Krugman lays it out

Nobel winner Paul Krugman explains what's going on...

The long-feared capitulation of American consumers has arrived. According to Thursday’s G.D.P. report, real consumer spending fell at an annual rate of 3.1 percent in the third quarter; real spending on durable goods (stuff like cars and TVs) fell at an annual rate of 14 percent.

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It’s true that American consumers have long been living beyond their means. In the mid-1980s Americans saved about 10 percent of their income. Lately, however, the savings rate has generally been below 2 percent — sometimes it has even been negative — and consumer debt has risen to 98 percent of G.D.P., twice its level a quarter-century ago.

Some economists told us not to worry because Americans were offsetting their growing debt with the ever-rising values of their homes and stock portfolios. Somehow, though, we’re not hearing that argument much lately.

Sooner or later, then, consumers were going to have to pull in their belts. But the timing of the new sobriety is deeply unfortunate. One is tempted to echo St. Augustine’s plea: “Grant me chastity and continence, but not yet.” For consumers are cutting back just as the U.S. economy has fallen into a liquidity trap — a situation in which the Federal Reserve has lost its grip on the economy.

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For the fact is that we are in a liquidity trap right now: Fed policy has lost most of its traction. It’s true that Ben Bernanke hasn’t yet reduced interest rates all the way to zero, as the Japanese did in the 1990s. But it’s hard to believe that cutting the federal funds rate from 1 percent to nothing would have much positive effect on the economy. In particular, the financial crisis has made Fed policy largely irrelevant for much of the private sector: The Fed has been steadily cutting away, yet mortgage rates and the interest rates many businesses pay are higher than they were early this year.

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No, what the economy needs now is something to take the place of retrenching consumers. That means a major fiscal stimulus. And this time the stimulus should take the form of actual government spending rather than rebate checks that consumers probably wouldn’t spend.

Let’s hope, then, that Congress gets to work on a package to rescue the economy as soon as the election is behind us. And let’s also hope that the lame-duck Bush administration doesn’t get in the way.

And read lolDavid Brooks for Krugman's companion piece.

Enjoy your schadenfreude.

Relief

The big story today is this one, from the WSJ:

WASHINGTON -- The U.S. government's latest plan to aid struggling homeowners could move as many as three million people into more-affordable mortgages, according to people familiar with the effort.

The proposal, which has been designed by the Treasury Department and Federal Deposit Insurance Corp., is close to being finalized. Estimated to cost between $40 billion and $50 billion, the plan would have the government agree to share a portion of any losses on a modified mortgage offered by lenders.

Funding for the plan could potentially come out of the $700 billion financial-rescue program authorized by Congress earlier this month. The plan, which was previewed during Congressional testimony last week, would represent one of the most aggressive and sweeping moves to address the nation's foreclosure mess, among the last elements of the crisis yet to be addressed by concerted government intervention.

Sound familiar? It should, because it was the subject of my very first blog post here. The whole point of the bailout is to ensure that not only banks, but people as well, can save the equity they have and/or create new equity. And what's good for Wall St., or for GM, should be good for the typical subprime homeowner as well. They all made mistakes, and it's not "fair" that they're all getting a mulligan, but "fair" is less important than figuring a way out of this mess. And creating 4 million new renters ain't it.

From the same article above:

As many as 7.3 million American homeowners are expected to default on their mortgages between 2008 and 2010, with 4.3 million of those losing their homes, according to Moody's Economy.com, a research firm.

Meanwhile, the economy shrunk like a frightened turtle in the 3rd quarter, its biggest contraction in 7 years.

Barack and Bubba, together at last.

And finally, Christopher Buckley keeps his dad a-spinnin'. It's been a lot of fun to see a bunch of the big name reeps abandoning McCain's ship, and in this installment Buckley takes a crack at an early draft of Johnny Mac's concession speech. The best part:

Looking on the bright side, it looks like I’ll get to go to bed a little earlier than I’d hoped to tonight. To tell the truth, I’m so tired after this 22-month (looking away from TelePrompTer) clusterf ... after this very long campaign that I won’t even have to take a sleeping pill.

