Category Archives: Economiasma

Economiasma – China & The U.S. Recovery – A Letter to Chinese Vice President Xi Jinping

Chinese Vice President Xi Jinping has called for “new type of relationship between major countries.” I agree. Here’s my Weekly Whiff of Economic $cents:

What seems to be missing from the U.S,=China dialog is the voice of the American consumer. I happen to be one – so – I decided to write the following letter to Xi Jinping:

Dear Mr. Vice President.

Our most sincere congratulations on your rise to the top – as we understand you shall soon be the President of China.

Our Dr. Henry Kissinger, whom you had supper with earlier this week, suggested that you view “the stability of the  China-U.S. as the seminal issue facing both parties” (forgive me…I’m paraphrasing Dr. Kissinger’s interview with Charlie Rose today). We would like you to know we are in complete agreement with you. Furthermore, as American consumers who buy the bulk of the products manufactured by China, we have a suggestion. Here ya go:

1. A healthy, balanced relationship involves give and take – withdrawals and deposits. Let’s be honest – we need each other. China’s health depends upon America’s health – and vice-versa. If the American consumers capacity to buy the goods China manufactures is diminished – China gets hurt.

2. The American consumer’s capacity to buy Chinese manufactured goods has diminished. This is primarily due the way our government used the funds (U.S. treasuries you purchased) to bail out the big banks – yet kept American consumers on the hook for inflated home mortgage balances when the real estate valuations collapsed. By the way, most American consumers don’t have a sub-prime mortgage – no matter what you’ve read. The health and confidence of the American consumer are in the long-term strategic best interests of China.

3. Imagine how you might feel if you were obligated pay a mortgage balance say around $200,000 – when the current value is $100,000. In America, we call this an “air ball.” Imagine (one more time) if American consumers had their mortgage note amounts reduced to the current appraised value of their primary personal residence…re-amortized…to produce market-value mortgage obligations – with monthly payments reduced accordingly — do you realize how this would tangibly recapitalize the American consumer? We American consumers would have a whole heck of a lot more discretionary income – meaning – money to maintain our increase our appetite for Chinese manufactured goods!!! Good for China and hood for the U.S. right? Well, hang on a minute…

4. There’s NO WAY the U.S. has the capital to support this type of across the board revaluation the American consumers so desperately deserve. Furthermore, if we asked our banks to take these write-downs, they’d be insolvent and we would just be creating another problem. So, we have come to you – for a little give and take – Like I said above, “Let’s be honest – we need each other.” We need China’s help. China has made a ton of money off the U.S. over the past several decades… a vastly greater sum than the U.S. side of the relationship selling to China. Here’s how we suggest you help us out:

A. For the U.S. $4.5 trillion in U.S. debt currently held by China, we need you to allow the U.S. to stop paying interest on $3 trillion for 20 years.

B. Each month (if that’s how we pay China interest on U.S. Treasuries you hold) the U.S. government will set aside the monthly interest payment on the $3 trillion to fund the Chinese American Recapitalization Treaty (CART). We’ll use this fund to fund the principal write-downs of the American consumer mortgages held by our banks. Yeah, we know…American banks get another good deal. Actually, it’s China and America working together to arrange a solution that will benefit BOTH countries.

C. Oh yeah, the American banks will write down all their mortgages to current appraised value – even if they’re Freddie, Fannie or FHA backed loans…Each bank will create a (CART) account whose total will be the cumulative sum of the American consumer mortgages they write-down to current appraised value. The U.S. government will let them hold this off-balance sheet. Every month, the interest reserve will be distributed pro-rata to each bank’s CART account – repaying the balance in the Cart over the 10 year term.

This is the solution that will benefit both of our countries – although no politician in the U.S. has the courage to talk with you about this. Right now, we have the CART before the horse in this country. We need your help to rearrange this backward arrangement that continues to degrade the financial wherewithal of China’s most important customer – The American Consumer.

