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.

http://www.counterpunch.org/2012/11/16/welcome-to-the-lousiest-recovery-of-all-time/print

Weekend Edition November 16-18, 2012

Global Depression Enters Year Five

Welcome to the Lousiest Recovery of All Time

by MIKE WHITNEY

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 fergiewhitney@msn.com.

Republican strategists have gotten traction from other wedge issues like immigration and same-sex marriage. But those will likely have run their course by 2016. As of last week, nine states will allow same-sex marriage. And if immigration reform gets passed in Obama’s second term, that, too, will be off the table.

http://www.desmoinesregister.com/article/20121114/BASU/311140033

Basu: Has time come to take politics out of abortion?

Written by REKHA BASU

Nov. 15 desmoinesregister.com

Is it time to take partisan politics out of abortion?

Those of us who are pro-choice believe it never belonged there. But for decades, Republican strategists have successfully relied on abortion as a wedge issue to win elections, forcing Democrats to make it one as well.

Multiple defeats at the polls last week, however, may signal that the issue has outlived its political value to Republicans. This time, it was Democrats who successfully used it to build a narrative about a GOP war on women.

Mitt Romney’s position that abortion should be legal only in cases of rape, incest or to save a mother's life may have helped propel President Barack Obama to a second term. Exit polls found 59 percent of all voters favor legal abortions in all or most cases, with only 36 percent opposed.

Romney lost women’s votes to Obama by 11 points and those of women of childbearing age by more than twice that. Voters in Missouri and Indiana also rejected Senate candidates Todd Akin and Richard Mourdock for their tortured attempts — using words like “legitimate rape” and “God’s will” — to justify their opposition to a rape exception for abortion.

Ironically, party politics may have backed Romney, who supported abortion rights when he first became Massachusetts governor, into turning anti-choice. As social conservatives have dominated the party, it’s hard to impossible for a Republican to win its support without demonizing abortion.

“It’s a very divisive issue, and we Republicans lose people over it,” insists Joy Corning, Iowa’s lieutenant governor from 1991 to 1999.

Republican strategists have gotten traction from other wedge issues like immigration and same-sex marriage. But those will likely have run their course by 2016. As of last week, nine states will allow same-sex marriage. And if immigration reform gets passed in Obama’s second term, that, too, will be off the table.

Abortion, however, will be an issue as long as people have unplanned pregnancies and seek to end them — legally or illegally. But it doesn’t need to be a partisan one.

It wasn’t always. Five of the seven U.S. Supreme Court justices who ruled in the landmark 1973 Roe v. Wade decision that abortion was covered by a constitutional right to privacy were appointed by Republican presidents. They included the chief justice and the author of the majority opinion.

Abortion didn’t enter the Republican Party platform until 1980, after the Rev. Jerry Falwell founded the Moral Majority and began rallying Christians to political activism. Successive Republican platforms have taken increasingly uncompromising positions on abortion, with the current one opposing it even in cases of rape and incest.

What is different about today’s Republicans from George H.W. Bush, Richard Nixon and Barry Goldwater — all of whom, as, Randy Moody, co-chairman of Republicans for Planned Parenthood, points out, preferred that government not intrude on private health-care decisions?

One thing that has changed is religious involvement in the issue. Sixty-three percent of church-going white evangelical Christians have heard abortion addressed from the pulpit. But not all evangelical ministers welcome the politicization. “What if all the wasted money wealthy conservatives threw at Super PAC ads was redirected at establishing more ... crisis centers?” writes Daniel Darling, a senior pastor of Gages Lake Bible Church in the Chicago suburbs, who opposes abortion.

Romney won white evangelical Christians. But were it not for the abortion issue, some might find the Democratic Party a more natural fit because of its positions on serving the poor and welcoming immigrants.

Previous Republican leaders saw controlling fertility as fiscally responsible, argued Moody in a rally for Planned Parenthood. He said unintended pregnancies cost U.S. families $11 billion a year. And for every dollar invested in federal family planning, he says, taxpayers save nearly $4.

Deep personal convictions against abortion cannot be undermined. But it’s not an issue that will ever be settled at the polls, and it has divided the country for too long. It’s time for the camps to come together on what they can agree on — making abortions unnecessary by preventing unwanted pregnancies.

