YES, IT'S CLASS WARFARE ... AND IT'S BEEN GOING ON FOR SOME TIME NOW

Have Americans become less politically progressive and dumber than was the case fifty years ago? Think about it. We all know about increasing wage gaps, declining purchasing power, increased debt loads, our skewed reward system, economic uncertainty, and the growing wealth divide in America. It's worse today than it was fifty years ago. And it's far worse if we think about our kids' future and social mobility.

So why have Americans stood by and watched as wealth and wage gaps have increased while social mobility has declined?

With things going to hell in a handbasket for America's middle-class we have to ask ourselves, What's happened to the energy behind the social and political demands made by women, labor, and people of color throughout the 1950s and 1960s? Are Americans simply less progressive, or has apathy and the dumbing down of America's working class become the new norm?

If you've asked yourself about these and other questions then you're going to love "Class War and the College Crisis: The 'Crisis of Democracy' and the Attack on Education."

In a few words, "Class War ..." makes it clear that not only have things gotten more difficult for America's middle class but the challenges todays middle-class face today are the result of a very deliberate strategy. Here's the interesting part. It's been orchestrated by those with money and wealth since the 1970s.

The key behind the strategy lies in depriving the public sector of the cash that it needs to fund public goods, which includes making access to higher education more difficult financially. The tool for reducing the states capacity to provide public goods has been to deprive it of funds by granting tax breaks that are both unnecessary and skewed to benefit people who don't actually need the break.

That it makes the wealthy even richer, while keeping the middle-class in their place, is just gravy on their tax cut gravy train.

There's more to the story, but you get the point. You might like to think that you're working your way up to that champagne lifestyle but, unfortunately, the deck is steadily being stacked against you. And it's been going on for some time now.

- Mark 

POST-4TH OF JULY ... WRAPPED IN THE FLAG

If you want a better understanding of the history behind the radical right wing and our modern Republican Party Claire Connor's "Wrapped in the Flag" is a good place to start. It documents how the radical ideas of the John Birch Society have become part of the mainstream right. For those of you who don't know much about the Birchers keep in mind that they vehemently opposed the Civil Rights movement, called President Eisenhower and Martin Luther King, Jr. "communists" and have no problem placing property rights over individual rights (especially when race is involved).

Here's what Robin Blinn has to say about Claire Connor and her book:

Claire's father served on the first national board of the John Birch Society along with Fred Koch, father of the oppressive billionaire brothers, Charles and David Koch. As a young teen, Claire joined the Birchers, so she knows where all of the bodies are buried. Her personal story was forged in the crucible that gave birth to the radical Tea Party which threatens the core of our democracy. Accordingly, it's important for all of us to understand their roots. 

At the end of the day, many of the ideas behind today's radicalized right wing Republican Party are essentially a rewrite of the John Birch Society. Go to Claire's site here or purchase a copy of "Wrapped in the Flag" here to learn more.

- Mark 

THIS IS WHY ECONOMISTS GET A BAD NAME

Have you ever wondered why President Harry S Truman once demanded a one-armed economist? It's pretty simple. After receiving diverse reports on economic policy proposals from several economists a frustrated President Truman blurted out, "All my economists say, 'On the one hand ... but on the other hand ...'".

President Truman's frustration in understandable. He wanted certainty from a field that likes to claim scientific status but operates in an arena governed by political uncertainty and human error.

To better understand President Truman's frustration requires that you think what it would be like if, say, geologists were still arguing over whether the world is flat or round. What would you do with competing advice from one geologist who says "Go ahead and send the navy around the world" but then have to consider equally the geologist who warns about "not sending them because you'll lose the fleet when they fall off the earth"?

I know, I know. The comparison is a bit exaggerated, but you get the point. The conundrum that Truman faced was never more evident than when two economists (Gunnar Myrdal and Friedrich Hayek) won the Nobel prize in economics in the same year for saying the exact opposite thing!

Anyways, below we have an example of the work economists often put together but can lead to misleading assumptions and, unfortunately, faulty policy prescriptions. I say "misleading" because after reading the Bank of England's discussion paper "Is the 'Great Recession' really so different from the past?" one could justifiably be left to ponder whether "on the one hand the economy's not so bad" when "on the other hand" we all know better.

