Tuesday, February 26, 2013
Why Obama Must Meet the Republican Lies Directly
The White House apparently believes the best way to strengthen its hand in the upcoming “sequester” showdown with Republicans is to tell Americans how awful the spending cuts will be, and blame Republicans for them.
It won’t work. These tactical messages are getting in the way of the larger truth, which the President must hammer home: The Republicans’ austerity economics and trickle-down economics are dangerous, bald-faced lies.
Yes, the pending spending cuts will hurt. But even if some Americans begin to feel the pain when the cuts go into effect Friday, most won’t feel it for weeks or months, if ever.
Half are cuts in the military, which will have a huge impact on jobs (the military is America’s only major jobs program), but the cuts will be felt mainly in states with large numbers of military contractors, and then only as those contractors shed employees.
The other half are cuts in domestic discretionary spending, which will largely affect lower-income Americans. There will be sharp reductions in federal aid to poor schools, nutrition assistance, housing assistance, and the like. But here again, most Americans won’t see these cuts or feel them.
Moreover, the blame game can be played both ways, and Republicans are adept at slinging mud. When it comes to high-visibility consequences of the spending cuts — such as a sudden dearth of air-traffic controllers — Republicans will dodge blame by happily giving Obama authority to shift spending and find the cuts himself, thereby making the White House appear even more culpable.
Besides, there’s no end to this. After Friday’s sequester comes the showdown over continuing funding of the government beyond March 27. Then another fight over the debt ceiling.
The White House must directly rebut the two big lies that fuel the Republican assault — and that have fueled it since the showdown over the debt ceiling in the summer of 2011.
The first big lie is austerity economics — the claim that the budget deficit is the nation’s biggest economic problem now, responsible for the anemic recovery.
Wrong. The problem is too few jobs, lousy wages, and slow growth. Cutting the budget deficit anytime soon makes the problem worse because it reduces overall demand. As a result, the economy will slow or fall into recession — which enlarges the deficit in proportion. You want proof? Look at what austerity economics has done to Europe.
The second big lie is trickle-down economics — the claim that we get more jobs and growth if corporations and the rich have more money because they’re the job creators, and job growth would be hurt if their taxes were hiked.
Wrong. The real job creators are the broad middle class and everyone who aspires to join it. Their purchases keep economy going.
As inequality continues to widen, and income and wealth become ever more concentrated at the top, the rest don’t have the purchasing power they need to boost the economy. That’s the underlying reason why the recovery continues to be so anemic.
These two lies — austerity economics and trickle-down economics — are being told over and over by Republicans and their mouthpieces on Fox News, yell radio, and the editorial pages of the Wall Street Journal. They are wrong and there are dangerous.
Yet unless they are rebutted clearly and forcefully, the nation will continue to careen from crisis to crisis, showdown to showdown.
And we will have almost no chance of reversing the larger challenge of widening inequality.
President Obama has the bully pulpit. Americans trust him more than they do congressional Republicans. But he is letting micro-tactics get in the way of the larger truth. And he’s blurring his message with other messages — about gun control, immigration, and the environment. All are important, to be sure. But none has half a chance unless Americans understand how they’re being duped on the really big story.
ROBERT B. REICH, Chancellor’s Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers “Aftershock” and “The Work of Nations.” His latest is an e-book, “Beyond Outrage,” now available in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.
Follow Robert Reich on Twitter: www.twitter.com/RBReich
Why Obama Must Meet the Republican Lies Directly
Monday, February 25, 2013
Sunday, February 24, 2013
Big Labor"s Lock "Em Up Mentality
On January 4, the Tamms Correctional Center, a supermax prison in southern Illinois, officially closed its doors. Tamms, where some men had been kept in solitary confinement for more than a decade, was notorious for its brutal treatment of prisoners with mental illness—and for driving sane prisoners to madness and suicide.
The closure, by order of Gov. Pat Quinn, was celebrated by human rights and prison reform groups, and by the local activists who had fought for years to do away with what they saw as a torture chamber in their backyard. But it might have been accomplished sooner were it not for a competing progressive faction: Big Labor.
The major force holding up Tamms’ closure was the American Federation of State, County, and Municipal Employees (AFSCME), which, according to its website, represents 85,000 corrections employees nationally. The union challenged Quinn’s order through its legislative allies, stalled it via the courts, and mounted a public campaign to keep Tamms open. It was perhaps the most visible and contentious example of a phenomenon seen, in one form or another, around the country: otherwise progressive labor unions furthering America’s addiction to mass incarceration. In terms of prisoners rights in general, and solitary confinement in particular, unions are seen as a major obstacle to more-humane conditions.
Big Labor"s Lock "Em Up Mentality
Italians Head to Voting Booths, Election Ends 9:00AM EST Monday; Surge for Grillo and "The Apathy Factor" Will Doom Bersani Coalition
Voting booths are open in Italy though 3:00PM Monday (9:00AM EST). Exit polls will trickle in soon after but early exit polls could be misleading. If the result is close will may not know for over a day.
The Wall Street Journal offers this Italian Election Guide.
Italian voters can cast ballots Sunday and until 0900 ET Monday, after which exit polls will provide quick but approximate insight into the probable result of the election.
The center-left coalition led by Democratic Left leader Pier Luigi Bersani was five percentage points ahead of Silvio Berlusconi’s center-right coalition according to the average of polls before a blackout on such surveys kicked in two weeks ago, giving it clear front-runner status.
Exit polls in 2006 and 2008 underestimated votes cast for Mr. Berlusconi, but unless Italy’s 51 million eligible voters shifted dramatically in recent days, Mr. Bersani should – even with fewer than a third of the ballots cast – win a plurality, meaning his coalition will be awarded a majority of seats in the 630-seat lower legislative chamber.