Corning is right that the grass-roots party activists ultimately get to shape party positions. Republicans who want their party to reflect a greater diversity of views on abortion need to get mobilized and fight to take this divisive issue out — or continue to lose elections in a badly polarized America.

Not only does a drug company put the hog industry’s welfare before people’s, but so, apparently, does the state (of Iowa).

http://www.desmoinesregister.com/article/20121116/BASU/311160027/

Basu: Seemingly unrelated events cause

concern over antibiotics, pollution

Nov 15, 2012

by  Rekha Basu

One week this fall, three seemingly unrelated things happened.

My dermatologist told me he couldn’t prescribe me the antibiotic tetracycline because doctors and pharmacies can no longer get it. It’s reserved for pigs in hog confinements.

The U.S. Drug Enforcement Administration announced a prescription drug take-back day on which certain pharmacies would accept leftover drugs that people wanted to dispose of. It was billed by a local news anchor as a safe alternative to keeping potentially harmful substances out of landfills and water supplies.

And my brother-in-law in Massachusetts, newly diagnosed with lymphoma, told me that after reading about links between cancer and diet, he had resolved to eat only food grown without chemicals, preservatives or other environmental toxins.

My mind raced to connect those events.

My doctor, it must be noted, didn’t want me to take tetracycline. I had asked for it because a dermatologist in Florida once put me on it for acne, with good results. So at one level, it didn’t matter that he can’t get the drug — which a pharmacist later told me they had not had in a couple of years.

What matters is the reason: The drug- maker apparently didn’t think the profits from humans were high enough, so it sells to hog producers. And if pigs are routinely fed antibiotics to prevent infection and make them fatter, and we eat pork raised in factory farms, then we get antibiotics by default.

Then there was the drug-disposal issue. It’s great that pharmacies are taking potentially harmful drugs out of circulation — and away from potential drug abusers. It was the fifth time in two years the DEA had organized the event, rounding up over a thousand tons of medicines. But what about the other 725 days, when drugs are tossed out the usual way, to end up in landfills and water supplies?

And that had me wondering about my brother-in-law’s cancer and what our bodies take in.

It didn’t take long to find that researchers in the United States and Finland have linked antibiotic use to cancer. One study showed them to be an even greater risk factor for breast cancer in women than synthetic hormone replacement therapy.

Antibiotic overuse can cause antibiotic-resistant bacteria to grow, which makes the drugs less effective when we need them. Antibiotics can also kill healthy bacteria that our immune systems depend on, resulting in a fungal problem. At least one theory links that to cancer.

Cancer’s causes remain unproven, but we shouldn’t have to wait for conclusive studies to heed warnings about things we know are not healthy. Around that time, I was contacted by people living by Lake Ponderosa in Poweshiek County who learned Prestage Farms applied for a permit to build a hog confinement two miles southwest of their home. They were worried about the effect on air and water quality, and property values. With good reason.

If you go to the Food and Water Watch organization’s website and look up Iowa, you will see the impact of confinements in other parts of the state. For example, in Sioux County, more than 1 million hogs raised on factory farms produce as much untreated manure as sewage from the Los Angeles and Atlanta metro areas combined. And that can be toxic. The report documents numerous manure spills into waterways around the state, resulting in massive fish kills.

Yet inspections and penalties against polluters by the Iowa Department of Natural Resources are so inadequate that the U.S. Environmental Protection Agency has warned that it may take over enforcement of the Clean Water Act. Our DNR typically imposes fines of less than half the amount it could.

In one reported case, there was a 50,000-gallon manure spill into a Dallas County tributary of the Raccoon River, which provides much of Des Moines’ drinking water. That was at least the third spill by that operator in 10 years. But no fine was imposed because only one fish was found dead. Previous spills may have taken care of the rest.

So not only does a drug company put the hog industry’s welfare before people’s, but so, apparently, does the state. Gov. Terry Branstad has full faith in his DNR director. That’s all the governor’s spokesman will say.

What will it take to ensure that laws to protect people are followed? It will take regulators who don’t coddle polluters.

When someone you love has a serious illness — and too many of our loved ones do — it gives urgency to the need for action. As individuals, we can make smart decisions about how we live and what we consume, but we can’t control dangers to our environment that we may not fully understand until it’s too late. That’s government’s job, and it ought to be taken seriously.

BARRON'S NEWSPAPER ASKS (and answers) the question: Are We Headed For A Recession?

