Saturday, November 24, 2012

Why Mitt Romney Lost By: Christopher Ruddy Newsmax

Why Mitt Romney Lost

Wednesday, November 7, 2012

By: Christopher Ruddy Newsmax

Christopher Ruddy’s Perspective: It was the worst of times and the worst of times.

With the 2012 election results in, there are no short- or even medium-term "silver linings" for Republicans.

President Barack Obama has won a decisive victory and the GOP, expecting to gain Senate seats, actually had a net loss of three.

The "morning after" will bring the expected explanations and after-game quarterbacking. Still, it is important that the GOP understand why we lost this one in hopes of future victory.

Perhaps the easy explanation is that two hurricanes and two betrayals by Chris Christie killed Mitt Romney's chances.

The first hurricane was Isaac, the one that skirted Tampa in late August during the Republican convention. That one seriously disrupted the official schedule.

GOP star Marco Rubio — who gave the best speech of the convention — was bumped off prime-time TV coverage, and so was the video biography "introducing" Mitt to the nation.

Aging actor Clint Eastwood was scrambled into the schedule to offer a funny but often incoherent monologue with an empty chair. He stole Mitt's show. And prime-time keynoter Chris Christie barely mentioned the nominee or Obama in a speech that sounded like the New Jersey governor was pumping his re-election.

The ground lost in Tampa wasn't regained until the first debate in Denver, when Romney shined. It was the first, best, and last time he would really sparkle.

As a result of the debates, by late October polls showed that Romney was finally beginning to see a surge.

Then the second hurricane, Sandy, struck on Oct. 29. The campaign went into “freeze” mode while Obama swung into “commander in chief” mode. Romney's surge was suddenly frozen too.

Enter Iago.

It was perfectly fine for Chris Christie to join with Obama in the wake of the crisis. But to lather the president with praise, calling his response to Sandy “outstanding” in the immediate aftermath of the storm was completely unjustified.

It was another act of treachery. (As the disaster unfolded, and with hundreds of thousands still without electric power as I write this, there is plenty of evidence that the leadership by Obama and federal agencies has been seriously lacking, as it has been from Christie and other state and local officials who have failed to adequately prepare and respond to the disaster.)

As I said, it is easy to blame Sandy and Christie for Romney's loss. I won't. Sure they hurt Romney. But he lost for other reasons.

Sandy and Christie's double-dealing can be compared to bad turbulence that any experienced jet pilot should expect on a long mission. The turbulence may be rough, but it is nothing more than a passing episode for a good pilot with a smart flight plan.

On to why our pilot Mitt Romney and his plan were so flawed.

1. Paul Ryan. Romney's choice of Ryan was almost inexplicable.

A good conservative, Ryan was unqualified for the job of vice president, and therefore the job of president. A sitting member of Congress, he held no leadership position on the Hill.

Romney's VP selection was the most important one of his campaign, and by it he telegraphed his lack of political wisdom to the nation.

With his VP pick Romney had the opportunity to show he was willing to reach out to middle voters and break out of the GOP's demographic box (think Rubio, Nevada's Brian Sandoval, or New Mexico's Susana Martinez) or pick a Republican heavyweight who exuded gravitas while potentially giving him a state (think Rob Portman or Tim Pawlenty).

2. The Ryan Plan. Romney had endorsed Ryan's plan for Medicare even before he tapped him as a running mate. But by selecting Ryan, he was nailing the odious plan to the masthead of his campaign.

Ryan's plan, which first called for abolishing federal Medicare in 10 years and later for a substitute voucher program, proved to be disastrous for Romney and other Republican candidates.

As far as I could see, the Ryan plan was the No. 1 policy focus of Obama's and other Democratic attack ads against the GOP.

I am not sure what the GOP was smoking when they decided to propose demolishing or radically altering the cherished healthcare program for seniors.

Apparently, the Romney campaign began to realize Ryan's negatives late in the campaign, banishing his public appearances to secure red states. But it was too late.

