Roubini, Summers and Obama: Duh
Courtesy of Karl Denninger at The Market Ticker
Out of Davos come two opinions that Bloomberg (and others) have spun as arguing for "continuing stimulus efforts":
“The headline number will look large and big, but actually when you dissect it, it’s very dismal and poor,” Roubini said in a Jan. 30 Bloomberg Television interview following a U.S. Commerce Department report that showed economic expansion of 5.7 percent in the fourth quarter. “I think we are in trouble.”
Roubini said more than half of the growth was related to a replenishing of depleted inventories and that consumption was reliant on monetary and fiscal stimulus. As these forces ebb, the rate will slow to 1.5 percent in the second half of 2010.
No really? We’ve embedded $500 billion in annual transfer payments of various forms over the last 18 months. That’s about 3% of GDP, or more than the "advance" GDP number says that personal consumption expanded (2.2%)
In other words, but for the additions to transfer payments over what was present before we went into this mess consumption would be printing a solid negative number – still.
Summers said that the "statistical recovery" won’t mask "a human recession."
Human recession Larry? Is that like the "mental recession" that John McCain’s favored economic wonk proclaimed during the campaign?
Never mind our "good friend" President Obama, who is proposing a $3.8 trillion budget today. In a break with the usual "optimistic" view compared to the CBO, he’s predicting that the deficit this year will total $1.8 trillion, or almost 50% of the total federal spending – and that’s with more than $800 billion in higher taxes (which have a near-zero chance of actually passing Congress in an election year!)
The President claims to be enacting a "spending freeze" and claims that it is "everything but security and defense." In typical Washington form this is a lie – education and R&D (everywhere) are getting a 6% increase. This, while inflation is currently running at a statistical zero, and on the back of the last year’s budget which amounted to a "ratchet up" game played with the voters.
This is the same game, by the way, that was played with the states and their so-called "Federal Help" during the last year. To qualify for "stimulus" payments from The Federal Government they had to agree to freeze spending at 2005 or above levels – right at the top of the housing bubble when their revenues were peaking. This is a major cause of the states currently facing bankruptcy over the coming years.
Obama’s plan also calls for creating a special debt commission to recommend steps to cut the deficit and tougher budgeting rules in Congress.
The result would be a deficit that declines next year to $1.27 trillion and to $828 billion in 2012, according to a summary provided by the administration. In subsequent years, through 2020, the annual deficit would still total between $700 billion and $1 trillion. By 2020, the publicly held debt would approximately double to $18.5 trillion, according to estimates.
Nice musing. But Mr. Orszag said:
“The worst thing we could do is act too quickly and throw the economy back into recession,” Orszag said.
Yeah, well, here’s the issue – we haven’t fixed a damn thing. There is still far too much debt in the economy, and the Obama "plan" is to try to kick the can one more time, spending more and more at the Federal level in the hope (prayer really) that both the market will tolerate this without ratcheting up interest rates and that somehow we will "find" more debt-carrying capacity and acceptance among the public and corporations.
There’s not a snowball’s chance in Hell this is going to play out, and for that reason the projections of smaller deficits going forward is pure fancy. At some point Washington is going to have to bite the bullet and force the pig through the python – that is, we must force the debt out of the system. This means accepting that a lot of people – and corporations – must go bankrupt. We must cage the derivative monster. And we must put a permanent stop to ponzi finance in all its forms.
Americans can accept that they blew it and that a trip to the bankruptcy judge is in their future. But what they won’t and shouldn’t accept is that while they have to take that trip, those banksters yukking it up in The Hamptons who lied about what they were selling don’t have to join them there. That’s both unjust and unacceptable, and yet we the people continue to refuse to demand real reform and progress, instead allowing the politicians and policy wonks to throw platitudes and borrowed federal dollars around, foolishly believing that this both can and will continue forever, much like the old saying "I can’t possibly be out of money – I still have checks left!"
Well, guess what folks: this "plan" won’t work. As in 1930 you can either listen to the foolish claims that "it will all be ok; we’ll borrow our way to prosperity!" or you can prepare for what is certain to be a cold, hard rain. Summers and Obama remain in denial – a state shared with the rest of the Washington DC establishment that has never been willing to be straight with the people, mostly because doing so in a fashion that doesn’t result in an instant revolution requires that they stomp on the bankster games at the same time that the rest of us are asked for austerity – and that goes directly against the "shower of money" that is emitted from Wall Street and finds its home in the politicians’ pockets.
We are certainly in for an interesting remainder of the year and beyond, and I can only hope that at some point before we see the bird erected in our direction by the world’s creditors we wise up and wake up.
I, for one, am not confident it will happen.
*****
Bob Dylan 1994 – A Hard Rain’s A’Gonna Fall From GME Japan