The eye-catching front page of the November 12, 2012 edition of Barron's features a drawing of a sports car being driven by a steely-eyed Barak Obama (both hands are on the steering wheel), eyes looking a little bit to the left, with passenger House Speaker John boehner, arms folded, a defiant glint in his eyes which appear looking left, and set in resolve (rather than set in focus).  The car is hurtling in mid air, having been driven off a cliff (ostensibly by the driver, Obama).

A large font headline (all caps asks):

ARE WE HEADED
FOR A RECESSION?

in slightly smaller font is a side bar commentary which reads:

If President Obama and

House speaker Boehner
don't reach a deal
on spending and taxes
by Jan. 1, the economy
could swing from its
current 2% growth rate
to a 1% decline in the
first half of next year.
Get readyfor the
recession of 2013.

COVER STORY

The so-called fiscal cliff has all to do with tax increases and almost
nothing to do with spending cuts.  Can the economy survive?

SHOCK TREATMENT

by Gene Epstein

When Ben Bernanke gets concerned, the rest of us should start worrying.  "If the fiscal cliff isn't addressed," warned the Federal Reserve chairman in a Sept. 13 appearance before the Senate Finance Committee, "I don't think our tools are strong enough to offset the effects."  After thus disavowing central-bank responsibility if the U.S. Economy falls [off {can't believe it, Barron's proof readers let "of the cliff" through!}] the fiscall, Bernanke plaintively added, "So I think it's really important for the fiscalpolicy makers to, you know, work together and find a solution."

Nearly two months later--and just days after the presidential electiion--policy makers have yet to find a solution, mainly for lack of trying.  On Friday, Republican House Speaker John boehner and newly re-elected PResdent Barack Obama declared their intention to try to work together to avert the fiscal cliff.  If they fail, the Congressional Budget Office has warned of a "contraction in output in the fist half of 2013 [that] would probably be judged to be a recession."  From real growth in gross domestic product in the second half of this year that is likely running at an annual rate of 2%, the CBO projects a contraction in the first half at an annual rate of 1%.

More optimistically, Barron's put the odds of an outright contraction at even money, a risk no responsible policy maker should want to take.  than recession would be a return of that ugly economist's neologism, a "growth recession," in which economic growth continues, but at such a subdued pace that the unemployment rate rises.  That's because the nation's jobs growth wouldn't be enough to offset the growth in the labor force.

The fiscal cliff is far less about spending cuts than it is about tax increases.  As commonly defined, the fiscal cliff refers to an unusual combination of federal tax hikes coinciding with reductions in federal spending, all of them coming on Jan. 1, 2013.  Indeed, a Wall Street Journal front-page story last week spoke, for example, of "deep, automatic federal-spending cuts and tax increases."

Wrong.  While the tax increases will ceretainly be steep, the "deep" spending cuts are much shallower.  More impoartant, the spending cuts will be more than offset by inexorable increases in the cost of entitlement programs.  The net result will be no reduction in federal spending. The cuts popularly cited mainly consist of automatic reductions undere the 2011 Budget Conbtrol Act that require equal dollar cuts in defense and nondefense programs starting in fiscal 2012, through an action known as sequestration.  Painful as those cuts may be, however, they are not enough to cause the government's overall spending to decline.  Projections by the nonpartisan Congressional Budget Office and the WHite House's Office of Management and Budget both show that overall dollar spending won't decrease in calendar year 2013.  Wat all the projections do show is a much slower rate of increase.

That's partly because the huge influx of aging baby boomers will be laying just claim to their Social Security benefits right on schedule.  So we are again dealing with the budgetary newspeak of decreases in spending that are really just a reduction in the increase.

Even that smaller-than-usual increase might be somewhat understated.  Both CBO and OMB might have erred on the side of optimism about one wild card in federal spending, the cost of servicing the burgeoning federal debt.  Since the federal budget will still be running a deficit, the outstanding debt will grow.  But OMG and CBO both project only a modest increase in servicing cost based on the assumtion that interest costs will stay at their hostorical lows.  If not, total federal spending will increase by even more.

Those senssitive to the nuances of fiscal policy might still argue that even a slow-down in the rate of increase in spending still have dampening effects on the economy.  But that sin of omission should still have much less of an impact than the far larger sin of commission on the tax side.

