Depression risk might force U.S. to buy assets (no longer talking Recession? Now it's "Depression")

[UpInArms]

Source: Reuters

NEW YORK (Reuters) - Fear that a hobbled banking sector may set off another Great Depression could force the U.S. government and Federal Reserve to take the unprecedented step of buying a broad range of assets, including stocks, according to one of the most bearish market analysts.

That extreme scenario, which would aim to stave off deflation and stabilize the economy, is evolving as the base case for Bernard Connolly, global strategist at Banque AIG in London.

<snip>

"Avoiding a depression is, unfortunately, going to have to involve either a large, quasi-permanent increase in the budget deficit -- preferably tax cuts -- or restoring overvaluation of equity prices," Connolly said on Monday.

"If conventional monetary policy is not enough to produce that result, the government may have to buy equities, financed by the Fed," Connolly said.

<snip>

"The Fed probably can't fix it all on its own now," Connolly said. "There is a chance the Fed gets forced into unconventional cooperation with government," which could involve buying a range of assets to reflate their value.

That would be reminiscent of some steps the U.S. government took in the 1930s when the economy was mired in deflation and high unemployment.

Read more: http://www.reuters.com/article/newsOne/idUSGOR27660220080212?sp=true

---

:hide:

[aquart]

1. And yet, still no jobs program.

Why is that, exactly?

[PassingFair]

3. Got to keep us scared and on the path. n/t

[sce56]

4. Oh yes they did give us one and they can't fill the boots fast enough

US Military they need all those poor out of worker workers to be cannon fodder!

[Political Heretic]

6. PWA REDUX!

:D

[nashville_brook]

12. do you mean WPA -- works progress administration?

http://en.wikipedia.org/wiki/Works_Progress_Administration

The Works Progress Administration (after 1939 Work Projects Administration; WPA) was the largest New Deal agency, employing millions of people and affecting most every locality, especially rural and western mountain populations. It was created in April, 1935 by Presidential order, and activated with Congressional funding in July of that year (U.S. Congress funded it annually but did not set it up).

It continued and extended relief programs similar to the Reconstruction Finance Corporation (RFC) started by Herbert Hoover and the U.S. Congress in 1932. Headed by Harry L. Hopkins, the WPA provided jobs and income to the unemployed during the Great Depression in the United States. The program built many public buildings, projects and roads, and operated large arts, drama, media and literacy projects. It fed children, redistributed food, clothing and housing.

Until closed down by Congress and the war boom in 1943, the various programs of the WPA added up to the largest employment base in the country — indeed, the largest cluster of government employment opportunities in most states. Anyone who needed a job could become eligible for most of its jobs. Hourly wages were the prevailing wages in the area; the rules said workers could not work more than 30 hours a week but many projects included months in the field, with workers eating and sleeping on worksites.

more wiki at link...

[Sanity Claws]

34. There was also a PWA

Public Works Administration

[nashville_brook]

74. your post inspired this:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x2864015

[Political Heretic]

37. What in search of sanity said.

[nels25]

15. Did not Obama propose

such a program, or at least one of a similar nature.

Sure would be a good idea for me. (though I do not think my job is in jeopardy at the present time)>

:bounce:

[tavalon]

10. Under the Repigs, the job program is the military

Hopefully, under the Dems, we'll get a public works job program, much like the last time our economy crumped.

[nashville_brook]

13. sounds a lot like Kenya, Guatemala and Afghanistan

not the direction "the world's only superpower" should be going... alas, the fruit of 2 boosh terms.

[tavalon]

22. I hate this administration as much as you do, but I suggest you look a little farther

This fascism and the sham economy has been a half century in the making. It's accelerating now as we reach the end of the process, but it isn't all the silverspoon sociopath's doing. Would that it were, it would be easier to reverse. That man isn't exactly a rocket scientist and the people behind him aren't much smarter as proven by the disaster that was the PNAC plan. But we have a much deeper problem, possibly unsolvable.

