One chance to save the US (its the economy)

[sinophile]

I read this piece (http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2009/05/18/the-end-game-draws-nigh-the-future-evolution-of-the-debt-to-gdp-ratio.aspx) today and tried to decide how to summarize it for MP.net so as to not bore the crap out of everyone. Fortunately the author did it for me (see below).

The bottom line: the future of the US really does rest in the choices the Obama administration and Congress are now making. This Presidency matters more than almost any before it. No do-overs. They need to get it right.


Today's True Challenge — Governance: In this vein, we proposed at the end of our February 2009 PROFILE that the root problems of today are not macroeconomic as much as they are political philosophical: How can democracy save itself from itself? How can people be made to realize that a reform of governance is what is now most needed—more so even than a reform of Wall Street? And even in the financial sector, it is increasingly clear that regulatory lapses in Washington were more responsible than "greed" for what has happened. Messrs. Rubin, Summers, and Greenspan actively encouraged the most pernicious of the deregulatory policies that brought down the system.
By now, it is clear that we need bold new constitutional amendments that mandate (i) sterilization of excess money creation during cyclical recoveries, (ii) fiscal surpluses during recoveries to pay down past fiscal deficits, and (iii) deficits during recessions tilted towards growth-enhancing infrastructure spending, not towards goodies for special interest groups.
In this regard, economists Martin Wolf and Stephen Roach have both correctly identified financial market "credibility" as the key to future growth, inflation, and interest rates. Can today's administration end up with any credibility when it blithely ignores the very existence of the End Game we have identified, much less those policies needed to solve it correctly? Will there be any credibility if the three proposed amendments just cited are not adopted?
In his magisterial The Rise and Decline of Nations, Mancur Olson understands that these are the topics that matter—not greed management 101. Yet barely a word is being said about these issues by the Best and the Brightest now staffing the Obama White House. Why? The explanation partly lies in a crisis of intellectual competence. Scholars trained in "macroeconomics" are as poor in discussing Olson's dilemmas of collective action as oncologists are in discussing dentistry. The fact that the macroeconomists in question are "brilliant" is irrelevant. Being smart is not enough.
The abject moral failure of the new team to identify much less to propose a solution to the End Game is extremely disturbing to the present author. Despite his initial support of President Obama, he increasingly wonders whether we have the right team in place. And he is alarmed that time to rebuild credibility is running out.
and this...


Rebounders versus "Banana Republics": To begin with, note that what matters is not a onetime rise in the Debt-to-GDP ratio due to a particular shock (e.g., today's US housing and credit crises), but rather the dynamic trajectory of the ratio in the years subsequent to the initial rise. It is the direction of this trajectory that is all-important. If the Debt ratio continues to rise, then it tends to accelerate due to the ever-rising cost of servicing this ever-rising "primary" deficit. Not only does the increasing debt-load itself cause ever-higher servicing costs, but the rising real rates that typically result from ever-greater debt make the spiral ever worse. The result can be economic and social collapse.The author's point is that stimulus for the sake of the short term will dig a deeper hole. The administration must pull out all the stops to encourage massive investment in long-term stimulus, R&D and production. Anything short is disaster.

[ren0312]

I read this piece today and tried to decide how to summarize it for MP.net so as to not bore the crap out of everyone. Fortunately the author did it for me (see below).

The bottom line: the future of the US really does rest in the choices the Obama administration and Congress are now making. This Presidency matters more than almost any before it. No do-overs. They need to get it right.

and this...



The author's point is that stimulus for the sake of the short term will dig a deeper hole. The administration must pull out all the stops to encourage massive investment in long-term stimulus, R&D and production. Anything short is disaster.

How is it that Japan could somehow sustain its massive stimulus packages all through the 1990's, have a debt level of 180% of GDP, and still not go into default, and in fact still has an A credit rating?

[Walter Sobchak]

No, if you amend the Constitution, add Congressional term limits (maybe a total of 12 or 18 years) and give the POTUS a line-item veto. Or, better yet, require a balanced budget.

[Alpheus]

it is increasingly clear that regulatory lapses in Washington were more responsible than "greed" for what has happened. Messrs. Rubin, Summers, and Greenspan actively encouraged the most pernicious of the deregulatory policies that brought down the system.