The CBP projects nearly a hal-trillion-dollar jump in tax revenue in calendar 2013 that has no offseets.  Accodring to CBO estimates, that will mean aa 2.7% increase in tax as a share ofo GDP.  To put that figure in perspective, there has not been a single year since 1970 when an increase in federal tax revenue ran even as high as 1%, with just three years of +0.9%.  The last year comparable to this one was 1969, when the rise in tax revenue as a share of  nominal GDP ran 2.1%.  By fourth quarter 1969, the economy had slipped into recession.

FOR STARTERS, IT'S CLEAR that, if spending and investing power proportionate to 2.7% of GDP is drained from consumers and business over the course of a year thgough higher taxes, there is likely to be a slow-down in economic activity.  Whether the result will be outrightg recession depends on somehting more difficult to guage--the extent to which the tax hikes really do shock, taking consumers and business by surprise.  When consumers and business are relatively unprepared, the slowdown in economic activity is likely to be grfeater.

As for any shock and surprise on the spending side, half the spending cuts mandated by the 2011 Budget Control Act will fall on defense, and were probably anticipated.  It's unclear how much shock will be caused by the tax increases.

The looming fiscal cliff has gotten so much play in the media that it already has probably placed a damper on economic activity.  And to the degree that it has, one saving grace is that consumers and business will be better prepared for the cliff's effects.

As Stanford University economist John Taylor recently pointed out in his blog, "The fiscal cliff was not created by aliens from outer space.  It is another poor government policy created in Washington."  When we look on the tax side [(see chart below)], we see an odd asorment of inadvertent reversals of tax cuts all converging at the same time.

TAX SHOCK

Federal tax revenue is due to jump by almost $500 billion in calendar year 2013, while spending will remain flat.  This tax shock raises the risk of recession in 2013.  The shock is due not to a surging economy, but rather to a unique convergence of tax increases that legislators could still reverse of mitigate.  Items on the list, totalijng nearly $475 billion in 2013, are key drivers of the tax shock.

___________________________________________________________

*  $161 billion: Rollback of Bush tax cuts on income

$66 billion: for incomes in excess of $250K ($200K if single)

$38 billion: Reinstate 36% and 39.6% top rates; also reinstate personal exemption phase-out and limit on itemized deductions

$22 billion: Dividends taxed as ordinary income, instead of "qualified" taxed at 15%

$6 billion: Long-term capital gains at 20%, not 15%

$95 billion: for all other incomes

*  $114 billion:  Not indexing alternative minimum tax for inflation
*  $120 billion:  Rollback of the two-percentage-point cut in the payroll tax
*   $14 billion:  Rollback of cuts in estate, gift, and generation-skipping taxes
*   $23 billion:  Tax hikes under Obamacare
*   $41 billion:  Rollback of stimulus cuts and "tax extender"

Source:  Office of Management and Budget, Congressional Budget Office, Heritage Foundation

__________________________________________________________________________

In his address Friday, President Obama made it clear that he wants to retain the tax cuts on the first $200,000 of taxable income for individuals and $250,000 for couples.  It turns out that most of the pending increases in terms of sheer dollars will fall on these "non-rich."  So the president should have a natural desire to strike a deal.

The largest impact ($161 billion) consists of the still-pending rollback of the tax cuts passed under former President George W. Bush.  According to Obama's own Office of MAnagement and Budget, nearly 60% or $95 billion will do a lot to blunt the tax shock.

The president made it clear Friday taht he plans to restore these taxes on the richest 2%, which will raise the remaining $66 billion.  A substantial portion of that ($28 billion) is expected to fall on their dividends and capital gains.  Boehner, however, made it equally clear that he's against raising taxes on the wealthiest Americans."

Regarding the $66 billion that OMB estimates could be realized [through - Barron's article had this word as "though"] higher taxes on the top 2%, the estimated $28 billion from dividends and capital gains could be too high.  Steeper tax rates can alter behavior, especially investment behavior.  The full realization of that $28 billion depends on the size of the dividendds received and capital gains realized.

Investors now face a neutral trade-off between dividends and long-term capital gains, since both are taxes at 15%.  With the rollback of the tax cuts, the level playing field will be tilted once again, with capital gains taxes at 20% and dividends taxes as ordinary income, with rates as high as 39.6%.  That sort of differential will mean a return of the perverse desire by investors to have companies reinvest earnings rather than distribute them as dividends, in the hope that the reinvested earning will turn into more highly taxed capital gains.  The result will be what economists have referred to as a :lock-in" effect, with harm to economic efficiency.

