WE HAVE A BUDGET: IT'S NOT MONOPOLY MONEY

President Obama came out with his budget for 2011. We're spending $3.8 trillion, and only have about $2.2 trillion coming in this year. Hence the $1.6 trillion shortfall. As I noted a few posts back, $1.3 trillion of this amount was already on President Obama's desk before he arrived in Washington. The remainder is a product of the recession and the parasitic sociopaths on Wall Street damaging the economy far more than we thought.

Still, check out this cool budget expenditures interactive from the NY Times. This budget forecasting interactive tells what most of us already know: Projecting beyond two years is largely a futile endeavor. As an example, President Clinton's economic team failed to predict the level of their budget surpluses, while President Bush's economic team made surplus projections for fiscal year 2012 that will not materialize.

What's clear from this budget is that President Obama understands Vice President Cheney's pronouncement that "deficits don't matter" is both off the mark and - as if this needs to be said - is no way to approach a family's budget, let alone a nation's. Indeed, here's President Obama, speaking about our need to stop treating our budget process like we're playing with Monopoly money (which I wrote about two weeks ago).

“We simply cannot continue to spend as if deficits don’t have consequences, as if waste doesn’t matter, as if the hard-earned tax money of the American people can be treated like Monopoly money ...”

Unfortunately, if Republican extended comments are any indication, the Party of No seems prepared to continue their smoke & mirror games, as if the Monopoly Standard policies they initiated 30 years ago (i.e. supply-side tax cuts) hasn't undermined our nation's fiscal health enough. Whether America buys into the notion that the Republicans should be "rewarded" because President Obama hasn't cleaned up their economic mess fast enough will be one of the key issues this November.

Stay tuned.

- Mark

THE COSTS OF "BIGNESS"

The Financial Times is reporting that the "four biggest US commercial banks – JPMorgan Chase, Citigroup, Bank of America and Wells Fargo – possess 64 per cent of the assets of US commercial banks."

Why is this significant? Because it's un-democratic and corrodes free market principles by robbing local market players of the ability to make the call about a consumers ability to pay.

Think about the local banker who might know and care that you had your identity stolen and that your accounts were cleaned out. But you still have a job. If you go by the books of one of the big banks you're out of luck and probably will not get financing for a new home. Conversely, I have to think that a local banker would have caught on to the fact that a local applicant didn't have a real job, or income, and most likely would not have granted the mortgage loans that we consider toxic today. Even the knowledge that Fannie Mae was going to buy up the loan may not have swayed the local banker because the local banker has to live with the consequences of a series of failed loans in his or her community.

In nakedcapitalism.com's "Review of Karl Polanyi's The Great Transformation" Joe Costelo points out that concentrating economic power in the hands of a few banks has reduced or robbed the market system of the capacity to make judgment calls about the viability of small businesses and regular homeowners. Community knowledge is important here.

Centralized economic decision-making, which comes when four banks control 64% of all the assets managed by commercial banks, has led to an over reliance on mathematical models to approve people who don't deserve more credit and new fangled super instruments that no one really understands.

As I was reminded by one of my students, it has also led to the rise of "unsecured debt" like credit cards, which the models say are OK, which condem people (esepecially the young) to economic serfdom.

Worse, "bigness" and centralized economic power have allowed a few financial players to dominate our political process and secure favorable legislation. This undermines both democracy and the integrity of markets.

- Mark