And, yes, the discussion paper was put together by two economists.

  Ext Mpc Paper 0040

Here's the problem I have with the study. After discussing the 2008 market meltdown, and then comparing the meltdown with the recession of the 1970s, we find that the discussion paper virtually ignores the causes behind the recession of the two periods.

This is a problem because, at the end of the day, you can't pretend that two recessions are comparable when the underlying causes and subsequent responses are completely different (the fact that the outcomes of the second recession are not played out is a problem too). It's akin to comparing the life achievements of two kids who might look the same but live in different neighborhoods and have different parents (you know, kind of like the nonsense Harvard economist N. Gregory Mankiw tried to argue here).

Not only is the exercise a distraction, but it makes you look clueless to what's happening. In this case, the Bank of England discussion paper could lead one to believe that our 2008-inspired recession isn't as bad as we think when, at the end of the day, there's a world of difference between the recession of the 1970s and what we're experiencing today.

I'll make this brief.

Causes behind the 1970s recession ...

1. Deficit spending
2. OPEC price hikes lead to inflation and ...
3. Accelerates the financialization of our economy (where the focus is on speculation and wealth extraction over investment and wealth creation)
4. New global competition (thank you Bretton Woods) adds to corporate America's uncertainty caused by inflation and the financialization of our economy.

The causes behind the 2008 market meltdown and subsequent recession ...

1. Reckless deregulation
2. Reckless tax cuts and deficit spending
3. Deregulation means financialization on steroids, which leads to ...
4. A greater emphasis on wealth extraction over wealth creation
5. A continuing and naive belief in the integrity of markets, which helps explain the political failure of Congress and the Federal Reserve to discipline and correct market stupidity.

Causes behind the recovery of the 1980s ...

1. Paul Volcker's stringent monetary policies, plus ...
2. New sources of energy (wind, oil, nuclear, etc.), war (Iran-Iraq) and conservation efforts help slay inflation dragon.
3. President Reagan's deficit spending dumps trillions into the economy and acts a (military) Keynesian kick-start.

Causes behind the stagnating economy today ...

1. Ben Bernanke's trillion dollar money dumps hoarded by the banks, which means ...
2. The Savings-Investment function collapses.
3. The Just Say No Congress goes on a repeal Obamacare and regulate women's body binge, but does nothing with alternative energy or on the jobs front (which, combined with hoarding and a collapsed S-I function, makes it appear Keynesian policies don't work).
4. The financialization of the economy accelerates, which emphasizes - as Joseph Schumpeter might argue - playing monopoly rather than building monopolies.

Pretending that the recession of the 1970s and post-2008 period are similar, while ignoring their causes, only feeds the tendency to make faulty policy prescriptions. It also places an emphasis on the economic over the political.

So, yeah, trying to compare the 1970s recession with the recession today is a bad idea. They are two different beasts.

- Mark

FIVE CANADIAN HEALTH CARE MYTHS

From the American Association of Retired People (AARP), we get the "Five Myths About Canada's Health Care System" ...

Myth #1: Canadians are flocking to the U.S. to get medical care.

Myth #2: Doctors in Canada are heading to the U.S. to practice medicien.

Myth #3: Canada rations health care, which explains why hip replacements and cataract surgeries happen faster in the U.S.

Myth #4: Canada has longer wait times because it has a single-payer system.

Myth #5: Canada rations health care, the U.S. doesn't.

Read the details here.

- Mark

TOUCHÉ

Too funny. This is poetice justice, on so many levels ...

- Mark

THE LAST REAL REPUBLICAN?

Was President Eisenhower the last real Republican?

President Eisenhower discussing defense spending and the militarization of our society ...

- Mark 

DARRELL ISSA'S IRS WITCH HUNT

With the GOP leadership concerned over Darrell Issa turning things personal, it's pretty clear that his IRS investigation is just another political witch hunt ...

* Issa directed Treasury Inspector General to ignore IRS treatment of liberal groups (Raw Story). 

* The IRS 'scandal' was a scam from the beginning (Media Matters). 

* Darrell Issa's 5 biggest lies about the IRS scandal (The National Memo).