Another tax that falls mianly on the non-rich is the alternative minimum tax ($114 billion).  Each year, a taxpayer is supposed to pay the AMT of a regular tax, whichever is greater.  But since the AMT was hurting middle-income taxpayers, an exemption roughly indexed to inflation, called a "patch," has been protectding them against its effects.  The last exemption expired in December 2011, however, which means income earned in 2012 could feel like the influence of the AMT.  Since the bad news will be learned by taxpayers when they file theri returns, the CBO projects that the huge sums will be paid almost entirely in 2013.

It seems likely, however, that the patch on the AMT will have a good chance of getting extended.  Less likely--so far, at least--will be the coninuance of the cut in the payroll tax on employees by two percentage points (worth $120 billion), instituted in January 2011.  That payroll-tax holiday, which is technically hurting the solvency of Social Security, doesn't seem popular with the White House.

BUT IF POLICY MAKERS do take Fed Chairman Bernanke's warning seriously, everything should be on the table.  That would mean rescinding many of the tax hikes, while less happily reversing the spending cuts, thus allowing federal spending to increase faster than planned.  No matter which way it gets done, the result would be a widening of the fiscal deficit.

That might set off alarms.  For those deficit hawks concerned about red ink vitually without end, why not sit back and celebrate the fiscal contraction otherwise known as the fiscal cliff?

The standard drug-addict analogy helps answer that question.  Much as we might have opposed shooting up the economic patient with such huge doses of fiscal-deficit heroin to begin with--much as we might welcome the ultimate return to balanced-budget sobriety--we might still fear the consequences of withdrawal if the dose gets cut so drastically in so shurt a time.

The economy's deficit habit must be abandoned, or the build-up in debt will cause a major crash.  But the fiscal cliff, or tax shock, poses a great risk to economic growth in 2013.  Our leaders must therefore kick the deficit-reduction can down the road yet one more time.  We might take comfort in knowing that they have a talent for that sort of activity.

A Must Read Web Site: Bob Somerby's How He Got There - http://www.howhegotthere.blogspot.com/

How he got there (http://www.howhegotthere.blogspot.com/)

The press corps' war against Candidate Gore:

How George W. Bush reached the White House

Welcome to how he got there!  http://www.howhegotthere.blogspot.com

 

Greetings! And welcome to how he got there:

In the coming months, this site will present a book about one of the most consequential elections in American history–the 2000 White House campaign between George W. Bush and Al Gore. At issue is an historical question:

How did George W. Bush reach the White House? How in the world did he get there?

More specifically, How He Got There will explore the mainstream press corps' poisonous coverage of this history-changing campaign. This book thus discusses a remarkable episode in modern press history–an episode the liberal world has generally failed to explore.

Discussion to date:

I began discussing this topic in real time, in March 1999, at my web site, The Daily Howler. At the time, I had no idea how remarkable the press corps' performance during Campaign 2000 would be.

On the other hand:

By that time, the press corps' peculiar relations with President Clinton had led to one important book–Gene Lyons' Fools for Scandal: How the Media Invented Whitewater (1996). Before Campaign 2000 was finished, Lyons would team with Joe Conason for a second book, The Hunting of the President (2000). Here too, Lyons and Conason discussed the press corps' decade-long, pseudoscandal-driven pursuit of Bill Clinton.

In March 1999, Clinton's vice president began his own run for the White House. With remarkable speed, the press corps' pursuit of President Clinton was seamlessly transferred to Candidate Gore. Given the narrow way Campaign 2000 was decided, the press corps' twenty-month war against Gore almost surely decided its outcome. How He Got There will describe these history-changing events.

We need a history of the era:

As such, this book adds to a limited body of work–work which describes the political and journalistic history of the Clinton/Gore era. To date, the liberal world has made little attempt to explore the history of that period–an era when rising conservative power in Establishment Washington stifled Democratic Party and progressive interests. Why have liberals been so timid concerning the events of this period? I'll offer some thoughts at the end of this book. First, the history itself should be told.

How did George W. Bush get to the White House? Liberal explanations often begin with the vote recount in Florida. In this way, we liberals announce our ongoing refusal to explore the full history of the Clinton/Gore years–an era in which conservative power was increasingly expressed in the work of the mainstream press corps.