[Megahurtz]

28. So true. n/t

[H8fascistcons]

42. Unfortunately I fear you are correct

Until Americans wake up and figure out you cannot sustain an economy by purchasing all of your goods overseas, there is no hope. You have to manufacture and purchase the everyday items you use to create wealth in this country, simple as that. Sadly I don't think America will ever get it, the republicans and Wall street are certaintly against it. Were Doomed...

[tavalon]

54. Welcome to DU

Like your handle.

[Dont_Bogart_the_Pretzel]

56. Right on!

and ...Welcome!

[shanti]

57. i remember during the 70's

"imported" goods were mainly purchased in "import stores"....everything else was u.s. made....it's been done systematically.

[formercia]

69. Made in America stores

A Pier One for Patriots.

[bpeale]

20. they ain't talking about it, so guess what? it ain't gonna happen.

[tavalon]

21. Not during the election process, no, because depression isn't good for getting votes

People want to feel good while "voting". Immanent depression isn't good for the voting process.

[bpeale]

23. it might actually get the electorate to THINK instead of FEEL

and everyone knows we can't have that

[MiniMe]

65. Hate to say it, but what good is a job program when all the jobs are overseas?

They need to start bringing those jobs back to the US. Or perhaps do an FDR and invest in employing people to upgrade the infrastructure.

[aquart]

80. Yes, dear. That would be a job program.

CCC, WPA....

[villager]

2. so this guy wants tax cuts (for the rich), but he wants the gov't to keep the "porftolios"

at a high value, by "intervening" and propping up their market "worth."

No jobs program here -- he's concerned about the "little fuckers," just the assets of the big ones.

[closeupready]

5. The "need for more tax cuts" bit made me LOL.

Because a recession is clearly a statement that the wealthy are not keeping enough of their money out of the public coffers, and that the middle and lower classes need their tax burdens increased. Makes perfect sense. :rofl:

[goforit]

7. This was all planned by the elite folks....depopulate and profit at the same time

buckle up folks

[khaos]

9. like taking candy from a baby..

http://en.wikipedia.org/wiki/Dialectic#Hegelian_dialectic

[melody]

43. There are people to stand in their way ... it's not all up to the elite n/t

[khaos]

46. who?

[melody]

47. Us -- we're the majority

I say this as someone who has been writing about these monsters for twenty years.

[khaos]

59. Those of us that are actually aware of what's going on are a very small minority.

The majority is conditioned to be cowards and will go along with it.

[melody]

64. Not anymore ... that was the case prior to the internet

The awareness is large enough that major talk show hosts have Alex Jones on now. He may be the fringe
element of this awareness, but the fact he's out there shows that our healthy paranoia about the government
is still alive and kicking.

[khaos]

71. I hope you're right ;-)

Who had Alex Jones on their show? I don't have a TV so..

If his message becomes mainstream there may be a chance to prevent all this crazy stuff from happening.. otherwise it's a done deal.

[melody]

73. Alex just had Charlie Sheen on his show again ... the so-called fringe is becoming mainstream

The national show Alex is a radio show with a LOT of coverage. He's a regular also. The show "Coast to Coast AM". It used to be hosted by Art Bell but has become surprisingly more varied and somewhat more cogent since Art retired (thank god). lol

I think we're seeing an unraveling of their plans -- I think that's why the Shrub became so overt and ambitious.

The Republicans were the primary carrier of the global elite for many yeas. All they have to offer is a tired old man whose only
wares to sell is one or another brand of fear.

[Jacobin]

8. He's calling for a fucking bailout out of Wall Street speculators

Fuck him

[Heywood J]

53. Exactly.

For the government to pump the price of stocks back up so that hedge funds and speculation firms can sell again like they did after 9/11. When the stock price falls into the toilet from that, it's the government that takes the hit and not them. Any such action would be solely to enrich the people holding stocks, and you can bet they'd be waiting to sell once they broke even or more. It's like a Ponzi scheme, in a way.


At this point, I'd be willing to bet the only remaining holders of stocks are corporations, funds, and people making over $75-80,000. Everyone else has probably liquidated their investments to keep the lights on and the roof over their heads.