One I Missed

My exceptionally lazy blog from this morning now looks even lazier, as I missed the best story of the day. In case anyone was wondering what's going to happen to the GOP after they get their clock cleaned Tuesday...

Win or Lose, Many See Palin as Future of Party - NYT

Hilarious.

Lazy Blogger is Lazy

Dems get ready to rule - TheHill.com
Reid, Pelosi seek more ‘golden parachute’ restrictions - TheHill.com
Stocks Steady With Fed in Focus - WSJ
2 Rivals’ Plans on Fiscal Issue Add to Deficits - NYT
Sleepless in Tehran - NYT
For Your Consideration - NYT (Yes, I'm linking Maureen Dowd. Shut up.)
Global car sales fall 6% in third quarter - FT
US durables rise but weakness remains - FT
Clues in the Mist - WaPo
Accuracy Of Polls a Question In Itself - WaPo
How Congo's heaven became hell - BBC
Scores dead after Pakistan quake - BBC

RE: Syria

One of the biggest tragedies of the WARS in which we are currently engaged is the total lack of awareness and total apathy about them on behalf of the general public. No bodies, no real media coverage, general intellectual laziness, the natural ignorance of the American citizen, whatever the reasons are, no matter how hard I try I simply cannot understand why the first, last and only thing on peoples' minds and out of their mouths are not the TWO wars to which this country has been committed for SEVEN years with no end in sight of either.

That's not fair I suppose.

The fact of the matter is that there is only a very small percentage of the population is even participating in them. Or so people seem to think. It's rough out there with kids and bills and all. Who has time to think these days?

Our armed forces are stretched beyond the limit because of the decisions of a small minority of 'hawks' who have never served a day in their lives and who really can't comprehend (or more accurately don't have an ounce of respect for human life not their own) the meaning of the word war. These same people have managed to convince the masses that war is fun and glorious and that victory is somehow inevitable. This is nothing new of course. In fact, one might say it's a necessary condition to starting a large scale conflict but that's no excuse.

With that said, let me try and explain to anyone out there who still doesn't understand. Of course, anyone reading this probably does if only because they've played a game of Civilization (thank you Sid Meier, you're a god) or any RTS for that matter.

War is a tool, the purpose of which is to acquire something that you want from someone who has it and won't give it up if you ask nicely. In the case of Iraq that thing is oil. Do you know how to 'reduce our dependence on foreign oil'? You make foreign oil our oil that's how.

There is no such thing as a moral war. There is no such thing as a good war. There is no such thing as a just war. Both sides in any war are the 'good guys' to themselves and the 'bad guys' to the other.

In these conflicts if you're a U.S. citizen you're the 'good guys' and if you're not a U.S. citizen you're the 'bad guys.' Remember the Bush Doctrine? Does Global War on Terror ring a bell? 'Enemy non-combatant' sound familiar?

I don't care where you live, what your religion is, whether or not you agree with the premise of these conflicts, if you drive a Prius or an H2, if you think meat is murder or that all homosexuals will be left on the earth to burn with Satan after the Rapture. If you're an American citizen, if you hold a U.S. passport, you are at war and the only acceptable outcome of war is victory. Because if you don't win you die. This is not fear mongering, the time for that has long passed (and it worked by the way). This is fact.

Now that we've got that cleared up, let's have some fun with maps.

Here is a political map of the region courtesy of the Google:


View Larger Map

And here's a link to another from the The Global Education Project:

middle-east-military-and-oil-map

You can zoom in and out of the Google map to follow along.

First look at where the major oil fields in Iraq are (they're purple on the Global Education Project map). Now look at the bodies of water between those oil fields and the U.S. (or Western Europe).

You'll notice that in order to move the purple from one place to another, one must sail through certain narrow bodies of water. Let's call them 'straits'. The closest one is south of the purple but oops! There's somebody there that doesn't want us there.

No problem! We'll just bomb them. But wait! We don't have any more bombs to spare and the Russians (who can do whatever they want thank you very much Georgia and have a nice day) wouldn't approve of anything rash. Oh yeah, they're about to have nukes too. Hmmm. Looks like we'll have to go another way.