So how in the world did he get there?

How did George W. Bush reach the White House? Americans can't understand our society's developing power relations until this question, and others like it, are answered. The liberal world, like the mainstream press, has long avoided these topics. At this site, a deeply consequential part of this story will at last be told.

Bob Somerby

Baltimore/January 2010

Literally the day after the election a sudden “urgency” gripped the nation: the imminent danger of the so-called “fiscal cliff” — the national automatic tax increases and spending cuts due in January. The media screamed that the suddenly approaching fiscal cliff would trigger a recession, forcing Democrats and Republicans to consider a “grand bargain” budget deal to avoid disaster.

November 12, 2012

The Coming "Historic Betrayal"

Democrats and the Fiscal Cliff

by SHAMUS COOKE

Literally the day after the election a sudden “urgency” gripped the nation: the imminent danger of the so-called “fiscal cliff” — the national automatic tax increases and spending cuts due in January. The media screamed that the suddenly approaching fiscal cliff would trigger a recession, forcing Democrats and Republicans to consider a “grand bargain” budget deal to avoid disaster.

Of course the fiscal cliff was looming throughout the presidential campaign; politicians simply agreed not to talk about it, since they shared — more or less — the same very unpopular “grand bargain” solutions: austerity cuts to Medicare, Medicaid, Social Security, and other popular social programs.

Yes, Obama talked incessantly about the rich “paying their fair share” during his campaign, but he greatly exaggerated his willingness to make this happen, as well as the real differences between the Republicans and Democrats when it came to fixing the deficit.

This fact is revealed by the pro-corporate grand bargain that Obama nearly brokered last summer to fix the fiscal cliff.

The New York Times explains:

The White House agreed to cut at least $250 billion from Medicare in the next 10 years and another $800 billion in the decade after that, in part by raising the eligibility age. The administration had endorsed another $110 billion or so in cuts to Medicaid and other health care programs, with $250 billion more in the second decade. And in a move certain to provoke rebellion in the Democratic ranks, Obama was willing to apply a new, less generous formula for calculating Social Security benefits, which would start in 2015.

There you have it. Obama was already guilty of everything he accused the Republicans of during his presidential campaign. His “tax the rich” demagoguery was mainly for show, the exact same promise he broke after the 2008 election.

Some Democrats are already preparing to help Obama break the 2012 promise. The New York Times reports:

Senator Charles E. Schumer of New York, the No. 3 Senate Democrat, extended an olive branch to Republicans, suggesting Thursday that he could accept a tax plan [to fix the deficit] that leaves the top tax rate at 35 percent [leaving the Bush tax cuts for the wealthy in place].

And although Obama has vowed to stay firm over taxing the rich (this time), his toughness is only skin deep, and comes with dangerous strings attached.

For example, Obama only wants to tax the rich enough to be able to sell the grand bargain to the American public; any grand bargain will include historic cuts to cherished national programs like Medicare, Medicaid, and Social Security, and Obama wants to avoid some of the outrage by claiming that the rich were forced to share in the “sacrifice” too.

This is the “balanced approach” to deficit cutting that Obama discusses, meaning that he wants to raise some revenue from the rich while also making gigantic cuts to social programs.

But in a society racked by massive inequalities, this kind of “balance” is ludicrous. The rich, the banks and other corporations have accumulated trillions of dollars that, if taxed at high enough rates, would easily make ANY cuts to social programs unnecessary.

The nation is not broke, but much of the money has floated to the top. And while Obama is striving to pass a largely symbolic “tax the rich” measure as part of his grand bargain, he’s doing so only to push forward the massive cuts.

This is the political context that makes the demands “No Cuts, Tax the Rich” incredibly necessary not only to Labor and community groups but to all working people, who would be able to unify and fight these austerity cuts by organizing nationally coordinated demonstrations and putting forth the pro-worker solution of No Cuts, Tax the Rich to address the Fiscal Cliff and all future austerity budgets, whether they occur on a city, state, or national level.

AFL-CIO President Richard Trumka has already put out a call to working people to organize and “fight like hell” to prevent any cuts to Social Security, Medicare and Medicaid.

Labor and community groups must immediately stop celebrating Obama’s election victory and quickly start mobilizing their members against his anti-worker agenda, lest they spend the next four years crying about the coming “historic betrayal.”

