Good question

Michael Hudson asks:

This pro-austerity mythology [which animates orthodox economics and economic policy in the United States and elsewhere] aims to distract the public from asking why peacetime governments can’t simply print the money they need. Given the option of printing money instead of levying taxes, why do politicians only create new spending power for the purpose of waging war and destroying property, not to build or repair bridges, roads and other public infrastructure? Why should the government tax employees for future retirement payouts, but not Wall Street for similar user fees and financial insurance to build up a fund to pay for future bank over-lending crises? For that matter, why doesn’t the U.S. Government print the money to pay for Social Security and medical care, just as it created new debt for the $13 trillion post-2008 bank bailout?

The answer to these questions: Banks and other financial institutions want to keep as much of their income as they can. Transaction fees, regulations, oversight, taxes, etc. — these consume profits. America’s banks want to transfer these costs to others, namely, to those individuals who lack the political power to defend their standard of living. This cost transfer project amounts to a hidden and sometimes obvious tax the government levies on the 99%. When coupled to a system of risky and fraudulent financial transactions, elite looting and private debt creation, this cost transfer project amounts to little more than a predatory political economy.

The ridiculous fiscal cliff debate which now dominates America’s public life is but a crude expression of this predatory political economy.

Just in time for summer

Mike Whitney provides a tale of economic doom and gloom:

The slowdown has begun. The economy has started to sputter and unemployment claims have tipped 400,000 for the last seven weeks. That means new investment is too weak to lower the jobless rate which is presently stuck at 9 percent. Manufacturing — which had been the one bright-spot in the recovery — has also started to retreat with some areas in the country now contracting. Housing, of course, continues its downward trek putting more pressure on bank balance sheets and plunging more homeowners into negative equity.

The likelihood of another credit expansion in this environment is next-to-none. Total private sector debt is still at a historic high at 270% of GDP which augurs years of digging out and painful deleveraging. Analysts have already started slicing their estimates for 2nd Quarter GDP which will be considerably lower than their original predictions.

Help will not be forthcoming:

This is more than just a “rough patch”. The economy is stalling and needs help, but consumers and households are not in a position to take on more debt, and every recovery since the end of WW2 has seen an increase in debt-fueled consumption. So, where will the spending come from this time? That’s the mystery.


When spending slows, the economy contracts. It’s that simple. Without emergency stimulus, commodities will fall hard and stocks will follow. Look out below.

We have a demand-constrained economy, a macroeconomic limit or effective constraint placed upon economic growth by presence of insufficient effective demand for the goods produced by that economy. If neither the government nor consumers can purchase finished goods, the effects produced by this incapacity will produce a recession or worse. Yet, although knowledge of this problem is common, these days, official Washington does not care much about the plight of common Americans — Alan Simpson’s “lesser people.” If it cared, it would promote and even achieve full employment and living wage policies. It would promote these goals if only to overcome a demand-constrained deceleration of America’s economic growth. It cares instead about appeasing finance capital. It cares a lot. As we have seen over the past year, the primary goal of both parties is to adopt a Federal deficit reduction plan, with the Republicans still taking the lead on the issue and using chicanery to finesse the matter:

In a bit of political stagecraft, House Republicans plan to bring to a vote on Tuesday evening a measure that President Obama and the Democrats were demanding not so long ago: a clean increase in the national debt ceiling, unencumbered by any requirement that spending be cut.

Given that all Republicans and more than a few Democrats oppose any debt-limit increase that is not accompanied by some commitment to future fiscal restraint, the measure is doomed to fail. And for all the talk of economic crisis should Congress fail to raise the debt ceiling by August, the financial markets are likely to yawn at this vote — if only because Republican leaders have privately assured Wall Street executives that this is a show intended to make the point to Mr. Obama that an increase cannot pass absent his agreement to rein in domestic programs.

“Wall Street is in on the joke,” said R. Bruce Josten, executive vice president of the U.S. Chamber of Commerce.

Finance capital does not care much for an economic stimulus program. It is only weakly interested in the real economy. It does not care for full employment and a living wage, about a fair distribution of risks, rewards and labor. The well-being of the lesser people is just not one of its concerns. Finance capital wants targeted tax cuts, low inflation and a Federal deficit reduction. And this is what it will get, more or less, while cash-strapped Americans will try to make do with what they have. Sadly, America’s weakly democratic political system is rigged to produce this very outcome. This outcome is a conspicuous feature of its identity. It is what the market fundamentalists refer to when they talk of letting the market do its work.

That’s a pretty nice country ya got there…

I wouldn’t want anything bad ta happen to it, something like:

Standard & Poor’s Ratings Services said today that it affirmed its ‘AAA’ long-term and ‘A-1+’ short-term sovereign credit ratings on the U.S. Standard & Poor’s also said that it revised its outlook on the long-term rating of the U.S. sovereign to negative from stable.

What does this mean? Well:

The surprise move [by standard and Poor’s] sent US and European shares lower. The S&P 500 fell the most in a month, and the US dollar dropped against the euro and Swiss franc. Oil was also sharply lower.

In Europe, the main UK, German and French indexes all fell by at least 2%.


The reaction to S&P’s warning of a debt downgrade has been as predictable as it was swift. Paul Ryan responded that the debt “threatens not only the livelihoods of future generations, but also the economic security of American families today.” Eric Cantor described the S&P action as “a wake-up call.” House Majority Whip Kevin McCarthy, another “Young Gun,” said pretty much the same thing.


At least one economist burst out laughing on hearing about the S&P announcement. “They did what?” exclaimed James Galbraith, a professor of economics at the University of Texas in Austin, who formerly served as executive director of the Congressional Joint Economic Committee. “This is remarkable! It certainly will confirm the suspicions of those who have questioned S&P’s competence after its performance on the mortgage debacle.”

Lindorff continues by asking:

So what’s going on here?

There would seem to be only two possibilities:

Either S&P has been pressured by powerful Republicans and/or Wall Street Bankers to issue this warning, in order to add to national hysteria about the national debt and win more drastic cuts in social programs, or S&P is simply blowing it again.

I disagree with Lindorff in one respect and would say instead that there are at least three possibilities at work here. One, Standard and Poor’s is a viciously corrupt organization. Two, Standard and Poor’s is a massively incompetent organization. Or, three, Standard and Poor’s is both viciously corrupt and massively incompetent. Door Number Three seems to me to be the best option of the three! If, then, Wall Street wants to use extortion to attack the remnants of the New Deal, if it wants to add a bit of gravitas to America’s deficit hysteria, it would be served much better if it used the right tool for the job. S&P lacks the credibility needed to make this threat work.