Yearly Archives: 2013

Our Fiscal Anorexia

By J.D. Alt

Many years ago, I had occasion to spend a long weekend at Ramuda Ranch in Arizona—a rehab facility where young women are helped to learn how to want to eat food again. Anyone who has had a personal encounter with Anorexia Nervosa knows what a mystifying and frightening experience it is. The young women I saw there—all of them well above average intelligence-wise, many of them stunningly beautiful in a physical sense—all suffered from the same delusion: they had convinced themselves that eating, taking nourishment into their bodies, was pathological. The delusion had variations: some of the adolescent girls looked into the mirror and—in spite of the fact they were five feet eight inches tall and weighed only 75 pounds—SAW a body that was grotesquely over-weight and fat. Others seemed to have a disconnected relationship with their bodies, as if they personally were one thing and their body another—and the “other” was something that, for complex, obscure, and compelling reasons, deserved punishment and starvation. For those of us who were visitors, observing this irrational and self-destructing behavior in young women, who otherwise seemed perfectly normal and healthy, was perplexing and painful.

I was reminded of Ramuda Ranch last Friday as I watched our nation’s leaders explain to the American people why America must now impose a new austerity upon itself. By what process, I wondered, have we convinced ourselves that we do not have enough U.S. Dollars to pay ourselves to create the goods and services we need to prosper as a society? What exactly is the “fiscal crisis” that we see when we look in the mirror? How is it that we view our national community with such detachment that we can knowingly impose upon it a painful—and unnecessary—deprivation? How can it be that we view the spending of our OWN sovereign currency to create public goods and services—the essential nourishment of our private economy—as creating a “deficit” that we must somehow repay to someone in the future? How have we bought into this massive delusion? And where is the rehab center, the clinical psychologists and counselors, who will help us overcome it?

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“Fixing the Debt Without Breaking America” now available

NEP’s Joe Firestone has just published a kindle book  timed to coincide with the arrival of the sequester deadline. The book, Fixing the Debt without Breaking America: Austerity, the Trillion Dollar Coin, and Ending Debt Ceiling, Sequester, and Budgetary Crises, consists of reorganized content from Joe’s blogs plus three completely new chapters. You can follow this link to get a copy.

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Sequestration – Fourth Austerity Shoe Drops

Latest segment from The Black Financial and Fraud Report at theRealNews.com

REAL NEWS NETWORK — “Welcome back to the Real News Network. I’m Paul Jay in Baltimore. And welcome to this week’s edition of The Bill Black Financial and Fraud Report. [Professor] Black now joins us from Kansas City, Missouri. Bill’s an Associate Professor of Economics & Law at the University of Missouri-Kansas City. He’s a white-collar criminologist, a former financial regulator. He is the author of the book, The Best Way to Rob a Bank Is to Own One.

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The latest failed effort to blame the Community Reinvestment Act for Accounting Control Fraud

By William K. Black
(Cross posted at Benzinga.com)

Introduction

The latest effort to blame the Community Reinvestment Act (CRA) for the epidemic of accounting control fraud that drove the crisis is an econometric study by Sumit Agarwal, Efraim Benmelech, Nittai Bergman, and Amit Seru (“the authors”) (“ABBS 2012”).  The study does not prove its thesis.  The fact that the authors claim it proves causality makes obvious their controlling biases.  Their title is “Did the Community Reinvestment Act (CRA) Lead to Risky Lending?”  Their abstract answers: “Yes, it did.”  They claim that their econometric study proves causality – which is impossible given their methodology.  The authors were taught from their freshman years that an econometric study of this nature could not prove causality.  Errors this basic and embarrassing demonstrate the crippling grip of the authors’ biases.

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Stephanie Kelton and the Sequestration on UP with Chris Hayes

Stephanie appeared on UP with Chris Hayes this morning (3/3/13) discussing the sequestration. You can view the program by clicking this link or the image below.

L. Randall Wray’s Presentation at Lewis and Clark College

L. Randall Wray recently presented at the Steinhardt Lecture at Lewis & Clark College in Oregon. The title of his presentation was: “Fiscal Cliffs, Debt Limits, and Unsustainable Deficits: Can the US Really Run Out of Dollars?”

