Reagan Appointees: Bush Tax Cuts Need to Go

The GOP seems utterly schizophrenic at times. In one breath that they chant the mantra of worshipping Ronald Reagan and in the next push measures that Reagan's own former economic advisers call lunacy. Obviously, they can't have it both ways and the fact that the Congressional GOP tries to simply shows how utterly disingenuous the party has become. One of the current items causing GOP temper tantrums is the issue of the soon to expire Bush tax cuts for the most wealthy members of society. While demanding that unemployment benefits for those suffering from the GOP's own voodoo economics be cut, the members of the Congressional GOP are screaming that the Bush give away to the most wealthy be extended. Entering into the fray are two former appointees of Reagan who both condemn the demand that the tax cuts be extended with now means of paying for them via cuts to the GOP's other sacred cows. The reality is that those who claim they vote Republican because they like the party's alleged fiscal responsibility need to wake up and open their eyes. That GOP died years ago. In an op-ed in the New York Times, David Stockman slams Mitch McConnell and his GOP cohorts for their "let them eat cake" attitude. Here are some highlights:
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IF there were such a thing as Chapter 11 for politicians, the Republican push to extend the unaffordable Bush tax cuts would amount to a bankruptcy filing. The nation’s public debt — if honestly reckoned to include municipal bonds and the $7 trillion of new deficits baked into the cake through 2015 — will soon reach $18 trillion. That’s a Greece-scale 120 percent of gross domestic product, and fairly screams out for austerity and sacrifice. It is therefore unseemly for the Senate minority leader, Mitch McConnell, to insist that the nation’s wealthiest taxpayers be spared even a three-percentage-point rate increase.
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Republicans used to believe that prosperity depended upon the regular balancing of accounts — in government, in international trade, on the ledgers of central banks and in the financial affairs of private households and businesses, too. But the new catechism, as practiced by Republican policymakers for decades now, has amounted to little more than money printing and deficit finance — vulgar Keynesianism robed in the ideological vestments of the prosperous classes.
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This approach has not simply made a mockery of traditional party ideals. It has also led to the serial financial bubbles and Wall Street depredations that have crippled our economy.
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[O]ur public debt. In 1970 it was just 40 percent of gross domestic product, or about $425 billion. When it reaches $18 trillion, it will be 40 times greater than in 1970. This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts.
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Republicans have been oblivious to the grave danger of flooding financial markets with freely printed money and, at the same time, removing traditional restrictions on leverage and speculation. . . . The only reason we have not experienced a severe reduction in nonfarm payrolls since 2000 is that there has been a gain in low-paying, often part-time positions in places like bars, hotels and nursing homes.
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It is not surprising, then, that during the last bubble (from 2002 to 2006) the top 1 percent of Americans — paid mainly from the Wall Street casino — received two-thirds of the gain in national income, while the bottom 90 percent — mainly dependent on Main Street’s shrinking economy — got only 12 percent. This growing wealth gap is not the market’s fault. It’s the decaying fruit of bad economic policy.
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[I]t’s a pity that the modern Republican Party offers the American people an irrelevant platform of recycled Keynesianism when the old approach — balanced budgets, sound money and financial discipline — is needed more than ever.
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Alan Greenspan who bears guilt in enabling the current economic disaster (but who seems to have learned from the disaster) also has less than kind words for the GOP. As reported by Huffington Post, on Meet the Press, Greenspan called an extension of the Bush tax cuts as disastrous. Here are highlights:
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Former Fed Chairman Alan Greenspan said that the push by congressional Republicans to extend the Bush tax cuts without offsetting the costs elsewhere could end up being "disastrous" for the economy.
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In an interview on NBC's "Meet the Press," Greenspan expressed his disagreement with the conservative argument that tax cuts essentially pay for themselves by generating revenue and productivity among recipients. "They do not," said Greenspan.
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Speaking with PBS' Judy Woodruff, Greenspan expressed his opposition to passing legislation that would hold tax rates steady (under law the tax cuts Bush passed ten years ago are going to expire, thereby bringing rates back to Clinton-era levels). President Obama has pledged to continue the tax breaks for those individuals making under $200,000 and those families earning less than $250,000.
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But Republicans want the entire package kept in place. Even so, they have declined to say how they would pay for it, saying, in part, that keeping the Bush tax cuts in place will pay for itself.
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In addition to throwing cold water on that theory, Greenspan also weighed in on broader economic issues and trends. The former Fed Chairman relayed some sobering economic predictions, saying he expected the nation's unemployment rate to remain at its current level, mainly because there were few tools left to change it.