3. The Myth of a “Base Election.” Romney totally bought into the notion that this was an election about energizing the conservative base. He seems to have ignored the fact that the base was already highly energized because of its dislike of Barack Obama.

This election was just like every other one in modern times — about winning middle, swing voters. We used to call them Reagan Democrats but the better label today is Clinton Democrats.

Romney did much to annoy them (like backing the Ryan plan) and almost nothing to reach out to them, "triangulating" so to speak with ideas that showed the GOP cared about them.

4. No Plan. Along the lines of triangulating, Romney needed to espouse several simple ideas that explained what he would do if elected president.

Romney promised to create 12 million jobs. That's not a plan, it's a promise. He didn't clearly articulate how he could fulfill that promise.

In fact, Romney's team offered the fewest specifics of any presidential campaign ever.

5. Crushing Optimism. When, in 1980, Ronald Reagan put the GOP on the path of optimism and economic growth, he not only won two landslide elections, he also changed the political landscape for three decades.

When Romney did offer a plan, it was about "hard truths," such as tackling the deficit, cutting the debt, cutting the budget (killing Big Bird), and cutting Medicare.

What happened to the Grand Old Party that once advocated cutting taxes and spurring economic growth — ideas espoused by the late Jack Kemp and people like Arthur Laffer, Larry Kudlow, Newt Gingrich, Mike Reagan, and others?

This is the party most Americans and I identify with.

6. Poor Campaign Staff. Considering that Romney's presidential quest was the best funded Republican race in history, his campaign staff was certainly not the best money could buy.

The Romney staff was insular and arrogant, and his campaign strategy team led by Stu Stevens and Russ Schriefer was simply abysmal.

7. No “Gingrich” Ads Against Obama. Residing in a battleground state, Florida, I had a front-row seat to Romney's ad war on Obama. I was shocked how few ads the campaign was airing over the summer and how many Obama’s campaign was.

Meanwhile, Obama's ads were nasty, negative ones, while Romney's were of the kinder, gentler, country-club Republican variety.

I asked a high-level Romney operative why the Republicans were spending $2.5 million to build a wooden stage for the Tampa convention and not putting the money into ads.

The answer: The Romney camp believe people don't remember ads until close to the election. The sea of Romney ads never did emerge that September.

I thought perhaps this was just the Florida strategy. But then I read a shocking report in Broadcasting & Cable, the respected TV industry publication.

By late September Romney's campaign had not even run a single TV ad in several key markets in swing state Ohio! And the magazine reported that because Romney's campaign was not planning its ad buys properly, they were often paying five to 10 times more than Obama was paying for the same ad spot.

Obama's campaign, of course, took the opposite approach to Romney's, defining him early on with hard-hitting TV ads. Romney's failure to run tough ads against Obama is mind-boggling, even more so because of how Romney ran his primary campaign.

For example, I saw the negative attack ads the Romney camp ran against Newt Gingrich in Florida last December and January. By February, the Romney team had spent some $55 million airing some of the most vicious political ads deployed in a GOP presidential primary, most of them against Gingrich.

At the time, Rush Limbaugh commented on Romney's Newt ads, and I'm paraphrasing here, "Mark my words — Mitt Romney will never run these type of ads against Obama."

Rush's words were prophetic.

8. Dissing Hispanics. As the elections of 2000, 2004, 2008, and now 2012 have demonstrated, demographics are trumping ideology in national elections.

The Republican Party has a difficult time grasping this concept.

Romney seemingly ignored this truth by taking an ultra-hardline on immigration — one so tough he called for the "self deportation" of illegal immigrants. Not only is such a plan impractical and immoral, it is unacceptable politically, as yesterdays' results proved.

Consider that Obama reneged on his promise to Hispanics to make their concerns a priority. They were there for the GOP's taking.

The one Hispanic group that has voted consistently for Republicans — Cuban-Americans — gave Obama a record number of votes this year.

Already the liberal spinmeisters are blaming the tea party and conservatives for Romney's loss. The facts show the claim is not true.