Shift Has Taken Place
The Journal says “unless Italy’s 51 million eligible voters shifted dramatically in recent days, Mr. Bersani should win a plurality.“
I suggest such a shift has taken place. The open question regards turnout and apathy, not a shift, per se.
Loser’s Penalty
In the Chamber (the lower House of parliament) the party with the largest plurality in the national vote gets a majority (54%) of the seats. In the Senate (the upper chamber of parliament) each of 17 Italy’s regions operate independently and the winner of each region gets a majority (55%) of the region’s seats.
There are 315 seats in the Senate. Lombardy, Italy’s largest region gets 49 seats and the winner will take 27 seats (55%). The other parties will split the remaining 22. Second place may only get 10.
The Journal sums it up this way.
“If Mr. Bersani wins all 17 regions, his coalition will have 178 seats and a commanding upper-house majority. However, if he loses Lombardy, the most populuous region, he will have only 162 seats. If he wins Lombardy but loses Veneto – a near certainty given polling trends – and also loses Sicily – to Mr. Grillo rather than Mr. Berlusconi – the center-left will have 159 Senate seats, a razor-thin majority.“
Not So Fast
I am not convinced Bersani wins the Chamber, let alone the Senate. Some 22-25% of Italians were undecided in the election polls before blackout two weeks ago. Since then, I suggest (based on crowd turnout and social media comments) that there has been a surge for Beppe Grillio and Silvio Berlusconi.
The last election polls before the blackout look like this:
- Bersani center-left 34.5%
- Berlusconi center-right 29%
- Beppe Grillo’s Five-Star Movement 19%
- Monti Civic Choice 12%.
Given the number of undecided voters, Bersani can easily drop 3% or more (and I suspect more). If Berlusconi and/or Grillo gets a huge percent of the undecided votes, Bersani can easily drop to second or even third place.
Senate Coalition Unlikely
Monti is a lost cause and I doubt he gets more than 10%, making a Senate coalition unlikely if not impossible.
I commented on the possibility of a win by Berlusconi or Grillo in Germany Warns Against “Silvio the Savior” (And That May Backfire); Fake Horse Race Odds Get Around Blackouts.
Reader “AC” who is from Italy but now lives in France writes …
Hi Mish
After a hung parliament, the next most likely outcome may very well be the Five Star Movement (M5S) getting an absolute majority. Rage against the political class is extremely high in Italy, everything that looks “new” is getting votes. Grillo was able to catch the sentiment shift with extremely populist proposals even though his economic program is quite incoherent if not blatantly preposterous.
Grillo support comes from the youngest part of the population.
Undecided voters may not vote at all (in Italy you do not have to register to have right to vote, you are registered by default) or they will probably shift massively to Grillo. The outcome will depend on whether the undecideds stay home.
How Grillo’s parliament members will react as newly elected officials is a real unknown. Grillo himself will not be in the Parliament, and his party will be quite young. None of them have much political experience, even not in smaller city councils.
What they will do? How they will react? Nobody knows. That’s the most “fascinating” thing of M5S, completely new people of a completely new party managed in a completely new way. Grillo and his candidates never did a single minute of TV interview during the whole campaign. They decided to ignore completely TV (but TV has not completely ignored them). This also is completely new, probably new in the modern world.
I do not think Berlusconi will be able to win this time. He has definitely lost a part of his voters, those that expected from him to keep his past promises.
The hung parliament is the most likely outcome, as I said months ago, and I do not even think that Bersani and Monti together will have majority.
Last but not least: Monti has declared yesterday that Merkel was not comfortable with Bersani as Prime Minister, but Merkel officially denied the minute after. Really a strange declaration from a man like Monti that made of international credibility its main “value proposition”.
Regards
AC
The Apathy Factor
I expect a surge of voter enthusiasm for Grillo that will take votes away from Bersani and Berlusconi. Somewhat paradoxically, I also expect a surge in apathy where voters stay home.
The apathy I refer to is not on the Grillo or Berlusconi side, but apathy for Bersani and Monti. Certainly the campaign by Monti is anemic. Thus, unless there is a late surge of energy for Bersani (and I highly doubt there is), Bersani is going to come up short.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Italians Head to Voting Booths, Election Ends 9:00AM EST Monday; Surge for Grillo and "The Apathy Factor" Will Doom Bersani Coalition
Italians Head to Voting Booths, Election Ends 9:00AM EST Monday; Surge for Grillo and "The Apathy Factor" Will Doom Bersani Coalition
Voting booths are open in Italy though 3:00PM Monday (9:00AM EST). Exit polls will trickle in soon after but early exit polls could be misleading. If the result is close will may not know for over a day.
The Wall Street Journal offers this Italian Election Guide.
Italian voters can cast ballots Sunday and until 0900 ET Monday, after which exit polls will provide quick but approximate insight into the probable result of the election.
The center-left coalition led by Democratic Left leader Pier Luigi Bersani was five percentage points ahead of Silvio Berlusconi’s center-right coalition according to the average of polls before a blackout on such surveys kicked in two weeks ago, giving it clear front-runner status.
Exit polls in 2006 and 2008 underestimated votes cast for Mr. Berlusconi, but unless Italy’s 51 million eligible voters shifted dramatically in recent days, Mr. Bersani should – even with fewer than a third of the ballots cast – win a plurality, meaning his coalition will be awarded a majority of seats in the 630-seat lower legislative chamber.
Shift Has Taken Place
The Journal says “unless Italy’s 51 million eligible voters shifted dramatically in recent days, Mr. Bersani should win a plurality.“
I suggest such a shift has taken place. The open question regards turnout and apathy, not a shift, per se.
