The French Get It

Francois Hollande, the socialist candidate for the French presidency, is advocating that the European Central Bank make loans to nations (not just banks). The ECB is prohibited from doing so, but it is time to change the rules and abandon austerity that is only making things worse. I have long advocated that central banks loan money interest free to nations that have excess capacity (see earlier blogs).

What a waste!

"An American soldier dies every day and a half, on average, in Iraq or Afghanistan. Veterans kill themselves at a rate of one every 80 minutes. More than 6,500 veteran suicides are logged every year — more than the total number of soldiers killed in Afghanistan and Iraq combined since those wars began." These wars must stop. They are not worth the cost of destroying the cream of our youth.
Source: New York Times, 15 April 2012

Crocodile Tears

Let's all shed some crocodile tears for the unfortunate execs of GM, AIG, and Ally Financial Inc. for whom the government has ordered a 10 percent salary reduction. General Motors CEO Akerson will only receive $9 million. GM still owes the government $25 billion.
I suppose these underpaid execs will leave for other bankrupt firms such as Kodak.

What is our biggest problem?

The two chairs of the Commission appointed to develop a plan for reducing the Federal deficit agreed that the debt was the nation's biggest problem and unsustainable. We have to cut defense, social security and medical care they say. But, they know it won't happen.

This has become conventional wisdom. Why does not anyone raise the question of what the real economy of people and factories is capable of producing. Have we lost the knowledge needed to produce? Have the factories rusted?

No. This is an institutional failure, not a physical problem. There is an alternative to borrowing more money in the market. The Treasury could borrow from the nation's own bank,the Federal Reserve. Tell me why it is OK to create money every time a private corporation borrows money from a bank, but not OK if the government does the same thing??

Stock market and the economy

Fed chief Bernanke said that deep problems remain in the labor market. So the S&P hit its highest close in 4 years. Go figure! Of course behavior in a gambling casino doesn't have to make sense.

Good news? Layoffs in January were 154,000 fewer then than in December, 2007. Bad news: firms hired 778,000 fewer workers then they did in December, 2007.

"the fact that labor demand appears weak in most industries appears weak in most industries and locations is suggestion of a general shortfall of aggregate demand, rather than a worsening mismatch of skills and jobs." WSJ March 27, 2012.
This problem will not be fixed by tax cuts and austerity.