The success Romney did achieve was due to their support. Romney's loss was due to a concoction of things involving the candidate himself, his team, his strategy, and his decisions.

Soon we will, correctly, move on. The GOP will learn from this debacle.

The Republican Party might start the process with an image makeover — putting away the Wall Street look in favor of a Main Street one — while it takes back the mantle of Lincoln; a party that fights for the underdog and appeals to the aspirations of the American people.

Christopher Ruddy is CEO and editor
of Newsmax Media Inc.

"Obama Won: What Will Happen Now?" By Immanuel Wallerstein

[Copyright by Immanuel Wallerstein, distributed by Agence Global. For rights and permissions, including translations and posting to non-commercial sites, and contact:, 1.336.686.9002 or 1.336.286.6606. Permission is granted to download, forward electronically, or e-mail to others, provided the essay remains intact and the copyright note is displayed. To contact author, write:

Commentary No. 341, Nov. 15, 2012

"Obama Won: What Will Happen Now?"

Obama won the U.S. elections with a significant margin both in the popular vote and in the Electoral College. The Democrats won every closely contested seat for the Senate except one. This relieved the Democrats, who had been worried, and astonished the Republicans, who had felt certain of victory. Now the whole world wants to know what this means for the immediate future of the United States and the world. The answer is not simple.

Let me start with foreign policy. The U.S. government still wishes to pursue an imperial policy throughout the world. The problem it faces is very simple. Its ability to do this has drastically declined, but the elites (including Obama) don't wish to acknowledge this. They still speak of the United States as the "indispensable" nation and the "greatest country" ever known. This is a contradiction that they don't know how to handle. As for the ordinary U.S. citizen, an exit poll that asked what motivated the votes of those polled found that only 4% said foreign policy. Nonetheless, most ordinary citizens still believe the mantra that the United States is the world's golden example.

We can therefore expect that Obama will continue to do what he has been doing: talking tough, but acting in fact prudently vis-à-vis Iran, Syria, Israel, Egypt, Pakistan, China, Mexico, and indeed most countries. This of course exasperates most other countries and all sorts of political actors across the world. Whether he can continue to walk this narrow tightrope without falling off is not at all assured, especially since the United States can no longer really control what most other actors will do.

Obama is almost as helpless regarding the economy - the U.S. economy and the world-economy. I doubt that he can seriously reduce U.S. unemployment, and in 2014 and 2016, this will help the Republicans rebound. The crucial issue at the moment is the so-called (and misnamed) fiscal cliff. The real issue here is who is going to bear the largest burden of U.S. economic decline.

On these issues, Obama was elected on populist promises but actually is pursuing a right-of-center position. He is offering the Republicans a deal: higher taxes for the wealthy along with significant cuts in health and maybe pension expenditures for the majority of the population. This is the U.S. version of austerity.

This is a bad deal for the vast majority of Americans, but Obama will pursue it vigorously. The deal may nonetheless fall through, if the Republican right wing stupidly refuses to go along with it. The business elites of the United States are putting pressure on the Republicans to accept the deal. The trade-unions and the liberals (inside and outside the Democratic Party) are pushing against the deal. But thus far, the liberal anti-deal push has been far weaker than the business elite pro-deal push. This is essentially a class struggle of a very traditional kind, and the 99% do not always win these struggles.

On so-called social issues, which were a true divider between the Republicans and Democrats in this election, the U.S. voting population defeated the troglodytes hands down. Gay marriage won on the ballot in four states, and the shift in public opinion indicates this trend will continue.

Even more important was the absolutely lopsided vote for Obama and the Democrats by African-Americans and by Latinos. It seems that the ferocious attempts by Republican governors to impede voting by these groups stirred a backlash, in which even more of them voted than previously. For Latinos, the key issue was immigration reform. And major figures in the Republican party (including Jeb Bush, himself a potential future presidential candidate) are now saying that, unless the Republicans cooperate with immigration reform, they can never hope to win national (and many state) elections. My guess is that some legislation will in fact now pass Congress.