Loser’s Penalty
In the Chamber (the lower House of parliament) the party with the largest plurality in the national vote gets a majority (54%) of the seats. In the Senate (the upper chamber of parliament) each of 17 Italy’s regions operate independently and the winner of each region gets a majority (55%) of the region’s seats.
There are 315 seats in the Senate. Lombardy, Italy’s largest region gets 49 seats and the winner will take 27 seats (55%). The other parties will split the remaining 22. Second place may only get 10.
The Journal sums it up this way.
“If Mr. Bersani wins all 17 regions, his coalition will have 178 seats and a commanding upper-house majority. However, if he loses Lombardy, the most populuous region, he will have only 162 seats. If he wins Lombardy but loses Veneto – a near certainty given polling trends – and also loses Sicily – to Mr. Grillo rather than Mr. Berlusconi – the center-left will have 159 Senate seats, a razor-thin majority.“
Not So Fast
I am not convinced Bersani wins the Chamber, let alone the Senate. Some 22-25% of Italians were undecided in the election polls before blackout two weeks ago. Since then, I suggest (based on crowd turnout and social media comments) that there has been a surge for Beppe Grillio and Silvio Berlusconi.
The last election polls before the blackout look like this:
- Bersani center-left 34.5%
- Berlusconi center-right 29%
- Beppe Grillo’s Five-Star Movement 19%
- Monti Civic Choice 12%.
Given the number of undecided voters, Bersani can easily drop 3% or more (and I suspect more). If Berlusconi and/or Grillo gets a huge percent of the undecided votes, Bersani can easily drop to second or even third place.
Senate Coalition Unlikely
Monti is a lost cause and I doubt he gets more than 10%, making a Senate coalition unlikely if not impossible.
I commented on the possibility of a win by Berlusconi or Grillo in Germany Warns Against “Silvio the Savior” (And That May Backfire); Fake Horse Race Odds Get Around Blackouts.
Reader “AC” who is from Italy but now lives in France writes …
Hi Mish
After a hung parliament, the next most likely outcome may very well be the Five Star Movement (M5S) getting an absolute majority. Rage against the political class is extremely high in Italy, everything that looks “new” is getting votes. Grillo was able to catch the sentiment shift with extremely populist proposals even though his economic program is quite incoherent if not blatantly preposterous.
Grillo support comes from the youngest part of the population.
Undecided voters may not vote at all (in Italy you do not have to register to have right to vote, you are registered by default) or they will probably shift massively to Grillo. The outcome will depend on whether the undecideds stay home.
How Grillo’s parliament members will react as newly elected officials is a real unknown. Grillo himself will not be in the Parliament, and his party will be quite young. None of them have much political experience, even not in smaller city councils.
What they will do? How they will react? Nobody knows. That’s the most “fascinating” thing of M5S, completely new people of a completely new party managed in a completely new way. Grillo and his candidates never did a single minute of TV interview during the whole campaign. They decided to ignore completely TV (but TV has not completely ignored them). This also is completely new, probably new in the modern world.
I do not think Berlusconi will be able to win this time. He has definitely lost a part of his voters, those that expected from him to keep his past promises.
The hung parliament is the most likely outcome, as I said months ago, and I do not even think that Bersani and Monti together will have majority.
Last but not least: Monti has declared yesterday that Merkel was not comfortable with Bersani as Prime Minister, but Merkel officially denied the minute after. Really a strange declaration from a man like Monti that made of international credibility its main “value proposition”.
Regards
AC
The Apathy Factor
I expect a surge of voter enthusiasm for Grillo that will take votes away from Bersani and Berlusconi. Somewhat paradoxically, I also expect a surge in apathy where voters stay home.
The apathy I refer to is not on the Grillo or Berlusconi side, but apathy for Bersani and Monti. Certainly the campaign by Monti is anemic. Thus, unless there is a late surge of energy for Bersani (and I highly doubt there is), Bersani is going to come up short.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Italians Head to Voting Booths, Election Ends 9:00AM EST Monday; Surge for Grillo and "The Apathy Factor" Will Doom Bersani Coalition
4 Bogus Right-Wing Theories About Poverty, and the Real Reason Americans Can’t Make Ends Meet (Hard Times USA)
When is a secret not at all secret? Consider the fact that one in three Americans are poor, if we define it as struggling to cover the basic necessities of life. That"s according to a Census Bureau analysis, and it was reported in the New York Times, but I have yet to hear a politician or pundit make reference to this eye-opening reality of our vaunted “new economy.”
In 2011, the Census Bureau took a new look at the “near-poor” – Americans with incomes between 100 and 150 percent of the poverty line. They found that this group, most of whom earn paychecks and pay taxes, represented a whopping one in six U.S. households – a figure that was almost twice as high as had previously been thought.
When those under the poverty line are added, Census found that a stunning 33 percent of the population was struggling to make ends meet in 2010. Analyzing the Census data, the Working Poor Project suggested that the number of near-poor, which they define as those making between 100 and 200 percent of the poverty line, continued to inch up in 2011 as many returning to work in this sluggish recovery have been forced to settle for lower-paying service jobs.
Nearly four years after economists tell us the “recovery” began, almost half of all American households lack enough savings to stay above the poverty line for three months or more if they should find themselves out of work. Another third are living paycheck to paycheck, teetering on the brink with no savings at all.
It would require a lengthy sociological treatise to fully explain why this isn"t considered a huge national crisis. But one part of the equation is the existence of a long-standing and ideologically informed project by the right to portray the burden of living in or near poverty as a liberal delusion. In these narratives, which come in a variety of forms, the poor have it pretty darn good – good enough that we really shouldn"t spend much time thinking about them.
For these conservative think-tankers, pundits and politicians, obscuring America"s grinding poverty and spiraling inequality is an exercise in service of a status quo that works pretty well for them, but not for most families.