- Mark

WITH THE GLOBAL ECONOMY SMOLDERING, WE'RE LIVING ON BORROWED TIME

So I'm looking at what's happening in Italy and start thinking to myself, What a smoldering pile of global financial crap we have on our hands. All we seem to be doing is kicking it down the road too.

No analysis here. Just one line on several of the many smoldering financial pieces that will be part of our next economic meltdown ...

Lies: With the help of Goldman Sachs Greece lied (big time) about its debt to get into the Euro zone (2001).

Smoke & Mirrors: The Federal Reserve is funneling hundreds of billions of dollars to other countries to keep Europeans invested in Wall Street.

Lies: The Italians lied with the help of Goldman Sachs (again) and are now paying the price (€8bn) for cooking the books in the 1990s so they could ditch the Lira and get into the Euro zone (1999). 

Smoke, Then Mirrors: The European Central Bank is now run by Mario Draghi, the same guy who helped cook the Italian books in the 1990s, then went to work for Goldman Sachs, and encouraged the bailout of Cyprus. 

Lies: Cyprus lied about wanting to save the economy when they were really bailing out Russian money launderers, Greece, and the stupid bankers who foolishly bought Greek bonds.

Smoke & Mirrors: U.S. financial institutions don't want to put up any real collateral to back their casino-like gambles, instead relying on borrowed assets and debt to back their bets.

What makes all of this so difficult to swallow is that the banks and financial institutions that created this mess are doing just fine. The reason is because they are allowed to draw on the public treasury, of numerous nation-states, when their financial schemes break down. History tells us that that we're all in trouble when we allow financial oligarchs to loot the public treasury to fix their mess.

I'll make this short and sweet. With the global economy smoldering, we're all living on borrowed time.

- Mark

UPDATE: Oh look, there's more ... from China (and getting worse) ... from Greece ... and don't forget Portugal.  

WHAT HAPPENS WHEN HARVARD ECONOMISTS SMOKE SUPPLY-SIDE CRACK

N. Gregory Mankiw is a Harvard economist.

In an early edition of his popular economic textbook he wrote that supply-side economics - which assumes that cutting taxes and putting more money in the hands of the rich will promote growth and reduce deficits - was a "crank theory." This was no great insight on his part. Mankiw was looking at the results of the Reagan, Bush I, and Clinton administrations.

Then Mankiw was invited into the inner circles of political power, and started smoking supply-side crack.

In 2003 Mankiw became Chairman of George W. Bush's Council of Economic Advisers. There he provided academic cover for President Bush's economic policies, which promised that - surprise, surprise - lower taxes on the rich would lead to higher rates of investment and growth.

 After vouching for President Bush's policies Mankiw stood by and watched as the Bush administration blew through $5.4 trillion in projected budget surpluses, effectively doubled our national debt, and blew up the economy in 2008. With that kind of record you would think Mankiw would be hiding in some cave in Afghanistan. Think again.

In fact, Mankiw's doubling down. Only this time Mankiw's not just trying to peddle a thoroughly debunked economic theory about lower taxes on the rich leading to more economic growth and smaller deficits.

In "Defending the One Percent" Mankiw argues that the generational wealth of the top 1 percent of the population is understandable if we consider that the "educational and career opportunities available to the top 1 percent" aren't much different from those available to the middle class. This leaves us to conclude that inequality is really the result of the top 1 percent being smarter and harder working then the rest of us.

No real time is given in Mankiw's article to discussing favorable legislation, access, a culture of bailouts, legal protections, inheritance, family networks, weak regulations, gender, race, ethnicity, etc. If you're not part of the 1 percent  that's on you.

Jonathan Chait took at a look at Mankiw's "one percent" paper for New York Magazine and called it an "embarrassing piece of ignorant tripe" (Mankiw's use of birth condition, organs and equality of opportunity was especially convoluted). In my view Chait was being generous.

Mankiw is smoking supply-side crack, again.

- Mark

NO COLLATERAL? NO WORRIES, THE FED WILL FIX IT

The people at Zero Hedge write solid stuff on the economy and finance. Unfortunately the people at Zero Hedge can also come across as overly brainiac market guys as their writing, at times, is filled with market-speak jargon many find difficult to navigate. "Desperately Seeking $11.2 Trillion in Collateral, Or How 'Modern Money' Really Works" is one of those articles.