Are you kidding? More like thanks to Maxine Waters and Barney Frank for causing the mortgage crunch. Telling the banks who to loan to is what started all this, not deregulation.

[khaz]

Cut taxes to spur investment, stop the spending by congress and bar congress from mandating banks make bad loans.

[sinophile]

How is it that Japan could somehow sustain its massive stimulus packages all through the 1990's, have a debt level of 180% of GDP, and still not go into default, and in fact still has an A credit rating?

Japan -

Huge personal savings rates.
Net exporter.
Net recipient of foreign direct investment dividends returning to Japan.
Massive asset holdings.
Focused national economic priorities and policies.

US -

Low personal savings rates (until now).
Net importer.
FDI stays overseas and not often repatriated for tax reasons.
Massive asset holdings.
Diffuse and possibly corrupt economic law-making. Shameful actually.

[ren0312]

Japan -

Huge personal savings rates.
Net exporter.
Net recipient of foreign direct investment dividends returning to Japan.
Massive asset holdings.
Focused national economic priorities and policies.

US -

Low personal savings rates (until now).
Net importer.
FDI stays overseas and not often repatriated for tax reasons.
Massive asset holdings.
Diffuse and possibly corrupt economic law-making. Shameful actually.

Will all that gold in Fort Knox actually do anything to help the US fiscal position if its credit ratings start to go south?

[Flagg]

Will all that gold in Fort Knox actually do anything to help the US fiscal position if its credit ratings start to go south?

The US supposedly holds 8000+ tons split between Fort Knox and the New York Federal Reserve, with over half in New York.

Much of the gold held in New York is held on behalf of many foreign central banks.

I believe some people question a lack of independant audit on Fort Knox inventories.

I believe gold will play a significant role in the transition to "what's next" over the next decade or two.

If gold is only for libertarian militias and 3rd world dowries as a means of storing wealth, then why do central banks love it so much?

Gordon Brown will probably be best known in 10 years for being one of history's faces of total political/financial failure.....his insane UK Gold sales as Exchequer will probably haunt him and his memory long after he's left this world.

-----------------------

Back to the article......

Fiscal/monetary discipline is ABSOLUTELY critical and essential.....not just to our continued success.................but our long-term survival.

Our foundation needs to be built on granite instead of a special interest toxic waste dump.

Nothing will be solved if we continue to allow special interests excessive influence and control in a pseudo democracy.

-----------------------

I agree that time is short to fix this........failure or sloth means American-influence on the planet will wane far sooner than if more prudently managed.

Change will likely be at glacier speeds, but momentum will gain and objects in motion tend to stay in motion.

People need to grasp the severity of this mess and get actively involved in fixing it.

[ren0312]

The US supposedly holds 8000+ tons split between Fort Knox and the New York Federal Reserve, with over half in New York.

Much of the gold held in New York is held on behalf of many foreign central banks.

I believe some people question a lack of independant audit on Fort Knox inventories.

I believe gold will play a significant role in the transition to "what's next" over the next decade or two.

If gold is only for libertarian militias and 3rd world dowries as a means of storing wealth, then why do central banks love it so much?

Gordon Brown will probably be best known in 10 years for being one of history's faces of total political/financial failure.....his insane UK Gold sales as Exchequer will probably haunt him and his memory long after he's left this world.

-----------------------

Back to the article......

Fiscal/monetary discipline is ABSOLUTELY critical and essential.....not just to our continued success.................but our long-term survival.

Our foundation needs to be built on granite instead of a special interest toxic waste dump.

Nothing will be solved if we continue to allow special interests excessive influence and control in a pseudo democracy.

-----------------------

I agree that time is short to fix this........failure or sloth means American-influence on the planet will wane far sooner than if more prudently managed.

Change will likely be at glacier speeds, but momentum will gain and objects in motion tend to stay in motion.

People need to grasp the severity of this mess and get actively involved in fixing it.

I believe the existence of special interest groups is guaranteed by the 1st Amendment.

[Flagg]

I believe the existence of special interest groups is guaranteed by the 1st Amendment.

Tell me, is the corrupt practice of special interests buying candidates, campaigns, and access protected by the 1st Ammendment?