1. But the poor have color TVs.
Consider the boilerplate conservative column about how many wondrous household appliances the average low-income household owns. Back in the 1930s, this argument goes, poor people didn"t have running water, but now they have color TVs, so life is good.
As I write this, my local Craigslist offers multiple televisions, a dining set, several treadmills, a mountain bike, an oven (with hood), a blender, a coffeemaker, a slew of couches and beds, a piano, a hot-tub (needs repair) and a complete stereo system, all free to anyone who will pick them up. We live in a consumer economy that creates an abundance of surplus and rapidly obsolete goods, and people who struggle to put food on the table can nonetheless get their hands on all manner of electronics for nothing.
2. The poor have lots of room to enjoy poverty.
A similar argument holds that in the United States, poor people have more living space, on average, than low-income households in other developed nations. As the Wall Street Journal was eager to point out, “The average living space for poor American households is 1,200 square feet. In Europe, the average space for all households, not just the poor, is 1,000 square feet.”
Perhaps that"s true, but it"s also divorced from context. There is a simple matter of population density at work: in the core states of the European Union, there are 120 people per square kilometer; in the United States, we only have 29 people per kilometer. And the average is a bit misleading as it includes the rural poor – low-income households in tightly packed urban centers don"t tend to have 1,200-square-foot apartments.
3. The poor are actually rolling in money.
A new and equally distorted argument entered the conservative discourse just recently. It holds that poor families receive $ 168 per day in government benefits – more than the median weekly income in this country. If that were true, low-income households in the United States would enjoy quite comfortable living standards.
But as I noted last month, that number is inflated by around eight-fold. The claim originated with Robert Rector at the Heritage Foundation and then underwent some revisions on its journey to Republican congressional staffers, and finally to the conservative media. It gets to that number by counting things like federal aid to rebuild communities after natural disasters as “welfare,” including programs that assist the middle class and the wealthy and then dividing the costs of all these programs by the number of households under the poverty line, despite the fact that many more families benefit from them.
4. It’s just how they are.
And then there are the ever-popular cultural explanations for poverty. This is a storyline based on confusing correlation with causation – a rookie mistake in any introductory college class.
The Heritage Foundation, for example (it"s Robert Rector again), sees a lot of poor, single-parent households, and would have you believe that “the main causes of child poverty are low levels of parental work and the absence of fathers.”
But this gets the causal relationship wrong. The number of single-parent households exploded between the 1970s and the 1990s, more than doubling, yet the poverty rate remained relatively constant. In fact, before the crash of 2008, the poverty rate was lower than it had been in the 1970s. So, as the rate of single-parent households skyrocketed, poverty declined a little bit. Saying single-parent homes create poverty is like claiming the rooster causes the sun to rise.
As I"ve noted in the past, this is an essential piece of the “culture of poverty” narrative, and it is nonsense. Jean Hardisty, the author of Marriage as a Cure for Poverty: A Bogus Formula for Women, cited a number of studies showing that poor women have the same dreams as everyone else: they “often aspire to a romantic notion of marriage and family that features a white picket fence in the suburbs.” But low economic status leads to fewer marriages, not the other way around.
In 1998, the Fragile Families Study looked at 3,700 low-income unmarried couples in 20 U.S. cities. The authors found that 90 percent of the couples living together wanted to tie the knot, but only 15 percent had actually done so by the end of the one-year study period. And here’s the key finding: for every dollar that a man’s hourly wages increased, the odds that he’d get hitched by the end of the year rose by 5 percent. Men earning more than $ 25,000 during the year had twice the marriage rates of those making less than $ 25,000.
Writing up the findings for the Nation, Sharon Lerner noted that poverty itself “seems to make people feel less entitled to marry.” As one father in the survey put it, marriage means “not living from check to check.”
Why People Are Really Poor
During a period of less than 20 years beginning in the early 1980s, the American economy underwent dramatic changes. It was a period of policy-driven de-unionization and the offshoring of millions of decent manufacturing jobs. The tax code underwent dramatic changes, as CEO pay sky-rocketed and the financial sector came to represent a much larger share of our economic output than it had during the four decades or so following World War II.
And our distribution of income changed dramatically as well. During the 35 years prior to Ronald Reagan"s election, the top one percent of U.S. households had taken in an average of 10 percent of the nation"s income. When Reagan left office in 1988, those at the top were grabbing 15.5 percent of the pie, and by the time George W. Bush took office in 2000, they were taking over 20 percent of the nation"s income.
We can either believe that this shift was a result of changes in public policy (combined with new technologies), or that in just two decades there was some sort of rapid cultural decline among everyone but those at the top of the economic heap.
All of the false narratives are intended to distract from the structural causes of poverty and inequality, and they ignore two simple and indisputable truths. First, contrary to popular belief, we don"t all start out with the same opportunities. The reality is that in the United States today, the best predictor of a newborn baby"s economic future is how much money her parents make.
It also ignores the fact that living in an individualistic, capitalist society carries inherent risk. You can do everything right – study hard, work diligently, keep your nose clean – but if you fall victim to a random workplace accident, you can nevertheless end up being disabled in the blink of an eye and find yourself in need of public assistance. You can end up bankrupt under a pile of healthcare bills or you could lose your job if you"re forced to take care of an ailing parent. Children – innocents who aren"t even old enough to work for themselves – are among the largest groups receiving various forms of public assistance.
The reality, despite the spin from the conservative movement, is that poverty in America is very real, and it"s anything but fun.