Fortunately, I can translate market-speak. Because what they have to say in the article is important, I'm doing that here.

In "Desperately Seeking $11.2 Trillion ..." Zero Hedge is telling us one thing: In spite of betting trillions of dollars on financial instruments (again) market players are refusing to put good assets behind their bets (again), which means that the Federal Reserve is going to have to print more money when the market collapses (again).

Ta-da.

So you know, with graphs "Desperately Seeking $11.2 Trillion ..." will print out to about 13 pages. If you have the time you should try and read it since the nuance and the graphs are what drive home the point(s) made in the article. Since the details are what make their argument come alive, below is a jargon-free 1 page translation of Zero Hedge's article ...

********************************
OK, let's start here.

After the 2008 market collapse it became clear too many market players were gambling on toxic products that didn't have the proper assets or financial backing to pay out when the market turned sour. The end result was not pretty, as we all know.

In real simple terms what happened in 2008 was the functional equivalent of your insurance broker taking in your monthly premiums, but then not having the money to pay out when an uninsured driver crashed into your car. Multiply this scenario by hundreds of billions of dollars and tens of thousands of crashes where the participants didn't have real insurance (or assets) to back their activities and you have a (partial) idea why our 2008 market meltdown happened.

Global financial authorities didn't like what they saw after 2008 and convened a meeting (Basel III) where they pretty much said that financial players need to come up with more collateral to back their market bets. Put another way, Basel III said market players hould have greater reserve and asset requirements if we want our financial markets to be stable.

Sounds fair so far, right? If you're going to gamble and invest in markets you should at least have the ability to back your market activities in case of an emergency.

Unfortunately, as Zero Hedge points out, recent attempts to make sure that the bets that have been made are backed with good assets fell flat on its face. Simply put, there weren't enough fools or institutions with good collateral willing to back the trillions of dollars in bets that the financial wizards on Wall Street have waged.

The problem that Basel III is trying to fix is a simple one. A good portion of the market bets made on Wall Street these days are made using the borrowed assets of other market players. It's kind of like hocking your grandparents China at the pawn shop so you can go gamble in Vegas. You have every intention of paying the money back, but you still need to win in Vegas. In market lingo these activities are referred to as rehypothecated market plays (click here for a description of how it works).

What's been created over the past 30 years is a multi-trillion dollar shadow banking system built around unregulated loans, borrowed assets, and a casino mentality.

Basel III is simply asking that market players start backing their market plays with "good collateral" instead of borrowed money and borrowed assets. To reemphasize (because it needs reemphasizing), Basel III is simply asking that if you're going to gamble you should at least have the money to back your bets.

Pretty simple, right? Unfortunately two problems have developed.

First, the $1-2.5 trillion in good collateral that Basel III asked for could not be found. No one wants to put up their stuff to back the market bets that they are involved with. This should tell us something (especially since it's happened before).

Second - and this is where it gets good - serious market players have made it clear that what's really needed to back the market plays out there is NOT simply $1-2.5 trillion in collateral but rather between $5.7 trillion and $11.2 trillion in good assets. There will be no way to pay off the counter parties if (when) the market collapses again without this amount of hard collateral.

So this is what we have. Speculators, institutional investors, and rock solid brick and mortar firms want to play in the casino. But they don't want to put anything of substance up to back their bets. And why should they? The people at the Federal Reserve - and their economic illiterate sycophants in the U.S. Congress - have made it clear that they are more than willing to fill in the financial holes with bailout cash.

This is precisely the point that the good people at Zero Hedge make. The Federal Reserve is going to have to bail out the system (again) when the next market collapse happens because there's no good collateral to back the bets made. Borrowed and leveraged assets aren't enough.

And you can bet that the good folks at the Fed will be yapping about "saving the system" in spite of the fact that the system they're saving doesn't deserve saving.

What a mess.

- Mark

UPDATE: Have regulators started to move on the reserve (capital rule) requirements? This seems to be a start; i.e. until the next legislative favor/gift from Congress guts the requirement.