Obama has been a big disappointment to that large group of his supporters who are motivated by environmental and ecological concerns. He has talked a good line but has done rather little. One reason is that another group of supporters - the trade-unions - have been arguing in the other direction because of the risk to jobs. Obama has waffled, and he will probably continue to waffle. This is marginally better than Romney, who would have shut down the agencies that still try to protect the environment.

Obama's record has been bad on civil liberties issues, indeed in some ways worse than that of George W. Bush. He has moved aggressively against whistle-blowers. He has not shut down Guantanamo and he has actively supported the Patriot Act. He has used drones to assassinate presumed enemies of the United States. In these actions, he has been supported by most members of Congress and the courts in general. There is no reason to assume he will change his behavior in this regard.

One major reason evoked every four years to support the Democratic candidate for president has been appointments to the Supreme Court. It is true that, had Romney been elected and one non-conservative judge died or resigned, the Court would have been moved far to the right for a generation.

What will happen now that Obama has been re-elected? There are four justices over 70 years of age. There is no mandatory retirement age. None of the four seems about to resign, not even Justice Ginsburg who has been ill. The opportunity for Obama to make a difference depends however on whether Justice Kennedy will resign or die and whether Justice Scalia will die (he certainly won't resign). This is entirely unpredictable. But if this happened, Obama's re-election will indeed have made a difference.

Finally, what is the future of U.S. politics? This is the most uncertain element of all. The Republican Party seems to be starting an internal civil war between the tea party conservatives and everyone else. Everyone else notes that the Republicans blew their chances to win the Senate because of losses in the primaries of "sure winners" to quite extremist tea party-endorsed candidates. Only 11% of votes for Romney came from non-Whites. And percentages of Latino voters are rising even in presently sure Republican states like Texas and Georgia. But if the Republicans do begin to talk a more centrist line, will they lose a significant part of their base, who will abstain from voting?

The Democrats have a similar problem, although not as serious. Their votes came from a "rainbow coalition" - women (especially single mothers and working women), African-Americans, Latinos, Jews, Muslims, Buddhists, Hindus, trade-unionists, young people, poor people, and well-educated people. Their demands are at odds with the preferences of those who control the party, including Obama. This time, the base stayed loyal. Even those who supported third-party candidates seemed to do this only in states where the Democrats couldn't lose. There was no swing state in which third-party candidates seemed to tilt the election.

Will the liberals within the party move now to third parties? It seems unlikely at the moment, but it is not impossible. It depends in part on how dramatic a fall the United States takes in the coming four years. It depends on how far Obama will cede on "populist" issues.

The bottom line is that Obama's re-election has made some difference, but far less than he claimed or that the Republicans feared. Once again, I remind everyone that we are living in a chaotic world in transition, in which wild shifts of all kinds are part of our current reality, including in political allegiances.

by Immanuel Wallerstein

[Copyright by Immanuel Wallerstein, distributed by Agence Global. For rights and permissions, including translations and posting to non-commercial sites, and contact:, 1.336.686.9002 or 1.336.286.6606. Permission is granted to download, forward electronically, or e-mail to others, provided the essay remains intact and the copyright note is displayed. To contact author, write:

Tuesday, November 20, 2012

Too bad that market performance and "the economy" are so unrelated any more, otherwise, well, things would be going swimmingly well for even the fish out of water

From the Tuesday, October 16, 2012 edition of the Daily Herald's Business Section came this interesting side bar:

The preferred party?

Republicans are viewed as the preference of Wall Street (any article comparing the stock market of the last 30 years with the stock market of the earlier period (prior to circa 1980 automatically lacks credibility because of the serious differences in how the markets are no longer regulated, and how the markets are manipulated by investors doing micro trades, and shorting, and well, just a whole host of things that were not parts of how markets worked prior to about 1978) .  But that doesn't mean the stock moarket performs better when they're in the White House (I'd suggest the reason Republicans are favored by "Wall Street" is because Republicans are eager to embrace lower taxes (especially for the very rich), lower taxes on capital gains (most of the country does NOT own investment vehicles which pay capital gains) .  Since World War II, the stock market has risen an average 58 percent under new Democratic administrations versus a 32 percent rise under first-term Republicans.