Tue, 01/22/2013 – 14:35
4 Bogus Right-Wing Theories About Poverty, and the Real Reason Americans Can’t Make Ends Meet (Hard Times USA)
Saturday, February 23, 2013
The Meaning of Moody"s Downgrade of the UK: Nothing
Moody’s took away the UK’s triple A rating late Friday. A ratings downgrade has long been rumored, and although the timing is always surprising, the move itself has long been anticipated. Sterling slumped on the news in thin dealings, losing a cent in about 30 minutes.
When it comes to corporate ratings we can appreciate that rating agencies may have access to private information. They may also be of value in some developing countries, where information is more difficult to secure. However, when it comes to large developed countries, the rating agencies have access only to public information and it is the same information that investors use to make their decisions.
That there is extremely little value-added or new information contained in a rating agency is evident in the lack of market response to downgrades of Japan, the US, Austria, and France, for example. There is little reason to expect the UK to be an exception to the rule.
Some observers are claiming the loss of the UK’s AAA rating is a serious blow to the UK government, but we are less convinced. It is true that UK Prime Minister Cameron and Chancellor of the Exchequer Osborne had hoped its efforts to address the UK’s debt and deficit would have averted a downgrade. The downgrade is not going to deter them from the austerity path upon which they have embarked.
It is politically naive to think see the downgrade as some opportunity for them to change course. They have rejected the IMF’s calls to slow the austerity drive What they did not surrender to the IMF, they will not yield to Moody’s or the government’s critics who what to use the downgrade to bludgeon the government into accepting its critic’s, including the Labour Party’s agenda.
Reviewing the rationale behind Moody’s decision is like understanding an set of economists’ views. It is a narrative constructed around well known facts. The global economic weakness, especially in the euro area, and the “ongoing domestic public- and private-sector de-leveraging process” is generating poor growth in the UK and this may persist, Moody’s says into the second half of the decade.
The weaker growth means that the debt/GDP ratio will remain elevated for longer. Moody’s doesn’t expect it to peak until 2016. The slower growth and higher debt ratio, in turn, means that the UK’s ability to absorb additional future shocks is more limited.
Most investors will find nothing new in that assessment. Ironically, Moody’s demonstrated its firm grasp of the obvious the same day that the EU provided updated its forecasts. It expects the UK economy to expand by 0.9% this year, compared with a 0.3% contraction in the euro zone, which incidentally absorbs 40% of the UK’s exports.
Lost in the initial reaction by many observers who wrung their hands at the downgrade, Moody’s reverted back to a stable outlook for UK debt and the rationale appears to also be shared by many investors. Simply, even if crudely put, the UK is not Greece. It has a highly diversified economy and strong institutions/ It has a favorable debt structure. The average maturity of its debt at 15 years is the highest among the highly rated sovereigns. It debt servicing capacity remains very strong.
Indeed, reading between the lines of Moody’s assessment suggests that, arguably, if UK government were to dilute its efforts to address the country’s debt and deficits, Moody’s may not have been so inclined to offer a stable outlook.
From a policy point of view, Cameron’s commitment to austerity is taken as given, then any change must come through two other channels: monetary policy and the currency. We learned in recent days that BOE Governor King was out-voted for the fourth time in his tenure. He wanted to resume gilt purchases. As has often been the case, he will likely get what he wants. When Carney takes the helm in July, he also may be inclined to ease policy and it will be interesting to see if he is as tolerant of being outvoted.
Sterling has fallen 6.7% against the dollar, second among the major currencies to the yen which has lost 7.1% year-to-date. It has declined about 6% on the BOE’s broad trade-weighted measure. Just like the difference between expansion of the Federal Reserve’s balance sheet relative to the BOE’s balance sheet cannot explain this decline in sterling, so too sterling’s decline may not boost exports as much as some, especially those who have focused on currencies wars, would suspect.
There are several reasons for this counter-intuitive assertion. First, surely we can all agree that foreign demand is important. As we have noted, a major market for UK goods, the euro area, is expected to contract this year. The US is also expected to slow from near 2% pace it has averaged since the economy bottomed nearly four years ago.
Second, the restructuring of the UK’s financial sector and the changes in the globally, may curb its ability to export financial services. Third, for many goods, there are important non-price dimensions to competitiveness, such a quality, design, speed of service, which will not be impacted by sterling’s decline.
What this all means is that the UK’s exports may be sufficient sensitive to sterling’s exchange rate to allow exports to replace the domestic aggregate demand being squeezed by the de-leveraging of the government and households.
From an investment point of view, we prefer UK equities over bonds. The FTSE 100 has a dividend yield of 3.7%, while the 10-year bond yields about 2.1% Sterling’s broad trade-weighted index is the most inversely correlated to the FTSE 100 since early 2007 near -0.44 on a 60-day rolling basis using percent change. Running the correlation on simply the level of the FTSE 100 and the trade-weighted index is near 0.93, the highest since late-2004. The sterling-dollar rate is (on a 60-day percent basis) about 0.71 correlated with the trade weighted measure.
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The Meaning of Moody"s Downgrade of the UK: Nothing
Half of Detroit Properties Have Not Paid Taxes; Update on Detroit Bankruptcy
The hollowing out of Detroit is nearly complete. All that’s left is a bankrupt shell of a city with no services and scattered citizens that do not pay taxes.
The Detroit News reports Half of Detroit Property Owners Don’t Pay Taxes
Nearly half of the owners of Detroit’s 305,000 properties failed to pay their tax bills last year, exacerbating a punishing cycle of declining revenues and diminished services for a city in a financial crisis, according to a Detroit News analysis of government records.The News reviewed more than 200,000 pages of tax documents and found that 47 percent of the city’s taxable parcels are delinquent on their 2011 bills. Some $ 246.5 million in taxes and fees went uncollected, about half of which was due Detroit and the rest to other entities, including Wayne County, Detroit Public Schools and the library.
