The elite deficit scolds pushing the "Fiscal Cliff" fantasy will not stop once January arrives and nothing happens, the news folk will still worship at their feet.

When Prophecy Fails

By PAUL KRUGMAN

Back in the 1950s three social psychologists joined a cult that was predicting the imminent end of the world. Their purpose was to observe the cultists’ response when the world did not, in fact, end on schedule. What they discovered, and described in their classic book, “When Prophecy Fails,” is that the irrefutable failure of a prophecy does not cause true believers — people who have committed themselves to a belief both emotionally and by their life choices — to reconsider. On the contrary, they become even more fervent, and proselytize even harder. 

 

 

This insight seems highly relevant as 2012 draws to a close. After all, a lot of people came to believe that we were on the brink of catastrophe — and these views were given extraordinary reach by the mass media. As it turned out, of course, the predicted catastrophe failed to materialize. But we can be sure that the cultists won’t admit to having been wrong. No, the people who told us that a fiscal crisis was imminent will just keep at it, more convinced than ever.

Oh, wait a second — did you think I was talking about the Mayan calendar thing?

Seriously, at every stage of our ongoing economic crisis — and in particular, every time anyone has suggested actually trying to do something about mass unemployment — a chorus of voices has warned that unless we bring down budget deficits now now now, financial markets will turn on America, driving interest rates sky-high. And these prophecies of doom have had a powerful effect on our economic discourse.

Thus, back in May 2009 the Wall Street Journal editorial page seized on an uptick in long-term interest rates to declare that the “bond vigilantes,” the “disciplinarians of U.S. policy makers,” had arrived, and would push rates inexorably higher if big budget deficits continued. As it happened, rates soon went back down. But that didn’t stop The Journal’s news section from rolling out the same story the next time rates rose: “Debt fears send rates up,” blared a headline in March 2010; the debt continued to grow, but the rates went down again.

At this point the yield on the benchmark 10-year bond is less than half what it was when that 2009 editorial was published. But don’t expect any rethinking on The Journal’s part.

Now, you could say that The Journal’s editors didn’t give a specific date for the fiscal apocalypse, although I doubt that any of their readers imagined that they were talking about an event at least three years and seven months in the future.

In any case, some of the most prominent deficit scolds have indeed been willing to talk about dates, or at least time horizons. In early 2011 Erskine Bowles confidently declared that we would face a fiscal crisis within around two years unless something like the Bowles-Simpson deficit plan was enacted, and Alan Simpson chimed in to say that it would be less than two years. I guess he has about 10 weeks left. But again, don’t expect either Mr. Simpson or Mr. Bowles to admit that there might have been something fundamentally wrong with their analysis.

No, very few of the prophets of fiscal doom have acknowledged the failure of their prophecies to come true so far. And those who have admitted surprise seem more annoyed than chastened. For example, back in 2010 Alan Greenspan — who is, for some reason, still treated as an authority figure — conceded that despite large budget deficits, “inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued.” But he went on to declare, “This is regrettable, because it is fostering a sense of complacency.” How dare reality not validate my fears!

Regular readers know that I and other economists argued from the beginning that these dire warnings of fiscal catastrophe were all wrong, that budget deficits won’t cause soaring interest rates as long as the economy is depressed — and that the biggest risk to the economy is that we might try to slash the deficit too soon. And surely that point of view has been strongly validated by events.

The key thing we need to understand, however, is that the prophets of fiscal disaster, no matter how respectable they may seem, are at this point effectively members of a doomsday cult. They are emotionally and professionally committed to the belief that fiscal crisis lurks just around the corner, and they will hold to their belief no matter how many corners we turn without encountering that crisis.

So we cannot and will not persuade these people to reconsider their views in the light of the evidence. All we can do is stop paying attention. It’s going to be difficult, because many members of the deficit cult seem highly respectable. But they’ve been hugely, absurdly wrong for years on end, and it’s time to stop taking them seriously.

Obama & Pelosi indicate she and the republicrats in her caucus are willing to throw the poor and middle class under the bus to protect the rich.

Nancy Pelosi Predicts 'Democrats Will Stick With The President' On Fiscal Cliff Deal 

 Sam Stein
Amanda Terkel

 

House Minority Leader Nancy Pelosi (D-Calif.) said she expects Democrats to back President Barack Obama's fiscal cliff deal. (AP Photo/J. Scott Applewhite, File)

WASHINGTON -- House Minority Leader Nancy Pelosi (D-Calif.) is convinced her fellow Democrats will get behind the White House's latest "fiscal cliff" deal that cuts Social Security benefits and increases taxes on the middle class. Others in the party, however, hedged on the likelihood of that provision passing with a majority of Democratic votes.