Thos figures include the initial four-year terms of candidates who won the prewsidency on Election Day. To be sure, there are numerous variables that influence market performance.  residents may be limited by a Congress controlled by the other party.  And it may take years to see the impact of policy changes, just to name two.

The two best market stretches have been under Democrats (who have been ably helped by Fed Chairfolks who like to cut interest rates when the stock market dives).  The Standard & Poor's 500 index was up 79 percent during Bill Clinton's first term.  It's up the same amount under Barack Obama with three months left.  Dating to 1900, stocks have risen more under Democrats, according to Sam Stovall, chief equity strategist of S&P Capital IQ.

As Election Day approaces, Republicans are sure to argue that President Obama was bound to see a big rebound since he took office following a historic market crash .  Another likely claim is that Democrats juiced stock prices artificially through spending, without regard to long-term economic consequences.

Although the comparisons aren't likely to settle any arguments about ultimately who's better for Wall Street, the numbers show that the market often responds favorably to a new administration.

SOURCE:  S&P Capital IQ;  FactSest

Graph / Chart 
Market performance:
Change in the S&P 500 index during the first term of newly elected presidents."

R    Eisenhower (1953-1957)           **************  70%
D   Kennedy/Johnson (1961-1965)   *********  44%
R   Nixon  (1969-1973)                    ***  17%
D  Carter (1977-1981)                     ******  30%
R  Reagan (1981-1985)                   ******^ 33%
R  G H W Bush (1989-1993)             **********^ 52%
D  Clinton (1993-1997)                    **************** 79%
R  Bush (2001-2005)            -12%^**
D  Obama                                        **************** 79%

Obama is more than willing to impose sever austerity, said Kevin Zeese, of Occupy Washington DC. “He’s going to be giving away the store,” said Zeese. “Every constituency that supported Obama is going to lose in this negotiation.”

From Glenn Ford's BlackAgendaReport

Whose Fiscal Cliff?

The elevation of deficit reduction “to the be-all and end-all of policy discussion in Washington really is what’s driving some Democrats away” from their traditional defense of Social Security, Medicaid and Medicare, said Chris Hellman, of the National Priorities Project. By endorsing the Simpson-Bowles proposals, President Obama has “made it clear that he is at least willing to discuss some changes in those programs.” Obama is more than willing to impose sever austerity, said Kevin Zeese, of Occupy Washington DC. “He’s going to be giving away the store,” said Zeese. “Every constituency that supported Obama is going to lose in this negotiation.”

The Fed’s quantitative easing program has sent stocks into the stratosphere, in fact, all three major US indices have more than doubled since the program was first launched in 2008. There’s only one drawback; it doesn’t do jack for the real economy. Oh, and another thing, its effect on stocks is only temporary, the equivalent of a sugar rush... This is Bernanke’s worst nightmare. Stocks are looking wobbly and his nutcase monetary theories are no longer working. But rather than change directions and admit his error, Bernanke has decided to double-down and throw the printing presses into high-gear.

Global Depression Enters Year Five

Welcome to the Lousiest Recovery of All Time


Is this the lousiest recovery of all time?

Check it out: The number of people currently on food stamps in the US is at a record-high of 47.1 million. That’s more than twice as many recipients than in 2007 when the crisis began. And the percent of Americans living below the poverty line has skyrocketed, too. It’s gone from 12.3 percent in 2006 to 16.1 percent today. According to the Census Bureau, nearly 50 million people in America are now living below the poverty line. In other words, if you’re poor in America your numbers are growing and things are getting worse. Some recovery, eh?