Delinquency is so pervasive that 77 blocks had only one owner who paid taxes last year, The News found. Many of those who don’t pay question why they should in a city that struggles to light its streets or keep police on them.
“Why pay taxes?” asked Fred Phillips, who owes more than $ 2,600 on his home on an east-side block where five owners paid 2011 taxes. “Why should I send them taxes when they aren’t supplying services? It is sickening. … Every time I see the tax bill come, I think about the times we called and nobody came.”
Update on Detroit Bankruptcy
Detroit is financially and morally bankrupt yet the governor refuses to make that declaration. A Review team says Detroit faces financial crisis, has no plan to fix it so why won’t the governor act?
For the second time in a year, a state review team has found Detroit is in a financial emergency that requires Gov. Rick Snyder to intervene in City Hall.But this time, if Snyder agrees that a financial emergency exists, the governor’s choices are more limited. He could appoint an emergency manager to keep Michigan’s largest city from plunging into bankruptcy, experts say, or he could continue state financial supervision through a new consent agreement, which seems a faint possibility.
State Treasurer Andy Dillon ruled out a bankruptcy filing at this time.
The six-member review team unanimously concluded in a report released Tuesday that the city failed to restructure its debt-laden bureaucracy under the financial consent agreement signed in April and that Detroit’s financial crisis requires Snyder’s intervention “because no satisfactory plan exists to resolve a serious financial problem.”
Chapter 9 bankruptcy is “always a possibility but I don’t think the city should go through (Chapter) 9 to cure its ailments,” he added.
The review team said the city’s charter adds “numerous restrictions” and hurdles for closing departments, canceling contracts and the type of wholesale restructuring financial experts say is necessary to make city government live within its means.
Restrictions? Who Cares?
In bankruptcy, restrictions go out the window. So do union contracts and pensions. Since all of that needs to go out the window, what’s holding the governor back?
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Half of Detroit Properties Have Not Paid Taxes; Update on Detroit Bankruptcy
How Obama and Valerie Jarrett Helped Launch Their Political Careers in an Outrageous "Urban Renewal" Scheme
As President Obama"s second term begins, and inequality, especially for black Americans, is worse than it was when Obama first took office, it"s worth revisiting progressives" and Obama supporters" impression of the president as somebody who might actually care about equality and helping the most unfortunate in society. And a big centerpiece of that impression, which endures despite evidence that he"s at best ambivalent, is his early days in Chicago. The narrative that Obama is a salt-of-the-earth community organizer has been spoon-fed to the American populace since Obama first began campaigning. In reality, there"s a big piece of the president"s past that has gone under-reported that will help us to understand Obama and his closest adviser Valerie Jarrett a bit better: Obama and Jarrett built the nexus of political support that took him to the presidency by participating in one of the most appalling examples of neoliberal-corrupted City Hall-”urban renewal projects” in recent history that enriched developers and investors and destroyed the lives of thousands of Chicago"s poorest black residents, in some cases using his community organizer job as camouflage.
…[A]s Obama knows very well, for most of the last two decades in Chicago there’s been in place a very specific economic development plan. The plan was to make the South Side like the North Side. Which is the same kind of project as making the land north of Central Park like the land south of Central Park. The North Side is the area north of the Loop—Chicago’s midtown central business district—where rich white people live; they root for the Cubs. They’re neighborhood is called the Gold Coast.
For almost a hundred years in Chicago blacks have lived on the South Side close to Chicago’s factories and slaughter houses. And Cellular Field, home of the White Sox. The area where they lived was called the Black Belt or Bronzeville—and it’s the largest concentration of African American people in the U.S.—nearly 600,000 people—about twice the size of Harlem.
In the 1950s, big swaths of urban renewal were ripped through the black belt, demolishing private housing on the south east side. The argument then was that the old low rise private housing was old and unsuitable. Black people needed to be housed in new, high-rise public housing which the city built just east of the Dan Ryan Expressway. The Administration of the Chicago Housing Authority was widely acclaimed as the most corrupt, racist and incompetent in America. Gradually only the poorest of the poor lived there. And in the 1980s, the argument began to be made that the public housing needed to be demolished and the people moved back into private housing. …
If we examine more carefully the interests that Obama represents; if we look at his core financial supporters; as well as his inmost circle of advisors, we’ll see that they represent the primary activists in the demolition movement and the primary real estate beneficiaries of this transformation of public housing projects into condos and townhouses: the profitable creep of the Central Business District and elite residential neighborhoods southward; and the shifting of the pile of human misery about three miles further into the South Side and the south suburbs.
Obama’s political base comes primarily from Chicago FIRE—the finance, insurance and real estate industry. And the wealthiest families—the Pritzkers, the Crowns and the Levins. But it’s more than just Chicago FIRE. Also within Obama’s inner core of support are allies from the non-profit sector: the liberal foundations, the elite universities, the non-profit community developers and the real estate reverends who produce market rate housing with tax breaks from the city and who have been known to shout from the pulpit“ give us this day our Daley, Richard Daley bread.”
Aggregate them and what emerges is a constellation of interests around Obama that I call “Friendly FIRE.” Fire power disguised by the camouflage of community uplift; augmented by the authority of academia; greased by billions in foundation grants; and wired to conventional FIRE by the terms of the Community Reinvestment Act of 1995. And yet friendly FIRE is just as deadly as the conventional FIRE that comes from bankers and developers that we’re used to ducking from. It’s the whole condominium of interests whose advancement depends on the elimination of poor blacks from the community and their replacement by white people and—at least temporarily—by the black middle-class—who’ve gotten subprime mortgages—in a kind of redlining in reverse.