Bush/Cheney Legacy: A Lost Decade for Workers

As various reviews of the first decade of the 21st century come in, one analysis speaks volumes about the failure of the Bush/Cheney regime. Not only does the country remain involved in what I believe to be ultimately wars that cannot be won, but domestically, most Americans - other than the wealthy and insurance companies and drug manufacturers - are worse off than when the decade began. Yet some continue to fall for the Republican Party's toxic approach to economics which have proven to be disastrous. Equally disturbing, President Obama continues to yield to those who have ravaged the country's economy through de-regulation, granting tax breaks to the rich, piling up huge deficits, and refusing to invest in America's most crucial assets: its citizens and its infrastructure base. Despite this abysmal record, Emperor Palpatine Cheney has the nerve to run his mouth about the misdirection of the Obama administration which has the task of attempting to fix the wide ranging damage inflicted by the Chimperator and himself. The Washington Post has an article that looks at the failed economy brought to the nation by this toxic pair of politicians. Here are some highlights:

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For most of the past 70 years, the U.S. economy has grown at a steady clip, generating perpetually higher incomes and wealth for American households. But since 2000, the story is starkly different. The past decade was the worst for the U.S. economy in modern times, a sharp reversal from a long period of prosperity that is leading economists and policymakers to fundamentally rethink the underpinnings of the nation's growth. It was, according to a wide range of data, a lost decade for American workers.

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There has been zero net job creation since December 1999. No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well. Middle-income households made less in 2008, when adjusted for inflation, than they did in 1999 -- and the number is sure to have declined further during a difficult 2009.
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And the net worth of American households -- the value of their houses, retirement funds and other assets minus debts -- has also declined when adjusted for inflation, compared with sharp gains in every previous decade since data were initially collected in the 1950s. "This was the first business cycle where a working-age household ended up worse at the end of it than the beginning, and this in spite of substantial growth in productivity, which should have been able to improve everyone's well-being," said Lawrence Mishel, president of the Economic Policy Institute, .
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[B]eyond these dramatic ups and downs lies an even more sobering reality: long-term economic stagnation. The trillions of dollars that poured into housing investment and consumer spending in the first part of the decade distorted economic activity. Capital was funneled to build mini-mansions in Sun Belt suburbs, many of which now sit empty, rather than toward industrial machines or other business investment that might generate economic output and jobs for years to come.
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The impact of the real estate crash has been broad. Among middle-income families, 69 percent owned a home in 2007, more than four times the proportion owning stocks. And as the housing meltdown cascaded through credit markets, the banking system was buffeted, rocking the whole financial system on which the world's economy rests.
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The financial crisis is, for all practical purposes, over, and forecasters are now generally expecting the job market to turn around early in 2010 and begin creating jobs. The task ahead for the next generation of economists is to figure out how, in a decade that began with such economic promise, things went so wrong.

Bush/Cheney's Parting Gift: Home Sales and Prices Drop at Record Pace

The economic gift of the Chimperator and the rubber stamp, more deregulation GOP Congress that he had for six and one half years just keeps on giving - bad news that is. Home sales and home prices dropped at a record rate last month and sadly things do not appear to be bottoming out as yet. As I have been saying since the summer of 2007 or longer, unless and until the residential real estate market is stabilized and turned around, the larger economy will continue to nose dive. Supposed foreclosure assistance is not yielding results and the banking institutions that have received billions of dollars in taxpayer funds are not passing the relief on to consumers either in terms of loan modifications or easing the difficulty many credit worthy borrowers are experiencing in securing loans. What may turn out to be a refinance boom may save some working in the real estate industry, but it will otherwise probably yield little boost to the economy. Here are some highlights from Reuters:

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The pace of existing home sales plunged a record 8.6 percent in November and prices fell a record amount as layoffs and a stock market crash worsened an already grim housing market, a real estate trade group said Tuesday. The median home price fell 13.2 percent on an annual basis, down for a fifth straight month to $181,300. It was the largest drop since the current data series began in 1968 and probably the largest since the Great Depression.