With a recapitalized American consumer, vastly increasing discretionary income in the U.S. – unemployment and productivity levels will rebound much more rapidly. U.S. tax revenues will increase. We will commit as a nation,  that we will NOT run a budget deficit over the next 20 years either. We’ll approve a constitutional amendment declaring the same. Hey, we may have to borrow a few billion bucks as this program – and its positive impacts – work their way throughout our economic system.

P.S. – Imagine the goodwill China would create around the globe with a strategic move like this! Finally, you can even suggest that this was “your idea” because no elected official in this country is capable of imagining multilateral solutions to clearly global economic problems.

We look forward to hearing from you.

Your Customer

Bill “The American Consumer” Dahl

Economiasma – My Weekly Whiff of Economic $cents

 

 

 

 

Fondling The Job Knob by Bill Dahl

Here’s another Weekly Whiff of Economic $scents

Fondling the Job Knob

The most frequent word used during the Republican party presidential nominee debates is reported as “job.” Honestly, the term has become a fixture on the dial of the words each and every politician has pre-programmed into every public utterance.

The problem is, a real world challenge has become a simple point of reference or  keyword that is a required utterance…It’s just a teaser…it’s foreplay. It’s just “fondling the job knob.” The problem is, foreplay typically results in an appetite for something more.

American voters deserve a discussion that gets to the meat of the matter. If values and beliefs about how someone proposes to run  the largest economy in the world – both parties need to give up the specifics…what they believe will result in a vastly more satisfactory experience for the participants involved. American voters need the full meal deal…to determine whether this critical component of our compatibility is present…prior to making any  commitment about marriage for “four more years.”

To use a phrase from David Brooks column today, what must be done is to “select bold policies from both ends.”

“Ready on the set…Camera…Action!”

The whole world’s watching…

Economiasma at January 24, 2012 by Bill Dahl

Here’s my  Weekly Whiff of Economic $cents:

“Yet each turn of the spiral gives rise to similar questions about the nature and purpose of an economy. How much inequality can be tolerated? When bets go sour and the economy nosedives, who gets bailed out and who are left to fend for themselves? At what point does an economy imperil itself politically, as large numbers conclude that the game is rigged against them? Most fundamentally, what and whom is an economy for?”

Excerpt above from: Reich, Robert B. AFTERSHOCK – The Next Economy and America’s Future, Alfred A. Knopf New York, New York Copyright © 2010 by Robert B. Reich, p.4.

ROBERT B. REICH is Chancellor’s Professor of Public Policy at the Richard and Rhoda Goldman School of Public Policy at the University of California, Berkeley. , He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written twelve books, including The Work of Nations, which has been translated into twenty two languages, and the best seller Super capitalism.  His articles have appeared in The New Yorker, The Atlantic, The New York Times, The Washington Post, and The Wall Street Journal. He is also cofounding editor of the American Prospect magazine and provides weekly commentaries on public radio’s Marketplace. He lives in Berkeley and blogs at www.robertreich.org.

Capitalism works only when institutions are forced to absorb the consequences of the risks that they take on. When banks can pocket the upside while spreading the cost of their failures, failure is almost certain. P.13.

Mallaby is clearly not a proponent of “privatizing the gains and socializing the losses.”

Excerpt above from: Mallaby, Sebastian More Money Than God – Hedge Funds And The Making of a New Elite, Penguin Press, New York, NY Copyright © 2010 by Sebastian Mallaby. p.13.

 

 

 

Economiasma – January 18, 2012 by Bill Dahl

 

We have not seen—and don’t expect—a broad deterioration in mortgage credit quality,” the Fed staff said in a June 2006 report to policy makers. (excerpt from WSJ Article here).

“An inability to imagine how an outcome  might come about leaves you convinced that it will not happen.”(1)

(1) Thinking, Fast and Slow by Daniel Kahneman – Farrar, Straus and Giroux NY,NY Copyright (c) 2012 by Daniel Kahneman, p. 331.

