Belmont Club

The track of the storm

Spengler from the Asia Times thinks there’s a rough road ahead. While there have been tough times before, he argues the coming days will be different.  “President Barack Obama may be remembered for permanent depression, the way that Leon Trotsky’s name is linked with permanent revolution. Fiscal stimulus combined with near-zero interest rates have proven to be a toxic cocktail for the United States, the macroeconomic equivalent of barbiturates and alcohol. … Obama inherited a crisis, to be sure, but he has made it much worse.” How? In part by taking the worst mistakes of the past and doubling down on them. One example, according to Forbes, involves the housing market.

As we try to shake off the financial crisis, here’s a bright idea. Take a law that has led to the writing of an enormous amount of bad mortgages and expand it. Then take enforcement away from bank examiners and give it to housing activists. Sound like a poisonous cocktail? Well, it is what the Obama administration and Democrats are currently stirring up on Capitol Hill.

The White House and Congress want to expand a 30-year-old law–the Community Reinvestment Act–that helped to fuel the mortgage meltdown. What the CRA does, in effect, is compel banks to seek the permission of community activists to get regulatory approval for bank expansions and mergers. Often this means striking a deal with activist groups such as ACORN or unions like the Service Employees International Union (SEIU) and agreeing to allocate credit to poor and minority areas that are underserved.

What, yet another catastrophe? It’s no longer news. It’s like so many other stories people are already numbed to it. The public wants to feel something other than outrage. Several strategies are always opened to the doomed, to those already under a sentence of death. One is to try and escape. Those who can are looking out for themselves. The Independent is reporting the end of the dollar as the world currency.

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

Well, maybe not yet, but at this rate it’s only a matter of time. The important point is not to talk about problems openly, because it’s a bummer. General McChrystal has been told to shut up over Afghanistan.  And in an action as symbolic of the White House as anything else, white coats were handed out to doctors who were photographed with the President as evidence of their support for his health care reform. Those who can’t escape the new dawn can join in the fun of destruction. Don’t worry: the Wall Street Journal says it OK to break things. It’s government policy to destroy perfectly good things. The paper describes the cash-for-clunkers debacle.

Remember “cash for clunkers,” the program that subsidized Americans to the tune of nearly $3 billion to buy a new car and destroy an old one? Transportation Secretary Ray LaHood declared in August that, “This is the one stimulus program that seems to be working better than just about any other program.”

If that’s true, heaven help the other programs. Last week U.S. automakers reported that new car sales for September, the first month since the clunker program expired, sank by 25% from a year earlier. Sales at GM and Chrysler fell by 45% and 42%, respectively. Ford was down about 5%. Some 700,000 cars were sold in the summer under the program as buyers received up to $4,500 to buy a new car they would probably have purchased anyway, so all the program seems to have done is steal those sales from the future. Exactly as critics predicted. …

The basic fallacy of cash for clunkers is that you can somehow create wealth by destroying existing assets that are still productive, in this case cars that still work. Under the program, auto dealers were required to destroy the car engines of trade-ins with a sodium silicate solution, then smash them and send them to the junk yard. As the journalist Henry Hazlitt wrote in his classic, “Economics in One Lesson,” you can’t raise living standards by breaking windows so some people can get jobs repairing them. In the category of all-time dumb ideas, cash for clunkers rivals the New Deal brainstorm to slaughter pigs to raise pork prices. The people who really belong in the junk yard are the wizards in Washington who peddled this economic malarkey.

Or you can engage in that old perrenial: wondering how things turned out this way. Marc Ambinder in the Atlantic starts the first of a three part series. He writes: “Exclusive: How Democrats Won The Data War In 2008 … Tomorrow: Inside the Service Employees International Union’s sophisticated targeting.”

Get-out-the-vote operations mounted by the Obama campaign, the Democratic Party and progressive organizations mobilized more than one million dedicated volunteers on Election Day. But it was buttressed by a year-long, psychographic voter targeting and contact operation, the likes of which Democrats had never before participated in. In 2008, the principal repository of Democratic data was Catalist, a for-profit company that acted as the conductor for a data-driven symphony of more than 90 liberal groups, like the Service Employees Union — and the DNC — and the Obama campaign.

Finally, people can position themselves for the time when things touch bottom. Spengler says that despite the white coat photo-ops and outward confidence, there’s a sense of foreboding in the councils of power. “Panic is starting to take hold at the Obama White House over the relentless deterioration of the job market. US jobs in September declined by about 263,000 jobs, worse than the 175,000 drop expected by Wall Street economists. To the 15.1 million on the official unemployment count, add 9.2 million “involuntary part-time workers” and 2.2 million who were dropped from the tally because they had not sought work in the past month, and the unemployment rate would rise to 17.1 million.”

For all of its uncertainties, today is an exciting time to live. Certainly a time of upheaval is the moment to make one’s mark. The first chapter of Charles Dicken’s famous novel A Tale of Two Cities is ironically entitled “Recalled to Life”. The next years will be anything but boring. We can tell our grandchildren about it, if we ever make it that far.

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way.

What more can you ask for but to live out these days? And hey, here’s Ronald Coleman saying the words.


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