Shamus Cooke is a social service worker, trade unionist, and writer for Workers Action (www.workerscompass.org). He can be reached at shamuscooke@gmail.com

The political leadership, including the Washington press corps and punditry, were already intently ignoring the economic downturn that is wreaking havoc on the lives of tens of millions of people across the country. Now, in the wake of the destruction from Hurricane Sandy, they will intensify their efforts to ignore global warming. After all, they want the country to focus on the debt, an issue that no one other than the elites view as a problem.

"Shut Up and Gut Social Security and Medicare..."

Saving the Planet or Fixing the “Debt”?

by DEAN BAKER

Imagine Japan attacked at Pearl Harbor in December of 1941 and our political leaders responded by debating the best way to deal with the deficits projected for 1960. This is pretty much the way that Washington works these days.

The political leadership, including the Washington press corps and punditry, were already intently ignoring the economic downturn that is wreaking havoc on the lives of tens of millions of people across the country. Now, in the wake of the destruction from Hurricane Sandy, they will intensify their efforts to ignore global warming. After all, they want the country to focus on the debt, an issue that no one other than the elites view as a problem.

The reality of course is straightforward. The large deficits of recent years are due to the economic downturn caused by the collapse of the housing bubble. If the economy were back near its pre-recession level of unemployment then the deficits would be close to 1 percent of GDP, a level that could be sustained indefinitely.

But the deficit scare mongers are not interested in numbers and economics; they want to gut key government programs, most importantly Social Security and Medicare. That is why they are pushing the fear stories about the debt and deficit. This is the rationale for the Campaign to “Fix” the Debt, a collection of 80 CEOs ostensibly focused on getting the budget in order.

What is perhaps most infuriating about this crew is the claim that their efforts are somehow designed to benefit our children and grandchildren. This is bizarre for a number of reasons. First, while they do want to cut Social Security and Medicare for current retirees and those expecting to benefit from these programs in the near future, the biggest cuts in their plans will hit today’s young.

In effect they are promising to “save” these programs for young workers by destroying them. Under most of the proposals designed to “fix” these programs Social Security will provide a sharply reduced benefit for retirees in 40-50 years compared with the currently scheduled level, and Medicare will by no means ensure most seniors access to decent health care.

However the even more bizarre aspect of their generational equity logic is the idea that somehow the well-being of future generations can be measured in any way by the size of the government debt. This point should have been pounded home to even the thickest deficit hawk by Hurricane Sandy.

What we do or don’t do in the next decade will have a huge impact on the climate conditions that our children and grandchildren experience. Imagine that we listen to our Campaign to Fix the Debt friends and find a way to pay down the debt while neglecting any steps to curb global warming.

We’ll be able to tell our children and grandchildren that they don’t have to pay interest on government bonds (they also won’t be receiving interest on government bonds, but let’s not complicate matters with logic) as they evacuate their homes ahead of flood waters. Undoubtedly they will be very thankful for this great benefit that we will have bestowed on them courtesy of the public-minded CEOs of the Campaign to Fix the Debt.

In reality the Campaigners are spewing utter nonsense when they imply that the well-being of future generations will be in any way determined by the size of the government debt that we pass on to them. We hand down to future generations a whole society and a planet that will be damaged to varying degrees depending on our current actions. Neglecting the steps necessary to fix the planet out of a desire to reduce the deficit is incredibly irresponsible if we care about future generations.

Of course global warming is far from the only non-budgetary cost that we are imposing on future generations. When we fill our jails with young people, many of whom will spend much of their lives in the criminal justice system, we are imposing large costs on future generations. We just are not honest enough to enter them in the budget books. The same is true of when we make enemies internationally with aggressive military actions that could lead to enduring hostility.

There also are even simpler cases of dishonest accounting. If the government imposed a $250 billion annual tax on prescription drugs (roughly $3 trillion over the 10-year budgetary horizon), everyone would understand this as a large burden on consumers. However, when the government grants patent monopolies on prescription drugs that allow drug companies to charge $250 billion more than the free market price, no one enters this additional cost on the ledgers.

The Campaign to Fix the Debt types like to pretend such costs don’t exist. They just want us to shut up and gut Social Security and Medicare, but the public is not likely to be stupid as they want us to be.

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.