President Barack Obama's latest offer in the fiscal cliff negotiations would allow the payroll tax holiday to expire, meaning middle-class workers will see smaller paychecks in 2013. It also proposes a Social Security reform known as "chained CPI" that would reduce the benefits senior citizens receive through Social Security.

Additionally, Obama's latest offer would permanently extend the Bush tax cuts for incomes of less than $400,000. Previously, the president had insisted that taxes increase on families with income above $250,000.

Despite these changes, Pelosi said she could convince her caucus to get behind such a plan, if need be.

Read More; Here

The "fiscal cliff" is a fiscal bluff that is being hyped by both side to ram through polices that protect the rich, and decimate the middle class and poor.

The G.O.P.’s Existential Crisis

By PAUL KRUGMAN

Published: December 13, 2012

• We are not having a debt crisis.

Fred R. Conrad/The New York Times

It’s important to make this point, because I keep seeing articles about the “fiscal cliff” that do, in fact, describe it — often in the headline — as a debt crisis. But it isn’t. The U.S. government is having no trouble borrowing to cover its deficit. In fact, its borrowing costs are near historic lows. And even the confrontation over the debt ceiling that looms a few months from now if we do somehow manage to avoid going over the fiscal cliff isn’t really about debt.

No, what we’re having is a political crisis, born of the fact that one of our two great political parties has reached the end of a 30-year road. The modern Republican Party’s grand, radical agenda lies in ruins — but the party doesn’t know how to deal with that failure, and it retains enough power to do immense damage as it strikes out in frustration.

Before I talk about that reality, a word about the current state of budget “negotiations.”

Why the scare quotes? Because these aren’t normal negotiations in which each side presents specific proposals, and horse-trading proceeds until the two sides converge. By all accounts, Republicans have, so far, offered almost no specifics. They claim that they’re willing to raise $800 billion in revenue by closing loopholes, but they refuse to specify which loopholes they would close; they are demanding large cuts in spending, but the specific cuts they have been willing to lay out wouldn’t come close to delivering the savings they demand.

It’s a very peculiar situation. In effect, Republicans are saying to President Obama, “Come up with something that will make us happy.” He is, understandably, not willing to play that game. And so the talks are stuck.

Why won’t the Republicans get specific? Because they don’t know how. The truth is that, when it comes to spending, they’ve been faking it all along — not just in this election, but for decades. Which brings me to the nature of the current G.O.P. crisis.

Since the 1970s, the Republican Party has fallen increasingly under the influence of radical ideologues, whose goal is nothing less than the elimination of the welfare state — that is, the whole legacy of the New Deal and the Great Society. From the beginning, however, these ideologues have had a big problem: The programs they want to kill are very popular. Americans may nod their heads when you attack big government in the abstract, but they strongly support Social Security, Medicare, and even Medicaid. So what’s a radical to do?

The answer, for a long time, has involved two strategies. One is “starve the beast,” the idea of using tax cuts to reduce government revenue, then using the resulting lack of funds to force cuts in popular social programs. Whenever you see some Republican politician piously denouncing federal red ink, always remember that, for decades, the G.O.P. has seen budget deficits as a feature, not a bug.

Arguably more important in conservative thinking, however, was the notion that the G.O.P. could exploit other sources of strength — white resentment, working-class dislike of social change, tough talk on national security — to build overwhelming political dominance, at which point the dismantling of the welfare state could proceed freely. Just eight years ago, Grover Norquist, the antitax activist, looked forward cheerfully to the days when Democrats would be politically neutered: “Any farmer will tell you that certain animals run around and are unpleasant, but when they’ve been fixed, then they are happy and sedate.”

O.K., you see the problem: Democrats didn’t go along with the program, and refused to give up. Worse, from the Republican point of view, all of their party’s sources of strength have turned into weaknesses. Democratic dominance among Hispanics has overshadowed Republican dominance among southern whites; women’s rights have trumped the politics of abortion and antigay sentiment; and guess who finally did get Osama bin Laden.

And look at where we are now in terms of the welfare state: far from killing it, Republicans now have to watch as Mr. Obama implements the biggest expansion of social insurance since the creation of Medicare.