And it’s not just the poor who are hurting either. The middle class is getting clobbered, too. Unemployment is still way too high (7.9 percent) and, according to the Fed’s Survey of Consumer Finances, middle income families have seen nearly 40 percent of their net worth go up in smoke since 2007. The bulk of the losses are attributable to the giant housing bust of ’07 which wiped out $8 trillion in home equity leaving the majority of baby boomers unprepared for retirement. It’s a desperate situation that no one seems to want to talk about, but the reality is that millions of people are going to have to figure out how to scrape by on next-to-nothing or work until they’re too senile to punch a clock. As far as these folks are concerned, the recovery is just a big joke.

So who’s really benefited from the so called recovery?

Well, that’s a no brainer: Wall Street and the 1 percenters, that’s who. Fed chairman Ben Bernanke has pumped enough uber-cheap money into financial markets to fill a small ocean, all with the clear intention of keeping stocks bubbly so his fatcat speculator friends can cream the system and take home even bigger bonus checks. The Fed’s quantitative easing program has sent stocks into the stratosphere, in fact, all three major US indices have more than doubled since the program was first launched in 2008. There’s only one drawback; it doesn’t do jack for the real economy. Oh, and another thing, its effect on stocks is only temporary, the equivalent of a sugar rush. Check out this post by Charles Biderman at TrimTabs and you’ll see what I mean:

“On September 14 the day of the most recent Fed easing, the S&P 500 peaked at 1466. And ever since then stocks have been selling off and opened today down about 6%.

On previous videos I predicted that the current QE would have very little impact on both the stock market and the economy. And that is what happened. Why did I predict that? Short term interest rates are already at zero and it has been five months now since mortgage rates reached current record low levels. So yes, as a result of Operation Twist after tax income rose to a $300 billion in annualized growth this past June through September. That was up from a $200 billion growth rate over the first five months of 2012. Since October, after tax income – remember this is a before inflation number – has dropped back to a $200 billion growth rate. In other words, the Fed this year will in essence print half a trillion dollars that will not improve after tax income nor help stock prices grow……

So the US economy is currently barely growing despite huge amounts of deficit spending and money printing.” (“Bernanke Put Dead and Very Little Chance Stocks Avoid Year End Sell Off”, Trim Tabs Money Blog)

This is Bernanke’s worst nightmare. Stocks are looking wobbly and his nutcase monetary theories are no longer working. But rather than change directions and admit his error, Bernanke has decided to double-down and throw the printing presses into high-gear. But how can he do that, you may wonder, after all, hasn’t the Fed already committed to purchasing $40 billion mortgage-backed securities per month for “as long as it takes” (QEternity) to lift GDP rises and reduce unemployment?

Yes, he has, but that doesn’t mean the Moneymaker in Chief doesn’t have more arrows in his quiver. He does. Here’s the story from Bloomberg:

“The Federal Reserve is embarking on the next step in Chairman Ben S. Bernanke’s journey toward greater transparency — tying its outlook for borrowing costs to measures of employment and inflation.

Policy makers “generally favored the use of economic variables” to provide guidance on the when they are likely to approve their first interest-rate increase since 2008, according to minutes of their Oct. 23-24 meeting released yesterday. Such measures might replace or supplement a calendar date, currently set at mid-2015.

A number of officials also said the Fed may need to expand its monthly purchases of bonds next year after the expiration of a program to extend the maturities of assets on its balance sheet, known as Operation Twist. The discussion indicates that Fed officials judge the economy still needs record stimulus to reduce an unemployment rate stuck near 8 percent.” (“Fed Moves Toward Tying Interest-Rate Decisions to Economic Data”, Bloomberg)

So what does it all mean? It means that Bernanke and his Merry Pranksters are ratcheting it up to the next level. It means they’re going to keep flooding the financial markets with liquidity until the jobless rate comes down. It doesn’t matter that QE hasn’t moved the dial on unemployment at all or that the Fed has already expanded its balance sheet by $2.5 trillion and that no one has any idea of how Bernanke is going get rid of his stockpile of junk assets without sending the markets into an Armageddon death-spiral. None of that matters. They’re just going to put their foot on the gas and let ‘er rip! Doesn’t that sound a tad reckless?

Here’s an excerpt from the FOMC statement on September 13 that helps to connect the dots:

“If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.”

