* Virginia Republicans have seen about enough of state party chairman Jeff Frederick.

That's easy enough to understand. Virginians never did care much for the "divine right of kings" mentality; it's what drove them to secession in 1861, it's why so many of them fought in the Revolutionary War, the War of 1812, and both World Wars. Frederick is acting like a pompous little ass, and expects deference to him from the entire party apparatus, from the senior staff right down to the rank-n-file voters. He really does need to go....

538 had a few interesting posts in the last few days relating to the recession, Obama's approval ratings, and when and if we were to pull out of the recession.

Most of the things I am reading seem to agree that there is no hope of pulling out of a recession in the next two years and the more likely scenario is a full scale depression. This is all in large part do to the policies pursued by Obama, Summers, and Geithner.

However a panel of economists consulted by the WSJ predicts that we should pull out of the recession by mid 2010. This is extremely narrow minded at best, and political posturing at worst.

Republicans and their vast media messaging apparatus know full well that there is no hope of turning this sucker around and they've successfully laid the groundwork to put it at the feet of Obama and quite frankly some of the steps taken in recent weeks by the Treasury should get the blame but of course those aren't the things Right wingers are pointing to.

grinning cat has a point. My comment on Krugman's column got lost in all the Beckitude (only place I could find to put it) so I'll repost here. This really is the story of the day:

Paul Krugman has a must-read column in today's Times on why the Obama/Geithner/Bernanke economic bailout plan isn't working, won't work, gives free bucks to the country's worst while draining the government (that's us) and may ultimately provoke a justified political backlash while making the economy even worse. Strong stuff, a lot more so than anything Beck and Ailes peddle, because it's based on reality.

Feinstein should stay in the Senate, where she's been much more effective than she was as mayor of San Francisco back in the day. To be really blunt about it, California needs someone younger to take on the massive challenges we face and there are several good candidates out there who would like to have a shot at it.

ericfree, have you been reading the Baseline Scenario?

The picture painted is a dire one with Obama et al. flailing and failing.

Summers and Geithner look to be complete and total disasters. The overall agenda of Obama is one I fully support but my self interest in seeing a rebound however modest has me feeling he's made some horrible choices with Fed policy.

Those hoping for a rebound should be prepared for it not to appear. Ever. The age of affluence appears to be over. This is why the dangers of Rush Limbaugh and the GOPs phony populism is real and should be taken seriously.

Ideally, as a Californian, I'd like to see Feinstein as neither governor NOR senator.

grinning cat your a pompous ass. What exactly is your area of expertise?This being a rhetorical question the answer is nothing. Jesus f Christ they haven't even spent any of the money yet and your already passing judgement. That's what comes from having the attention span of a chipmunk.Jackass.

grinning cat, not familiar with the Baseline Scenario (Amazon lists it as an article from World Economic Outlook) but for more, and more terrifying information on why Obama & Co. mysteriously keep making the "wrong" economic bailout decisions, try "The Predator State" by James K. Galbraith. Paperback out in May, and if Geithner and Bernanke don't take a different tack, not much will have changed by then except to get worse. For those who remember, Galbraith is the son of John Kenneth, who was frequently right on these things too.
http://www.amazon.com/Predator-State-Conservatives-Abandoned-Liberals/dp/1416576215/ref=sr_1_1?ie=UTF8&s=books&qid=1236362904&sr=1-1

And Gandalf, too much bad shirestuff. It's not us passing judgment, it's better economists than those working on the problem who have been "mysteriously" left out of the government loop. Always thought O was a dealmaker, and his cabinet picks, especially on the economy, prove it.

I second what Quicksand said. Feinstein is a disaster and embarrassment, a prime example of what kind of Democrat needs to go.

Gandalf, dear, why don't you run along and help your little friends find their magic jewelry. Remember, once you find it, all those monsters that haunt you will just disappear. In the meantime, you're getting on Momma's last nerve with that constant whining.

Ideally, as a Californian, I'd like to see Feinstein as neither governor NOR senator.

Posted by: QuicksanI couldn't agree more, Quicksand
She really is a Republican in everything but name
There are practically NO Republicans in San Francisco, so they call themselves Democrats to get elected
That's what Feinstein did to get elected Supervisor

WHERE IS BLAGO NOW THAT WE REALLY NEED HIM ????

Of all the contenders, I think I'll take Jerry Brown
He's the least objectionable
Blago comes in second

But, I'd love to see someone speak out against UC and CSU adminsitrative salaries.

It's an outrage that nobody mentions
That'll be my litmus test, someone asking UC adminsitrators to give back there huge and inappropriate salary increases

Gee thanks mother goose. I needed to remember that we as a nation are facing a potential disaster and pontificating from on high as if we were criticizing a movie will solve all are problems.

My area of expertise these days is anxiety and spending too much time in front of a computer. Sorry for sounding like a pompous ass, it's most likely due to being freaked the hell out by what tomorrow brings.
---

http://baselinescenario.com/

They've spent the money last I checked. (Not talking bailout but Treasury money).