The public housing included in Senator Obama"s transformation plans, such as the 504 apartments in the squat brick buildings of Grove Parc Plaza, quickly fell into disrepair. Reports emerged of uninhabitable units with collapsed roofs, fire damage, mice infestations, and sewage backups. In 2006, federal inspectors graded the condition of the complex an 11 on a 100-point scale, a score so bad the buildings were demolished in 2011.
A Boston Globe review found that thousands of apartments across Chicago that had been built with local, state and federal subsidies — including several hundred in Obama"s former district — deteriorated so completely they were no longer habitable. Grove Parc, a project that was, along with several other prominent failures, developed and managed by Obama"s close friends and political supporters, became a symbol of the broader failures of handing over public subsidies to FIRE cronies, private companies to build and manage affordable housing, an approach lauded by Obama as the best, sometimes only, replacement for public housing.
At the time, Jarrett was the chief executive of Habitat Co., which managed Grove Parc Plaza from 2001 until the winter of 2008 and co-managed an even larger subsidized complex in Chicago that was seized by the federal government in 2006 after city inspectors found widespread problems. Jarrett had earlier served as Commissioner of the Department of Planning and Development from 1992 through 1995. When questioned by the Globe, Jarrett defended Obama"s position that public-private partnerships are superior to public housing.
“Government is just not as good at owning and managing as the private sector because the incentives are not there,” said Jarrett, whose company manages more than 23,000 apartments. “I would argue that someone living in a poor neighborhood that isn"t 100 percent public housing is by definition better off.”
But as theGlobe pointed out, Daley"s plans to privatize Chicago public housing quickly drew criticism:
[Chicagoans] asked why the government should pay developers to perform a basic public service — one successfully performed by governments in other cities. And they noted that privately managed projects had a history of deteriorating because guaranteed government rent subsidies left companies with little incentive to spend money on maintenance.
Most of all, they alleged that Chicago was interested primarily in redeveloping projects close to the Loop, the downtown area that was seeing a surge of private development activity, shunting poor families to neighborhoods farther from the city center. Only about one in three residents was able to return to the redeveloped projects.
“They are rapidly displacing poor people, and these companies are profiting from this displacement,” said Matt Ginsberg-Jaeckle of Southside Together Organizing for Power, a community group that seeks to help tenants stay in the same neighborhoods.
“The same exact people who ran these places into the ground,” the private companies paid to build and manage the city"s affordable housing, “now are profiting by redeveloping them.”
Obama believes deeply that privatization works. He once told theChicago Tribune that he had briefly considered becoming a developer of affordable housing, but after graduating from Harvard Law School in 1991, he turned down a job with Tony Rezko"s development company, Rezmar, to instead work at the civil rights law firm Davis, Miner, Barnhill & Galland. The firm represented a number of nonprofit companies that were partnering with private developers to build affordable housing with government subsidies.
The Globe reported that shortly after becoming a state senator in 1997, Obama told theChicago Daily Law Bulletinthat his experience working with the development industry had reinforced his belief in subsidizing private developers of affordable housing. “That"s an example of a smart policy,” the paper quoted Obama as saying. “The developers were thinking in market terms and operating under the rules of the marketplace; but at the same time, we had government supporting and subsidizing those efforts.”
What Obama is describing is corporate welfare: the government subsidizes private companies which then lack incentive to provide services to tenants because the government i.e. taxpayers will continue funding them regardless, and then the same private companies win new contracts down the road when they demolish and rebuild apartments as part of a “revitalizing” scheme.
Oftentimes, Obama"s community organizer veneer served to camouflage his FIRE roots. For example, Grove Parc Plaza opened in 1990 as a redevelopment of an older housing complex, and the new owner was a local nonprofit company called Woodlawn Preservation and Investment Corp, led by two of the neighborhoods" most powerful ministers, Arthur Brazier and Leon Finney. All of this sounded like grassroots in action. However, Woodlawn Preservation hired a private management firm, William Moorehead and Associates, to oversee the complex. The company then lost that contract and a contract to manage several public housing projects for allegedly failing to do its job, and was subsequently convicted of embezzling almost $ 1 million in management feeds theGlobe reported.
Woodlawn Preservation then hired a new property manager, Habitat Co., where Valerie Jarrett served as executive vice president. Residents told the Globe that the complex deteriorated under Moorehead"s management and the decline continued after Habitat took over. A maintenance worker at the complex told the Globe that money often wasn"t available for steel wool to plug rat holes, but regardless federal inspectors rated Grove Parc an 82 out of 100 as late as 2003.
In their extensive report on Obama"s private-public partnership failings, theGlobe profiles one of the largest recipients of government subsidies: Rezmar Corp, founded in 1989 by Tony Rezko, who between 1999 and 2008 used more than $ 87 million in government grants, loans, and tax credits to renovate about 1,000 apartments in 30 Chicago buildings. Companies run by the partners also managed many of the buildings, collecting government rent subsidies. Neither Rezko, nor his partner Daniel Mahru, had any development experience:
Rezmar collected millions in development fees but fell behind on mortgage payments almost immediately. On its first project, the city government agreed to reduce the company"s monthly payments from almost $ 3,000 to less than $ 500.
By the time Obama entered the state senate in 1997, the buildings were beginning to deteriorate. In January 1997, the city sued Rezmar for failing to provide adequate heat in a South Side building in the middle of an unusually cold winter. It was one of more than two dozen housing-complaint suits filed by the city against Rezmar for violations at its properties.
People who lived in some of the Rezmar buildings say trash was not picked up and maintenance problems were ignored. Roofs leaked, windows whistled, insects moved in.
“In the winter I can feel the cold air coming through the walls and the sockets,” said Anthony Frizzell, 57, who has lived for almost two decades in a Rezmar building on South Greenwood Avenue. “They didn"t insulate it or nothing.”
