welfare of the patient.

Over the course of my ministry, I couldn't count how many sermons and speeches I’ve heard, workshops and conferences I have attended, and books and articles I have read about renewing and reviving the church. Regardless of what was said at the time, the primary motivation for forming the ELCA in the 1980s was to stem the losses occurring across American Lutheranism. In spite of all that, nothing has changed. In truth, there are forces at work in our culture and society that are simply beyond anyone’s control.

By talking endlessly of “renewal” (and without ever being clear what that really means), we ignore the thousands of congregations (probably a majority) for which this is not going to happen. As a result, they feel ignored, abandoned, and guilty over their apparent failures. They often become consumed with internal bickering and finger-pointing trying to find someone to blame for their state. They engage in liturgical and programmatic contortions trying to appeal to their mysterious and unidentified “neighbors” in hopes of getting a few new members to help pay the bills. Relations and resources are strained. Members become frustrated and exhausted, often causing more loses and accelerating the decline.

Hopefully, and correctly I think, Stuck see the church’s decline as a process leading to something new.

We know that God is up to something. This is God’s church and God is doing something great to renew and transform the church. God is working on us to prepare us for the future mission we are called to do. What this mission will look like we don’t yet know. What the church will be in the future is yet to be revealed. But what we do know is that it will not be the same.

Stuck goes on to interpret this experience as any good Lutheran would, in terms of the cross. Lutherans have always emphasized that renewal and new life necessarily involves death. Teaching it, however, doesn’t make it any easier to experience first-hand. The church we knew is going away and something new is coming. We just don’t know what that new thing is yet.

Yes, we will never have our old church back. Many of our dreams for the church have vanished. They probably needed to vanish, because they were our dreams and not God’s. We are being called back into prayer, study of scripture and discernment in order to allow God to lead us into this new future. By the power of the Spirit, we are being called to let go of the church and place it in God’s hands.

My personal expectations are probably less conventionally Christian or even religious than Stuck’s but I don’t know that. I haven’t talked with him. When I was in the IK Synod (before he became bishop), my impression was that he was pretty astute so perhaps our thinking is not so far apart. In my view, the world is undergoing dramatic and unprecedented social change and something very different than what has gone before is going to be needed to meet our spiritual needs. And honestly, I don’t see what that is going to be.

In any case, Stuck and I agree that now we are being called to let go of this church and its future. While painful and difficult, we do it knowing we really have no choice. What will happen, will happen. The future is out of our control. And to that I think Bishop Stuck would want us to say, “Thanks God!” For from death will come genuinely new life, for a future we cannot see and for a world about which we can only dream.