Special Interests can meet and assemble all they want...but to do so with elected legislators requires public light and leaving their wallet at home.

[XShipRider]

Special interest has been with us since our founding, though it seemed more in tune with national priorities until this past half century or so. It will be our undoing since everyone is in for the quick buck rather than long-term stability.

The rules of Congress need to change, that is certain. From what I understand, though cannot find it written anywhere, once a person leaves Congress they are granted special privilege access to the floor (except during actual voting or closed sessions). You and I as common folk do not enjoy such access. Now, why do you think so many former members become lobbyists?

Along with term limits, standing committees should be required to change 1/3 of their membership every year, to include the chairs. This alone would break the stranglehold some members enjoy on committees. (West Virginia isn't being paved out of necessity.)

Retirement? Career politician? Benefits? Once they leave office they should have to morph back into plain, ordinary folk like the rest of us. There should be no such thing as 'retired' or 'career' politicians.

Face it, these people are in it to line their pockets with as much graft as they can get in X terms. When the graft runs out they become lobbyists who want nothing more than to continue the gravy train.

Much of the blame lies with an apathetic electorate. We have allowed this become what it is today - corrupt to the core. Corruption has always existed but not nearly as blatant as it is today. Congressman gets caught doing X, should be thrown out of office... But wait! He's our guy and does a bang up job of getting money for useless projects in our district, we can't get rid of him. Slap on the wrist and re-elected in a landslide which only emboldens his counterparts to do more of the same. As time goes on we're forgiving pretty much everything.

Thank God this is called Political Discussions and RANTS... I think this post fits the bill. Sorry.

[Walter Sobchak]

Tell me, is the corrupt practice of special interests buying candidates, campaigns, and access protected by the 1st Ammendment?

Special Interests can meet and assemble all they want...but to do so with elected legislators requires public light and leaving their wallet at home.

It's ironic that while in office, the President and VP place all their holdings and investments in a blind trust. However, beginning with the third-in-line of succession to the president, the house speaker, followed by every member of Congress, their financial dealings are not affected. Yes, they do disclose, but their spouses, children and significant others do not.

I say that let everyone who is an elected official be under the same rules as the president and VP. Also, ban members of Congress or former Cabinet officer holder from ever working as a lobbyist of for a lobbying firm.

Finally, make all elections publicly-funded. Get rid of the PAC and 527 influence. Allow unlimited contributions by any and all Americans to the fund from which all campaign finance is paid.

Yeah, it's pie in the sky, but it would be better than the checkbook politics we have now.

[Dragonscript]

Tell me, is the corrupt practice of special interests buying candidates, campaigns, and access protected by the 1st Ammendment?


Yes. I believe the Supreme Court made a decision that companies and groups have many of the same rights under the Constitution as regular people. Because of this, they have the right to redress grievances against the government and have their opinions heard. Also, they can give money to politicians, just like regular people, within legal guidelines. Guess who makes those legal guidelines? That's right, it's not the "Special Interest" groups that are the problem, it is the political parties that have them compete against each other for access and influence.

You have inverted the cause and effect of corruption.

[sinophile]

Term limits.

Do I really need to say anything else?

[Kaplanr]

Term limits.

Do I really need to say anything else?

Then the methodology and rules for committee assignments needs to be changed too. Maybe make it a hiring process based on credentials rather than seniority.

As for the line-item veto; already ruled unconstitutional by the Supremes. (that's for whomever raised the issue back in the beginning of the thread.)

[vryhpyammoadded]

Today's True Challenge — Governance: In this vein, we proposed at the end of our February 2009 PROFILE that the root problems of today are not macroeconomic as much as they are political philosophical: How can democracy save itself from itself? How can people be made to realize that a reform of governance is what is now most needed—more so even than a reform of Wall Street?
Yay, someone else see’s it!

And even in the financial sector, it is increasingly clear that regulatory lapses in Washington were more responsible than "greed" for what has happened. Messrs. Rubin, Summers, and Greenspan actively encouraged the most pernicious of the deregulatory policies that brought down the system.