“Affordable housing run by private companies just doesn"t work,” Mahru told the Globe. “It"s difficult, if not impossible, for a private company to maintain affordable housing for low-income tenants.”
Most of Rezko and Mahru"s buildings have since been foreclosed upon, forcing the tenants to find new housing.
When Obama opened his campaign for state senate in 1995, Rezko"s companies gave $ 2,000 on the first day of fundraising, and as the Globepoints out, essentially “seeded the start of Obama"s political career.”
While Obama eventually distanced himself from Rezko, he maintained close ties to other developers. Jarrett became a close adviser, and Obama chose Martin Nesbitt, chairman of the Chicago Housing Authority, as his campaign treasurer. Nesbitt was one of the key overseers of the shift toward private management and development. And Obama kept the rich families around him.
From the Globe story:
As a result, some people in Chicago"s poorest neighborhoods are torn between a natural inclination to support Obama and a concern about his relationships with the developers they hold responsible for Chicago"s affordable housing failures. Some housing advocates worry that Obama has not learned from those failures.
“I"m not against Barack Obama,” said Willie J.R. Fleming, an organizer with the Coalition to Protect Public Housing and a former public housing resident. “What I am against is some of the people around him.”
Jamie Kalven, a longtime Chicago housing activist, put it this way: “I hope there is not much predictive value in his history and in his involvement with that community.”
In a 2012 Harpersmagazinearticle, Ben Austen writes that the area around Cabrini-Green no longer resembles the neighborhood he remembered from his years growing up in Chicago in the "70s and "80s.
Down the street from 1230 N. Burling stood a mixed-income development of orange-bricked condos and townhomes called Parkside of Old Town. Its squat buildings were outfitted with balconies and adorned with purple ornamentation and decorative pillars. There was a new school, a new police station, a renovated park, and a shopping center with a Dominick’s supermarket and a Starbucks. A Target was expected on the site the last tower would soon vacate. Later, I would warm up two blocks south in @Spot Café, where employees from Groupon’s nearby corporate headquarters streamed in to pay full price for lattes and panini.
Today, what seems harder to fathom than the erasure of entire high-rise neighborhoods is that they were ever erected in the first place. For years the projects had stood as monuments to a bygone effort to provide affordable housing for the poor and working-class, the reflection of a belief in a deeper social contract.
Shortly before the demolition of 1230 N. Burling in 2012, Austen attended a Chicago Housing Authority meeting during which residents protested the board in response to the city forcing poor people off prime real estate. Activists included residents and supporters of a housing project called Lathrop Homes, a development in a well-off section of the North Side that was next in line to be demolished.
“The residents didn’t want to be forced into the private market or into temporary housing, especially since they doubted they’d be able to return to whatever replaced Lathrop; nor did they agree that market-rate apartments were needed in the redeveloped community, as the surrounding area was already full of market-rate condos,” Austen wrote.
Chicago’s $ 1.6 billion “Plan for Transformation” envisioned a mix of public-housing residents with market-rate condos and subsidized rentals or homes, with one-third of each in these new communities.
In late 2012, NPR detailed how after more than a decade in the works, one of the country’s most closely watched public housing experiments was badly failing, partly due to the flailing economy.
NPR profiled Lathrop resident Mary Thomas:
Thomas has lived here for eight years with her husband and 7-year-old son. Lathrop sits on what many now consider prime land, next to the Chicago River. A busy street splits the development into a north and south section.
The north side is completely shuttered, cordoned off by gates, a ghost town of boarded-up buildings. Thomas lives in the open southern section, where steam from the old heating system wafts into the street. About 170 of the 900-plus units are occupied.
Thomas says all three of the concepts for Lathrop should be dumped and there should be more input from residents. She says there"s little affordable housing in the area and there"s no need for market-rate units at all.
Far from adopting a reflective attitude in the wake of Chicago’s failed experiment in public-private housing partnerships, Obama has now taken his love of public-private codependence to a national level, touting public-private partnerships in everything from creating jobs to education to tackling insurance fraud to collaborations involving foreign nations, which you can bet means the wealthiest multinational conglomerates teaming up to increase their profits at the expense of the 99 percent.
“This is a dangerous precedent that could have catastrophic effects in poor neighborhoods across the country. Congress needs to hold hearings about the problems facing emergency patients. If other community, non-profit hospitals follow this example and shift the lion’s share of resources to its high-revenue elective patients and procedures, it will leave many emergency patients virtually out in the cold. The University of Chicago Medical Center is located in a poor neighborhood whose residents have few, if any, other options for emergency care.”The media barely paid any attention to Michelle Obama"s role in all of this, though the Chicago Sun-Times reported in 2008 that her $ 317,000-a-year role as Vice-President of the hospital helped create the patient-dumping program.
“If you put enough money into it, you could save a whole bunch of community health centers,” Young said. “But to date, they haven"t.”
Edward Novak, president of Chicago"s Sacred Heart Hospital, declined to discuss the center"s initiative in particular but dismissed as “bull” attempts to justify such programs as good for patients. “What they"re really saying is, "Don"t use our emergency room because it will cost us money, and we don"t want the public-aid population," ” Novak said.
At the end of January this year, community residents launched a protest outside the University of Chicago Medical Center, angry that the hospital ignored their needs, especially for “victims of gun violence,” according to a news report: “One woman said her son, shot just blocks away from the university, died on the way to a hospital ten miles away.” Four were arrested at the protest.
Robert Fitch’s words hold true: the poor remain at the mercy of the rich, who are seeking profits on everything possible, including their homes, but also their water, healthcare and education.
Fri, 01/25/2013 – 13:21
How Obama and Valerie Jarrett Helped Launch Their Political Careers in an Outrageous "Urban Renewal" Scheme