I'm just trying to educate myself and have a discussion among like minded folks. I'm not looking for a fight, I'll save that for when the right wing trolls come a posting.

This post was the best thing I've read on the internet;

So what does the collapse of the financial system mean?

Imagine we have a system where every bank owns 1 dollar in capital, and loans out 30 dollars. A couple of those loans go bad (calling into question the rest of those loans). The rest of the loans are “marked to market� (good idea, but bad timing!) which means they trade at 40 cents on the dollar. Suddenly the bank is worth -5 dollars. Other banks, realizing this, all call in their loans to that bank (all short term).

The bank goes under. Seeing this, all the banks start calling in all the loans at the same time, at which point money literally vanishes.

Vanishes, you say? Money can’t disappear? Can it?

Why, yes it can. Poof. Remember that bank with 1 dollar in capital which loaned out 30 dollars? If the bank decides to loan out only 15 dollars, that other 15 dollars literally goes away.

So imagine that half the money in the world (or more) literally vanishes. At the same time, because asset values all plummet simultaneously (deflation due to less money chasing goods), virtually all collateral-backed loans in the world become net losses. Seeing this, we get a demand/jobs crisis, a “crisis of confidence� (which means expectations of contraction create the contraction), and the cycle intensifies (rapidly).

All leveraged banks immediately have massively negative value. All go bankrupt. All the savings in them disappears (poof). Governments are left holding the bag (hopefully). Gold and “safe� assets skyrocket. All transactions are done in hard currency (literally, cash) or in barter (read about Russia in the early 1990s).

So the chain of causality (unlike a “normal� recession) is:

Bubble gets burst
Banks, overleveraged, go under
Panic ensues (e.g. Lehman Bros)
Banks call in money, stop making loans
Sudden contraction in money supply; cessation of activity
Asset valuation plummets rapidly (e.g. September/November)
Asset devaluation causes more banks to become insolvent
Risk of bankruptcy/unemployment (or actual bankrupcy/unemployment) causes further credit contraction and decline in money supply
Decrease in money supply causes asset devaluation

It’s a fast ride down the international swirly toilet.

How to stop it?

Well, govts. have this great power - they can create money from nothing. Really. And they don’t have capital requirements. If they go insolvent, they can just create more money. So they backstop the banks (i.e. guarantee their losses).

This has lots of problems (e.g. moral hazard - that means bad incentives). The other problem is that govt. can end up absorbing a LOT OF LOSSES - trillions of dollars.

The gamble is this - if the government backstop is credible, and the economy recovers fast, then everything is good. Seeing that banks are no longer insolvent, the crisis of confidence stops, and assets reflate. 2 or 3 years later the government sells the banks it took over (often losing far less than initially expected - see the savings and loan crisis for instance).

The problem is, this presumes that the crisis of confidence is the only real problem, and that (as John McCain stated) “the fundamentals of the economy are strong�. If the fundamentals really are strong, investors see this, smell a great discount on good assets, and buy them back up fast. This is called “recover�.

But what if - no, really - what if the fundamentals of the economy are not strong?

What if we owe 80% of our GDP in debt? If consumer debt is huge? Entitlement programs are swallowing up most of the federal budget, and growing? States are insolvent? Houses really never were worth what people paid for them? Manufacturing is gone, and good jobs don’t exist? Lack of financial regulation means that “AAA assets� like bonds backed by loans were vastly overrated?

Uh oh… That’s a problem. Why would banks, or ayone, want to buy up those assets when they are really worth far less than thought? And that means the “paper losses� taken by banks are real losses.

Well, that means a lot of highly leveraged institutions just got wiped out.

Govt., seeing this, backstops all these losses (remember the moral hazard problem - too big to fail - bad incentives?). However, investors smell a rat. This isn’t just a crisis of confidence. The economy has _real_ problems. (This is the really real world.) So they don’t take the bait, and they cling to cash.

Meanwhile, the whole bad cycle sets in, and banks can’t make loans fast enough and no one wants to buy the bad assets, so all those paper losses turn into real losses. Government (playing the same old “restore confidence in the banks routine) buys up everything at stupid prices and absorbs the banks (nationalization or whatever, it doesn’t matter). The owners of those bad assets - who had made trillions (yes, trillions with a T) - by leveraging themselves to the hilt now don’t have to face the downside of their bets. That’s right. They keep the upside (many millionnaires on wall street) that they made in the last 15 years, but the taxpayers absorb the downside.

Are you mad yet? (you should be)

First, it’s a crime that private banks have the power to create money by making 30 dollars in loans for every dollar they have. (That means rather than earning 5% on 1 dollar, they get 5%*30 or 150% on that dollar - and that’s why finance accounted for 40% of US corporate profit in 2006). But it’s a DOUBLE crime that when they lose, they keep previous gains and taxpayers soak the losses to preserve the “system�.

But wait! It gets worse!

Remember governments who backstop the banks? Well, they have this problem that if they print too much money to backstop their banks (relative to their ability to pay) that money loses value. Govts can make as much money as they want, but it is only as valuable as people’s willingness to take it.