So Republicans have suffered more than an election defeat, they’ve seen the collapse of a decades-long project. And with their grandiose goals now out of reach, they literally have no idea what they want — hence their inability to make specific demands.

It’s a dangerous situation. The G.O.P. is lost and rudderless, bitter and angry, but it still controls the House and, therefore, retains the ability to do a lot of harm, as it lashes out in the death throes of the conservative dream.

Our best hope is that business interests will use their influence to limit the damage. But the odds are that the next few years will be very, very ugly.

Obama policy of settling banking crimes with small fines compared to the illegal profits encourages law breaking.

Obama Administration Essentially Admits That Some Banks Are Too Big To Jail, Which Is Troubling

One of the great things about being too big to fail is that you're also too big to jail, apparently.

So saith the Obama administration, via the New York Times, in its front-page story on Tuesday about HSBC's settlement with the government over money-laundering charges. Though the British banking giant had to pay a wrist-stinging $1.9 billion, the settlement helped it avoid formal criminal charges. The NYT quotes anonymous government officials who say they were skittish about indicting HSBC because formal charges would amount to a "death penalty" for the bank, potentially roiling the financial system.

This is at least three very specific flavors of bullshit.

For one thing, according to University of Notre Dame law professor Jimmy Gurulé, a former assistant U.S. Attorney General and former Undersecretary for Enforcement for the U.S. Treasury Department, the government could have formally charged Europe's biggest bank in such a way as to help it avoid death. The bank's U.S. business may have been disrupted for some time, but the bank could have survived. The punishment that was meted out -- taking about half a quarter's profit -- was so far removed from a "death penalty" that it can't possibly be a deterrent for any other big bank.

And even if the government felt it could not formally charge HSBC, it could easily have charged individuals at the bank without causing financial armageddon. Instead, not a single HSBC individual faces criminal prosecution, despite evidence that billions of dollars were laundered on behalf of Mexican drug lords, the Iranian government and other evildoers for years.

Nor have any individuals been charged at the five other big European banks that have also managed to dodge formal money-laundering charges in recent years, including British bank Standard Chartered, which entered its own deferred prosecution agreement on Monday. Apparently, all of this constant money laundering was done by robots.

"The message this is sending is if you want to engage in money laundering, make sure you're doing it within the context of your employment at a bank," Gurulé said in a phone interview. "And don't go small. Do it on a very large scale, and you won't get prosecuted."

"It's essentially telling the executives in these institutions crime pays," Neil Barofsky, former Special Inspector General for the Troubled Asset Relief Program, the government's bailout program, told CNN. "Go ahead, do whatever you want to do, enjoy your profits, and the worst thing that happens, well, you have some fines that really make up a couple of weeks of profits that you lose."

Finally, if the Obama administration's attitude about banks is truly that it is terrified of prosecuting them, for fear of upsetting the global economic order, then that is a damning statement about our financial system -- though it is of a piece with everything else we've learned since the crisis: If you're a bank and you're big enough, you're basically going to get away with everything short of murder. And maybe that, too. You can certainly create and sell toxic securities while also betting against them and trigger a global depression without having to worry about doing any jail time.

"Somebody else is bound to look for the next hole in the system at another international bank, and exploit it," Anthony Michael Sabino, a professor at St. John's University's Peter J. Tobin College of Business, wrote in an email. "It’s time we started asking are these banks just too big to meaningfully regulate.”

That time actually passed long ago.

The European economists like their American counter parts refuse to learn from their own actions. Debt and spending reduction during a recession doesn't work, stimulus does.

Austerity Pushes Europe Into Its Second Recession In Four Years

By Travis Waldron 

Continuing efforts to cut spending and reduce deficits have driven the Eurozone into its second recession in just four years, as its economy shrank for the second consecutive quarter. Struggling countries like Spain, Greece, Portugal, and Ireland are still pursuing deficit reduction to rein in their debt, cutting spending to the bone to do so. The spending cuts have driven unemployment to record levels and threatened the continent with a recession that became official during the last quarter, Bloomberg reports:

The euro-area economy was pushed into a recession for the second time in four years as trade slowed and government spending declined.

Gross domestic product in the 17-nation currency bloc slipped 0.1 percent in the third quarter from the previous three months, when it fell 0.2 percent, the European Union’s statistics office in Luxembourg said today, confirming an initial estimate published on Nov. 15.

Eurozone unemployment reached 26 percent in September. The youth unemployment rate has topped 50 percent and resulted in a “lost generation” for the continent’s young adults. Still, the pursuit of austerity continues.