Excellent but I must correct. It wasn’t simply deregulation that did this; it was BADLY done regulation that I suspect done with malicious intent along with an even greater failure by government committee and legislature to respond to the outcome of what they created. Any streamlining the current Byzantine code, although hopefully well done streamlining, would be welcomed as most of the crap coming out of Congress is really pretty much the equivalent of corporate rent seeking and monopolistic power grabbing.

By now, it is clear that we need bold new constitutional amendments that mandate (i) sterilization of excess money creation during cyclical recoveries, (ii) fiscal surpluses during recoveries to pay down past fiscal deficits, and (iii) deficits during recessions tilted towards growth-enhancing infrastructure spending, not towards goodies for special interest groups.
Personally I feel that these actions will accomplish jack as the powers that be will simply leverage the avarice of the public to corrupt and bypass anything law attempts to regulate. The problem is in the people being foolish fiscally, philosophically, succumbing to predation of their own selfish desires to succeed by stealing other peoples hard earned effort and wealth. I’m sorry to be so cynical but I firmly believe that the managerial elite need to step away from the mess they helped create and let the children burn themselves so that some may die and others learn to be mature adults. Piling on more law or bailing out those with poor integrity is not going to solve this. In fact, it will only exacerbate the avarice flaw of the immature.


In this regard, economists Martin Wolf and Stephen Roach have both correctly identified financial market "credibility" as the key to future growth, inflation, and interest rates. Can today's administration end up with any credibility when it blithely ignores the very existence of the End Game we have identified, much less those policies needed to solve it correctly? Will there be any credibility if the three proposed amendments just cited are not adopted?
Of course market credibility is key, agreed. To truly regain credibility, the consumer needs to learn to save and live within their means and force the government to do the same while also purging business of its avarice but we currently see the oligarchs in action dong the opposite, in effect acting more like mafia taking the opportunity to knife anyone in the back for a leg up. This political divisive philosophy of blame shifting, displacement and the death grip on the deeply invested corrupt principles of identity politics, the lobby wink and nod, professional politicians and coercion/manipulation of the populace that brought us here in the first place are the key to everything. All roads lead to the PARTY(S). All are guilty, have failed and are still failing. They must be purged. Congress must be purged. The Executive must be purged. DC must be purged in the next two elections and the US gets back to work with a clean political slate. To eliminate the cronies, all of them, is the only way to restore the faith!


In his magisterial The Rise and Decline of Nations, Mancur Olson understands that these are the topics that matter—not greed management 101. Yet barely a word is being said about these issues by the Best and the Brightest now staffing the Obama White House. Why? The explanation partly lies in a crisis of intellectual competence. Scholars trained in "macroeconomics" are as poor in discussing Olson's dilemmas of collective action as oncologists are in discussing dentistry. The fact that the macroeconomists in question are "brilliant" is irrelevant. Being smart is not enough.
The abject moral failure of the new team to identify much less to propose a solution to the End Game is extremely disturbing to the present author. Despite his initial support of President Obama, he increasingly wonders whether we have the right team in place. And he is alarmed that time to rebuild credibility is running out.
Here, here! Well said. Thank you for your turn about to reality. Spread the word!


Rebounders versus "Banana Republics": To begin with, note that what matters is not a onetime rise in the Debt-to-GDP ratio due to a particular shock (e.g., today's US housing and credit crises), but rather the dynamic trajectory of the ratio in the years subsequent to the initial rise. It is the direction of this trajectory that is all-important. If the Debt ratio continues to rise, then it tends to accelerate due to the ever-rising cost of servicing this ever-rising "primary" deficit. Not only does the increasing debt-load itself cause ever-higher servicing costs, but the rising real rates that typically result from ever-greater debt make the spiral ever worse. The result can be economic and social collapse.
It’s funny how a specialized political class obsessively ignores the warnings of other classes of experts when mountains of wealth are to be had. I’ve known about this effect from my political science, philosophy and history backgrounds and yet when I speak to economic/political experts describing that they are making the same mistake that dozens of previous failed governments made, they scoff, tell me it won’t happen to them and forge ahead towards oblivion. You know, some would call endlessly, obsessively trying to repeat the same failed process insanity but there isn’t really a proper definition when nations do it, perhaps group think or maybe possibly hubris?