Maybe we can put the purple in a pipe, run it past our good friends the Saudis and pick it up somewhere around Egypt. We'll have them over for dinner and maybe give them a kiss or two, that should work perfectly! Ok Ok, so the dinner was great and damn can those Saudis party (how about a quiet stroll in the garden)but for some reason they're being stubborn. Looks like we'll have to go to plan C.

If only there was a country that was in a real political and economic jam, had a huge influx of refugees to deal with, an unstable government close by, and no allies strong enough to help it out just yet. If only that country had a purple pumping pipeline that ran directly through it to friendly waters. Man oh man wouldn't that be great?

Don't get me wrong. Militants are certainly entering Iraq through Syria and we can't let that happen. But I would take a hard look at the location of those air-strikes, some major geographical features, and the route of a certain pipeline. We win this thing or lose kids. And if we lose this one, we're in some serious trouble.

Why Bloomberg?

I've been pretty focused on the national crisis and election over the past few months, so I haven't really had time to devote the full weight of my incredulity at Mayor Bloomberg's coup d'etat. Let me rectify that.

I'll start with the obvious question: What the f*ck?

Second question: What the hell has Bloomberg done to make us think he's the right guy to handle this crisis and the profound effect it is already having on the NYC economy? The argument is that "this is the crisis he's been preparing his whole life for," but the reality is that this is the crisis he helped build.

Let's hop in the way-back machine and travel to 2003, to a point at which then first-term Mike was up against it for the high cost of living and taxes in the face of a decline in the number and spending power of the city's middle class. His answer to his many critics:

''If New York City is a business, it isn't Wal-Mart -- it isn't trying to be the lowest-priced product in the market,'' a draft of the speech reads. ''It's a high-end product, maybe even a luxury product. New York offers tremendous value, but only for those companies able to capitalize on it.''

Mr. Bloomberg's address signaled, in perhaps the starkest terms yet, his change from a man who thought higher taxes would ''destroy this city'' to one who sees the city he governs as a value-added commodity.

''New York City is never going to be the lowest-priced place to do business; it is just the most efficient place to do business,'' Mr. Bloomberg told reporters later. ''You have to get value for the moneys that you're going to spend.''

Essentially, "suck it up and move to the suburbs." And politically, at least, it worked. The financial sector boomed during the middle part of this decade based largely upon the mortgage industry (more on that in a minute) and produced salad days somewhat akin to the dot-com boom of the mid-90s. Meanwhile, manufacturing jobs in the city have droppped by nearly 30% since 1995.

No one noticed, though, because Bloomberg's gambit of creating higher paying jobs then taxing the bejesus out of them to create his "luxury product" seemed to have worked. You'll have to trust me on these numbers - I can't find the article they're from anywhere, but anyway - 10% of NYC's new jobs added during the Bloomberg administration have been in the financial sector. However, more than 30% of the new income came from those jobs.

Yes, that's insanely out of whack. Building the economy based on speculation and a construction boom begat by shady mortgages is not a long-term solution, nor is it good government. And now we pay the price.

How? Well, I can see from my rooftop half a dozen new condo complexes that have halted construction somewhere between 30% and 70% complete. These are structures that are lying fallow, so to speak - not producing jobs, homes, or tax revenue for the city. The companies that secured the building contracts all buggered off when the property owners, marginal investors all, ran out of money. The owners ran out of money because the banks ran out of money. The banks ran out of money because they were betting on the mortgages that the perspective homeowners who would have been buying a spot in Mayor Mike's highrise hell no longer can get.

I'd call it a vicious cycle if it wasn't so patently stupid. And just as stupid is that Bloomberg has been complicit in the whole deal with his rush to rezone everything into erstwhile Battery Park Cities, and an even bigger rush to tax the middle class into New Jersey.

Yet he says he's the man to lead us out of this crisis. This, the same man who said in May the best solution was to "pray that Wall Street does well."

Well, Mayor Mike, it hasn't, and you're clearly out of ideas. So I'll give you one: Let's pray that the city council (I'm looking at you, Christine Quinn) finds a set and overturns their own vote. No more rewarding the people who got us into this mess because it's politically expedient to do so, and no more short-sighted profiteers masquerading as populist heroes.

Mayor Mike, your experiment is over. Please, just let the clock run out.

Wassup!