Economiasma by Bill Dahl 12-20-2011 – SEE YA!

Here’s my Weekly Whiff of Economic $cents for December 20, 2011:

The U.S. Congress has adjourned….leaving an impending payroll tax hike and an essential extension of unemployment benefits – Negatively impacting millions of Americans…“SEE YA!”

With an approval rating of around 20% prior to this action, the U.S. Congress – despite what you may wish – can still sink lower in the minds of the American voter.

“See Ya!” —- trust the American voter — you certainly will see us.

Economiasma – A Weekly Whiff of Economic Scents – The River’s Backed Up – December 13, 2011 – by Bill Dahl

Here’s my Weekly Whiff of Economic $cents for December 12, 2011:

Pulitzer Prize winning economist Joseph Stiglitz has written in Freefall: America, Free Markets, And The Sinking of The World Economy:

 “This book is about a battle of ideas, about the ideas that led to the failed policies that precipitated the crisis and about the lessons that we take away from it. In time, every crisis ends. But no crisis, especially one of this severity, passes without leaving a legacy. “(p.xii). (emphasis is mine)

As Stephen Johnson says in The Ghost Map:

“The river of intellectual progress is not defined purely by the steady flow of good ideas begetting better ones; it follows the topography that has been carved out for it by external factors. Sometimes that topography throws up so many barricades that the river backs up for a while.” P. 135

I lived in Washington State on May 18th 1980 and distinctly recall the eruption of Mt. St. Helens that morning. The debris laden mudflows and caused both forks of the Toutle River to become raging torrents carrying fallen timber like toothpicks and lifted homes from their foundations – smashing them into one of the few remaining bridges left temporarily in tact.

Clearly, the river of economic ideology  is raging and backing up. There are so many ideas floating around, battling to become the assemblage of strategic economic policy (both globally and domestically) – that what appears to be a breakthrough of the logjam one week – becomes a discarded pile of rubbish beside the swollen banks of the torrent the next.

History is littered with the devastation of comparable, cataclysmic economic events….many of which, just like Mt. St. Helens – were not predictable in terms of timing and scope. Yet, I am reminded that the resolution of these matters is a process, not an event. Of course, we humans have the penchant to believe that the current economic challenges that occur during our lifetimes are both unique and unprecedented.

Ideas about what to do about debt, deficits, taxes, R&D, stimulus, Medicare, immigration reform, defense, budgets, social services, the disabled, Social Security, healthcare, Medicare, fiscal policy – unemployment, homelessness, hunger — all currently creating the logjam – clogging the flow 0f the river of economic progress. Here’s an insight from last week to throw onto the pile:

The OECD – Organization for Economic Cooperation and Development  released a report last week measuring tax revenue as a percentage of GDP.  The United States ranked 27th out of the 30 nations examined. In the U.S., taxes are currently the lowest since the early 1950s.

Hmmm…which ideas will break free from the logjam and unleash the flow of employment, certainty, trust and progress that we so desperately require? During the next several weeks, I will be looking at the ideas of thought leaders about how truly constructive ideas come together to form breakthroughs – when the River’s Backed Up.

This week, I’ll leave you with two thoughts from author and thought leader Stephen Johnson:

“Part of coming up with a good idea is discovering what those spare parts are, and ensuring that you’re not just recycling the same old ingredients.” (p.42)

The River’s Backed Up – I just have the sense that recycling the same old ingredients – just ain’t gonna cut it. If we continue on that course, the outcome may be a history for this period where the folks who write it well after we’re gone characterize this historical epoch akin to Stephen Johnson’s observation in his work, The Ghost Map:

“But the blind spots on the map, the dark continents of error and prejudice, carry their own mystery as well. How could so many intelligent people be so grievously wrong for such an extended period of time? (emphasis is mine – p.15)