The video and matching slide presentation are provided below. Media Roots created a transcript of the presentation. You can access it via this link. Continue reading

Representative Conyers needs our Support to Kill the Sequestration’s Austerity

By William K. Black

We have been strangling the economic recovery through economic incompetence – and worse is in store because President Obama continues to embrace (1) the self-inflicted wound of austerity, (2) austerity primarily through cuts in vital social programs that are already under-funded, and (3) attacking the safety net by reducing Social Security and Medicare benefits.  The latest insanity is the Sequester – the fourth act of austerity in the last 20 months.  The August 2011 budget deal caused large cuts to social spending.  The January 2013 “fiscal cliff” deal increased taxes on the wealthy and ended the moratorium on collecting the full payroll tax.  The Sequester will be the fourth assault on our already weak economic recovery.  We have a jobs crisis in America – not a government spending crisis and the cumulative effect of these four acts of austerity has caused a certainty of weak growth and a serious risk that we will throw our economy back into recession.  The Eurozone’s recession – caused by austerity – greatly adds to the risk to our economy because Europe remains our leading trading partner.

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Six “Facts” On Our Debt: Corrections to Robert Solow’s Op-Ed

By L. Randall Wray

In yesterday’s NY Times, Nobel winner Robert Solow tackled the US debt debate, proclaiming that while it is a serious issue, many Americans are not aware of the facts.

Solow is a “neoclassical synthesis” Keynesian, the type of Keynesian economics that used to be taught in the textbooks. He was also on the wrong side of the “Cambridge controversy,” as the main developer of neoclassical growth theory. Still, he’s often on the “right side” when it comes to macro policy questions. And at least part of what he says about the US national debt is on the right track. But he gets enough confused that it is worthwhile to correct the errors.

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Real Dollars and Funny Money

By J.D. ALT

I keep trying to unravel the confusion knotted beneath the surface of our public discourse about money.

For example, it seems evident that most people believe that U.S. Dollars are “created” by business entrepreneurs making profits. Until this happens, the understanding seems to be, the number of dollars available for everyone to try to get some share of is like a big lake of money we’re all drinking from, with the biggest drinker of all being the U.S. government.  What we seem to mean by “economic growth” is this lake growing bigger, and we’re constantly measuring it’s depth and volume in terms of something we call “Gross Domestic Product”. The process that makes the money-lake grow is an entrepreneur investing some of the existing dollars in some venture, and then making a profit on that investment thereby creating new dollars that didn’t exist before, which increases the overall size of the lake. Dollars created in this way are “real” dollars because they are created by private business entrepreneurs competing in a free market. The federal government (for some mysterious and perverse reason that we can’t entirely explain) has the authority to “print” dollars any time it sees the need, but dollars created in this fashion are “funny money”—they simply dilute the value of the “real” dollars and enable the federal government to spend money it doesn’t really have. To protect the “soundness” of our lake of money, we should therefore limit at all costs the federal government’s “printing” of dollars, and the most effective way to achieve this goal is to require the federal government to BORROW dollars from the bond market if, in fact, it has to spend more dollars than it collects in taxes. Having imposed this requirement, we must then carefully track the number of dollars the federal government borrows because if that number exceeds a certain percentage of our Gross Domestic Product, we can assume the government will never be able to repay the debt (because the taxes available from GDP are mathematically inadequate) at which point the federal government will be insolvent. When we reach the point that the federal government is borrowing too many dollars (and, therefore, approaching insolvency) we have to either raise taxes or reduce government spending. If we raise taxes—especially on the entrepreneurs and businessmen—that will reduce the incentive to invest and create jobs, and will slow the process by which new “real” money is created, causing economic growth to falter. The best course of action to reduce an overly large federal debt, therefore, is to reduce federal spending. On its surface, this seems a perfectly reasonable narrative, even though it is politically difficult to translate into action (as we are currently observing.)

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“Pervasive” Fraud by our “Most Reputable” Banks

By William K. Black

A recent study confirmed that control fraud was endemic among our most elite financial institutions.  Asset Quality Misrepresentation by Financial Intermediaries: Evidence from RMBS Market.  Tomasz Piskorski, Amit Seru & James Witkin (February 2013) (“PSW 2013”).

The key conclusion of the study is that control fraud was “pervasive” (PSW 2013: 31).

“[A]lthough there is substantial heterogeneity across underwriters, a significant degree of misrepresentation exists across all underwriters, which includes the most reputable financial institutions” (PSW 2013: 29).

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