Enter Iceland. Tiny country of 300,000 (smaller than Cleveland metro area) backstops banks with many billions in losses. Currency evaporates overnight. The country can’t buy anything from abroad because no one takes their money. They go bankrupt.

So what about the US? Well, the US is bigger than Iceland so we have more income (for the moment), BUT we don’t really want to inflate.

Why?

Economists have been trained by 30 years of Friedmanomics that inflation = badness. (This was like a teenage rebellion against their Keynesian parents who argued that deflation = even more badness.) So to avoid having the Federal Reserve print money (�quantitative easing�), the Fed instead borrows tons (literally - if you stacked $20 dollar bills up, it would be tons) of money from China and Kuwait and foreign banks, converts this money into dollars by issuing promises to pay these other govts. back (e.g. T-bills), and then uses this borrowed money to cover the losses to our banks because we’re terrified of a financial collapse (so am I) and are psychologically conditioned to hate inflation.

That has the great benefit of keeping the US dollar strong so domestic jobs continue to flee the country, domestic consumers can continue to go in debt to foreign goods at artificially cheap prices, and we can temporarily prop up domestic consumption (and hence foreign exports).

Unfortunately, the economy is still crippled by 20 years of falling wages and massive debt obligations at the national and private level that have crippled real spending power. Roubini has laid out this case flawlessly.

THE PUNCHLINE:

Credit is not going to “naturally� grow again, because investors realize this time that the system has been broken. They fundamentals are bad. They don’t want a piece of the next bubble. 2006 was the last hurrah.

Depending on banks to extend (bad) loans to reflate the money supply is foolish, and doomed to failure.

The amount of debt the govt. is absorbing to prop up domestic banks and foreign exports is crippling, and GROWING DUE TO ASSETS OWNED BY BANKS DEFLATING IN VALUE.

The only way to restore balance is for the US to devalue its currency, for nominal asset values to reflate as more money gets created (stopping loans from turning bad), and for other countries (that have been net creditors) to increase their domestic consumption. However, they don’t share our Free Market Religion - and frankly, the more they look at us wallowing in our mess, the more discredited our economic theories become. So they would rather keep up their anti-import/pro-export policies (such as artificially devalued currencies) that have proven fairly successful in their eyes.

When the US devalues its currency (effectively reducing the value of debt it owes and debt owed in dollars), the holders of that debt will suffer losses.

So far, the US has done the opposite - it’s actually increased the value of the dollar (by borrowing heavily from abroad rather than printing money) even while asset prices plummet. This induces a deflationary spiral (read above).

Yes, that’s right -

US Govt. is CAUSING DEFLATION, which CAUSES ASSETS TO DROP IN VALUE, which CAUSES MORE BANK LOANS TO TURN BAD, which CAUSES BANKRUPTCIES AND JOB LOSS, which CAUSES DEFLATION.

By borrowing money to keep the dollar strong and prevent moderate inflation now, the US is perpetuating the deflationary spiral, and absorbing ever-increasing losses to cover bad bank loans that balloon every day _precisely because of our refusal to permit inflation_. We are also stimulating the economy (with borrowed money) to prop up foreign exports and create a too-small number of US jobs.

One would have thought that Ben Bernanke - the student of the Great Depression - would have known better, but apparently he’s all-talk-no-balls. And in fact, this was the biggest mistake the markets (myself included) have made - thinking that “helicopter Ben� understood just a little bit about debt-destruction.

SO WHAT IS THE ANSWER?

Print. Money. Now.

Accept the inflation now - or it will get worse later, and/or risk total US insolvency. Devalue the currency (if China refuses, let them build up larger reserves of less valuable dollars).

Looking forward (to prevent moral hazard), re-regulate financial services to prevent bad loans (e.g. 15% to 20% down on all home loans). Increase capital reserve requirements (e.g. decrease leverage, which should help give the government better control over monetary policy). Regulate all financial instruments and derivatives, and/or pass a law refusing to enforce contracts that are not regulated.

However, I personally have given up hope - Team Obama has publicly committed themselves to their currently doomed course of action (btw, I voted for and donated money to Obama, and support his environmental, energy, and most of his health policies). However, Obama’s advisors are morons. Pure and simple.

Ideally, as a Californian, I'd like to see Feinstein as neither governor NOR senator.

I second the notion. All in favor say: "Put her out to pasture."

At least, Quicksand, as Governor we'd be rid of Feinstein as Senator... And could elect someone progressive instead.

Ideally, as a Californian, I'd like to see Feinstein as neither governor NOR senator.

It has been second'nd several times already. Show of hands, all in favor to remove her from the public feeding trough say Enough Already! (and Charlie*, please tell her about all these publicly financed parting gifts...)

When I got her response defending voting for FISA legislation, I threw up in my mouth a little bit; mindless big words from small minds...as though that was enough to explain away her representing the people. A perfect example of voting for either party gets you the same noise.

Enough.

*
no offense to Charlie, whoever s/he may be.

"Mike Huckabee will be in South Carolina next month at a rally for Fair Tax supporters"

The so-called "Fair Tax" is a SCAM.