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The quickly deteriorating conditions in the job market, stock market and consumer confidence in October and November have knocked down home sales to another level," Yun [Lawrence Yun, the chief economist for the National Association of Realtors] said. "It is, therefore, imperative to provide incentives for homebuyers to get back into the market, Yun said.

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The housing malaise, which triggered a global financial crisis, has infected other sectors of the broader economy and sent unemployment rates higher. Analysts says stability in the housing sector is key to any recovery in the U.S. economy, which has been in a recession since late last year.

Freddie Mac and Fannie Mae Take Over Looms

UPDATED: As Joe Sudbuy at America Blog notes, the plan for Fannie Mae and Freddie Mac in essense constitutes a nationalization of the the secondary mortgage market and isn't it interesting that the plan was announce one day after the last day of the Republican Convention. Or am I too cynical? Here's what Joe said:

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Who would have guessed that Bush was such a fan of euro-socialism? Technically they are saying the two are in "conservatorship" and not "receivership" though as usual, this is mostly parsing to help prevent Bush being associated with the word "nationalize." What an amazing coincidence of timing we saw last night as Bush stepped in after the GOP convention was finished and the weekend was starting for most Americans. It should come as no surprise that McCain and Palin avoided any talk of the economy, because that might be of interest to Americans (and the world, I might add) as we work through the second half of the trillion dollar plus credit crisis. . . . Americans have been on a thirty-plus year decline in real purchasing power and sooner or later, that has to be addressed. It is not sustainable to live on credit as individuals or as a country.

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Both the New York Times and Washington Post are reporting that the federal government is about to take over Fannie Mae and Freddie Mac and place them in conservatorship status. In short, the federal government is being forced to use taxpayer dollars to clean up the mess crated by the Bush/Cheney economic policies which John McCain is poised to continue. Before it is over, the cost of these takeovers to taxpayers will be immense. Losses to investors, including mutual funds and pension funds will likewise be huge. It is mind numbing to me that given the utter disaster the U.S. economy is turning into that anyone rational would be supporting the McCain/Palin ticket. Oh, but I forget - the Christianist base of the GOP is patently NOT rational.

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It is very important to remember that the insanely bad loans that helped launch the real estate market melt down were made back PRIOR TO the Democrats' takeover of control of Congress in January, 2007. Thus, try as they might to blame the debacle on Congress or the Democrats, the Republicans and Bush/Cheney/McCain own this disaster. Worse yet, McCain still doesn't get it in terms of what is happening in the economy or to regular Americans. Why would he when Cindy McCain can wear a $300,000 outfit and jewels for a single evening. Here are some highlights for the New York Times:

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WASHINGTON — Senior officials from the Bush administration and the Federal Reserve on Friday called in top executives of Fannie Mae and Freddie Mac, the mortgage finance giants, and told them that the government was preparing to place the two companies under federal control, officials and company executives briefed on the discussions said.

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The plan, which would place the companies into a conservatorship, was outlined in separate meetings with the chief executives at the office of the companies’ new regulator. The executives were told that, under the plan, they and their boards would be replaced and shareholders would be virtually wiped out, but that the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.

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It is not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars and make any rescue among the largest in the nation’s history. Under a conservatorship, the common and preferred shares of Fannie and Freddie would be reduced to little or nothing, and any losses on mortgages they own or guarantee could be paid by taxpayers. A conservatorship would operate much like a pre-packaged bankruptcy, similar to what smaller companies use to clean up their books and then emerge with stronger balance sheets.

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In issuing their quarterly financial statements last month, the two companies reported huge losses and predicted that home prices would fall more than previously projected. The debt securities the companies issue to finance their operations are widely owned by mutual funds, pension funds, foreign governments and big companies.

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After stock markets closed on Friday, the shares of Fannie and Freddie plummeted. Fannie was trading around $5.50, down from $70 a year ago. Freddie was trading at about $4, down from about $65 a year ago. With Fannie and Freddie guaranteeing about $5 trillion in mortgage-backed securities, and a big share of those securities held by central banks and investors around the world, Mr. Paulson appears to have decided that the stakes are too high to take any chances.