In short: “We’re not done yet, guys, not by a long-shot.”

This is supply side arrogance in the extreme. Bernanke continues to believe that the entire economy can be effectively run by moving levers at the Central Bank. He thinks that if you plop enough money into the top of the system, (financial markets) it will eventually dribble downwards to the worker bees. Fat chance. It hasn’t happened yet, but not from want of trying.

Bernanke is right about one thing though, inflation expectations are beginning to fade which means that disinflation or outright deflation are a growing threat to the economy. Take a look at this blurb from The Economist:

“….since mid-October, there has been an unmistakable reversal in the inflation-expectations trend. Based on 5-year breakevens, all of the September spurt has been erased. And 2-year breakevens are back at July levels. Given my optimism over the Fed’s September moves and the apparent strength of underlying fundamentals in the economy, I would like to disregard this trend, but one should be very reluctant to abandon guideposts that have served one well just because they’ve moved in an inconvenient way.” (“Monetarypolicy—Is there a problem?”, The Economist)

This is why Bernanke is wheeling out the heavy artillery, because QE3 hasn’t boosted spending or borrowing at all. Business investment is still in the doldrums and earnings have hit the skids in a big way. So where are all the green shoots? The only difference between 2008 and today is a steroid-inflated stock market and a few more multi-billionaire 1 percenters. Everything else is about the same, only worse.

If Bernanke was serious about fixing the economy, he’d stop all the monetary chicanery and let stocks nosedive by a couple thousand points. That would wake up Congress and force them to do their damn job. Zero rates and boatloads of liquidity just aren’t doing the trick, anyone can see that. In fact, all the hocus pocus and crackpot “accomodative” policies are just making people nervous and adding to the uncertainty. It’s time to get back to basics, fiscal stimulus.

Bernanke should follow the advice of Nomura’s chief economist Richard Koo. Koo has done extensive research on Japan’s 20 year running-battle with deflation and explained in excruciating detail what needs to be done to emerge from, what he calls, a balance sheet recession. Here’s a sample of his work:

“The most important lesson of the last 20 years in Japan and of the last four years in western economies is that monetary policy is ineffective when there is no private demand for funds…

“In Japan, there has been little or no private loan demand since 1995, when the BOJ brought interest rates down to near-zero levels. And neither the economy nor asset prices have recovered, even though, as BOJ Governor Masaaki Shirakawa has noted, the BOJ embarked on quantitative easing fully eight years before its counterparts in Europe and the U.S…..

When businesses and households not only stop borrowing money but start to work off their debt, the resulting absence of borrowers effectively traps central bank-supplied liquidity in the financial system, and as a consequence the funds neither stimulate the economy nor spark inflation……”

Sound familiar? And here’s more from the Financial Times via Economist’s View:

“Today, the US private sector is saving a staggering 8 per cent of gross domestic product – at zero interest rates, when households and businesses would ordinarily be borrowing and spending money. … This is the result of the bursting of debt-financed housing bubbles, which left the private sector with huge debt overhangs … giving it no choice but to pay down debt or increase savings, even at zero interest rates.

However, if someone is saving money or paying down debt, someone else must be borrowing and spending that money to keep the economy going. … With monetary policy largely ineffective and the private sector forced to repair its balance sheet, the only way to avoid a deflationary spiral is for the government to borrow and spend the unborrowed savings in the private sector….

The challenge now is to maintain fiscal stimuli until private sector deleveraging is completed.” (“Explain the disease to help US citizens”, Richard Koo, Financial Times)

Bernanke’s smart enough to know that more-of-the-same (QE) won’t get the economy back on track. He knows that Koo is right. But that doesn’t mean there will be a change in policy. There won’t be, mainly because QE reinforces the caste system where all the goodies go to the silk-stocking hotshots at the top and everyone else gets table scraps. It’s just plain old class warfare. And, guess what: their class is winning.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at

This sort of warning, coming from people who have a near-perfect track record in being wrong on everything they say about the economy, would ordinarily be laughable. Unfortunately, these warnings come from people who have prominent positions in national policy debates. Therefore it is likely that such warnings will be taken seriously.