Lawmakers around the world have ignored the European lesson, though. Australia’s growth slowed last quarter as its government pursued deficit reduction, and in the United States, the so-called “fiscal cliff” brought on by Republican-demanded spending cuts is threatening the country with a bigger austerity package than those that have been implemented in Europe, even with ample proof that the U.S.’s original preference toward stimulus was more effective than the austere European approach.

Non wealthy Republicans, are delusional travelers to crazy town, who vote against their own interests and believe ACORN stole election.

Nearly Half Of Republicans Believe Defunct Organization Stole The Election For Obama

By Annie-Rose Strasser

Forty nine percent of Republicans believe that President Obama won reelection thanks to the allegedly illegal work of a group that no longer exists, according to a Public Policy Polling survey.
The Association of Community Organizations for Reform Now (ACORN) was at the center of anti-Obama energy in 2008, when Republicans cited some faulty registration forms obtained by ACORN as proof of voter fraud. The charge was particularly potent, since Obama hired one of the organizations associated with ACORN to run voter turnout for him in the primary.

But in 2010, ACORN filed Chapter 7 bankruptcy, putting an end to the community organizing effort altogether. Still, the fact that ACORN no longer exists hasn’t stopped the group from serving its role as scapegoat. Fifty two percent of Republicans blamed ACORN for Obama’s win in 2008, saying that they “stole” the election for him. That number only dropped by 3 percent, and 49 percent blame ACORN this time around.

Iceland the proof of the Austerity LIE. Iceland, a beacon of economic sanity, doing well in a world of economic crazies.

Truthdiggers of the Week: Iceland’s Leaders

by Alexander Reed Kelly.

One country refused to bail out its derelict banks and slash social spending amid the financial crisis. And guess what? Unlike the eurozone and the United States, it’s making a sturdy comeback.

Iceland’s stock market plunged 90 percent in 2008. Inflation reached 18 percent, unemployment shot up ninefold and its biggest banks failed. This was no recession. It was a full-blown depression.

Since then, the country has steadily improved. By September of this year, it repaid its IMF rescue loans ahead of schedule. Unemployment dropped by half and its economy will have grown by roughly 2.5 percent by the beginning of 2013.

So what’s Iceland’s secret? According to the editors at Bloomberg News, it’s a refusal to do what virtually every other nation that was pummeled by the crisis did: adopt policies of economic austerity.Iceland’s approach was the polar opposite of the U.S. and Europe, which rescued their banks and did little to aid indebted homeowners. Although lessons drawn from Iceland, with just 320,000 people and an economy based on fishing, aluminum production and tourism, might not be readily transferable to bigger countries, its rebound suggests there’s more than one way to recover from a financial meltdown.

Nothing distinguishes Iceland as much as its aid to consumers. To homeowners with negative equity, the country offered write-offs that would wipe out debt above 110 percent of the property value. The government also provided means-tested subsidies to reduce mortgage-interest expenses: Those with lower earnings, less home equity and children were granted the most generous support 

The International Monetary Fund’s mission chief to Iceland has sung the nation’s praises too. “Iceland has made significant achievements since the crisis,” Daria V. Zakharova told Bloomberg in August. “We have a very positive outlook on growth, especially for this year and next year because it appears to us that the growth is broad based.” 

Letting the losses fall on bondholders rather than taxpayers, maintaining the country’s welfare system and imposing temporary controls on investments protected Iceland from collapse and pushed it toward recovery, she said.

American leaders are threatening to do the opposite at the end of this year when a potential failure to reach a deficit reduction deal will trigger a total of $54.7 billion in spending cuts from government offices and social programs, Medicare among them, per year. 

Nobel Prize-winning economist Paul Krugman agrees that cuts to the social safety net are not the way. Ideology should not trump empirically based economics, he says. But right now, in the United States, it is. Krugman writes:

The doctrine in question amounts to the assertion that, in the aftermath of a financial crisis, banks must be bailed out but the general public must pay the price. So a crisis brought on by deregulation becomes a reason to move even further to the right; a time of mass unemployment, instead of spurring public efforts to create jobs, becomes an era of austerity, in which government spending and social programs are slashed. 

Even in the face of evidence, including a recent return to recession for the eurozone economy, elected officials on the right and left are pushing what serious economists recognize as failed policies. And it appears they will continue to do so for the indefinite future. In the meantime, we honor the reality-based leaders in Iceland as our Truthdiggers of the Week.