The Bottom Line on the Deficit Hawks

Fear of the Cliff


Washington elites have spent much of the last three decades getting hysterical about budget deficits; however they are outdoing themselves in the current budget standoff which they labeled as “the fiscal cliff.” Their story is that scheduled increases in taxes at the end of 2012, coupled with mandated cuts in spending, will send the economy tumbling into recession if Congress doesn’t take action before the end of the year.

The horror story associated with this January 1 deadline depends on fundamentally misrepresenting reality. There are projections from the Congressional Budget Office and other independent forecasters that show the combination of tax increases and spending cuts would chop more than 3.5 percentage points off GDP growth. This hit would mean a contracting economy and push the unemployment rate back over 10.0 percent.

However, the part is generally downplayed in this genuine horror story, or left out altogether, is that the projection of a recession is not based on missing the January 1 deadline. The projection assumes that the higher tax rates and lower spending levels are left in place throughout the year, a scenario that almost no one considers plausible.

A more realistic scenario would be that Congress and the president would quickly reach an agreement in the new year, extending most of the tax cuts and limiting the decline in spending. This would mean that some people may see some extra taxes deducted from a paycheck or two, but they would get this money refunded to them in subsequent checks. The predicted effect on consumption would be close to zero.

On the spending side, President Obama has enormous control over the pace of spending. If he believes that a deal is imminent, there is no reason for him to cut spending below a pace that would be consistent with the amount that he expects to agree to with Congress. In other words, the direct hit to the economy from missing the January 1 deadline is close to zero.

However, the deficit crisis mongers are a persistent bunch. If they can’t make a case based on economics, they turn to their good friend the confidence fairy. The story presented to us in a column in the Washington Post was that business people will get freaked out if there is no deal by January 1 and that financial markets will panic. New York Times columnist David Brooks pushed the same line in a column earlier in the week.

This sort of warning, coming from people who have a near-perfect track record in being wrong on everything they say about the economy, would ordinarily be laughable. Unfortunately, these warnings come from people who have prominent positions in national policy debates. Therefore it is likely that such warnings will be taken seriously.

The deficit hawks want to promote a sense of crisis because it is essential to advancing their agenda. If the January 1 deadline passes, the political ground shifts to those who just want to see an end to the Bush tax cuts for the wealthy. After January 1, the Bush tax cuts will have expired.

This means that when President Obama pushes his campaign pledge to keep in place the Bush tax cuts for 98 percent of households, he will be asking Congress to lower taxes for 98 percent of the people, not to raise them for 2 percent. It would be difficult even for a Republican Congress to refuse this tax cut.

The deficit hawks desperately want to avoid this outcome, both because many do not want to see taxes rise on the wealthy, but also because they see a crisis over this fiscal standoff as providing an excellent opportunity to cut Social Security and Medicare. For this reason, the deficit hawks are doing everything they can to convince the public that waiting until after January 1 to reach a deal would be an economic disaster.

Of course none of us can predict the future with certainty, which means it is possible that the financial markets really will panic and economy will tumble if we miss the January 1 deadline. However, in addition to the horrible track record of the crisis crew, there is another important consideration to keep mind. The immediate impact of fluctuations in financial markets on the economy is quite limited.

The economy does not respond to the daily ups and downs of the stock market. Even the crash of October 1987 did not prevent the economy from growing at a 7.0 percent annual rate in the fourth quarter of the year.

This means that if the markets are in fact dominated by Chicken Littles who run for cover if the January 1 deadline is missed, then it is likely that more sober-minded investors will restore stability in the next month or two after a deal is reached and the world is still standing. The net effect on the economy is likely to be minimal, even if some fortunes may have been made and lost with the volatility.

The real bottom line is whether the country will allow the deficit hawks to scare us into a deal that we would never make under normal circumstances. We’ll know the answer to this one in six weeks.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This article originally appeared on The Guardian.