[Mojorabbit]

61. A lot of pension funds too unfortunately n/t

[eilen]

68. Most investors don't need to liquidate

The banks and money market fund managers have managed to give them big enough loses they can't get any value out of them. Thanks to risky investment in sub prime mortgage packets, my family lost 70% of an investment that was left to us by my father who worked his behind off and scrimped and saved. For the people in this country that still save, they have seen big losses. If you put money in a standard bank savings account, with the lowered rates, you are losing money due to inflation. I think that the best use of money is for people to pay off their credit cards, student loans, auto loans and mortgages. Anything left over, put in commodities like gold, silver, water. Then learn to garden.

Most people have plenty of "stuff"- clothing, tvs etc. (I'm obviously not talking about the very poor). My mother lives in Nashville and the Red Cross has requested that people stop dropping off clothing as there is no way to store it and nobody is coming to get it. They also reported that most of the clothing still has tags! We have different issues than they had during the Depression when there were shortages of everything. Look at the growth of closets since the forties! I think we are addicted to buying new things, not just oil.

In some communities, $75,000 income for a family does not mean they are wealthy, it means they struggle too. We are lucky to live in an area where the housing is not expensive but our property and school taxes are easily 33% of what we pay annually towards our mortgage and interest and our home is modest, less than 1500 square feet. My friend who built a new home easily twice the size of mine pays about $15,000 per year in taxes (almost 5 times more than I do).

[Chisox08]

11. So in other words

We must keep the rich rich and screw everybody else.
What about screw the rich and help the poor. These Repukes are reverse Robin Hoods. They are robbing the poor tro give to the rich.

[vssmith]

17. Unfortunately that is not a new concept

[The Blue Flower]

14. It's communism I tell you!!

Ownership of the means of production by the government.

[htuttle]

18. But since the government is owned by corporations, it's closer to Mussolini-style fascism

[The Blue Flower]

So it's the corporate government buying the corporations outright?

Isn't the serpent swallowing it's own tail the symbol of evil and death?

[htuttle]

25. Big corporations using the mechanisms of government to loot the treasury

...and since they cleaned out the treasury a LONG time ago, they are working on stealing the non-liquid assets of the country by taking out loans against them that they have no intention of ever paying back.

If you just think about it as a big, quasi-legal mafia, it all starts to make more sense...

[amborin]

62. that's state capitalism, not communism

[cottonseed]

79. It's only communism if the wealth distribution flows down.

This is just a little insurance for our free market. ;)

[flashl]

16. CONVENTIENTAL monetary policy did not create this mess. nt

[bpeale]

19. doesn't this sound like doing the same thing over & over again

expecting a different result? when will they get it thru their fat heads about tax cuts for the wealthy? doesn't work. has never worked. and will never work.

[nels25]

24. Okay economics is not my strong suit

so what should be done.

And keep it in the realm of the possible. Bashing corporations has it's place however at some point jobs need to be created, and people need to work for someone or something in order to obtain a wage.

A barter system will not work due to diffuse scattering of skills and levels there of.

Much as some may want to getting rid of a market driven economy is simply not in the cards, nor should it be.

I may be naive but to me a market economy with sufficient oversight by government (missing at the present moment I might add) creates the broadest standard of living for the larges percentage of the population of a country in the history of mankind.

Works every where it's tried.

If I am wrong I am willing to learn why??

But that is MHO.

:dem:

[bpeale]

26. i repeat tax cuts have never worked & will never work

all its gotten us is further into debt. we now have the poor & middle classes paying all the taxes for everyone. what's wrong with this picture?

[nels25]

36. I was not advocating a tax cut

in fact I was against Bush's original tax cuts in 01 (though at the same time I am not sure that at a time then of budget surplus a tax raise was a good idea either).

I think that a tax surcharge to pay for the additional spending required after the happenings of 911 was entirely called for and we are paying a price for not doing so (above and beyond the cost of Iraq).

:)

[closeupready]

27. Problem is manifold - 1) they're shipping our jobs overseas; 2) shifting tax burden away from the

wealthy and towards the lower socioeconomic classes; 3) something is wrong with a system in which companies which are losing many millions of dollars then give their CEO's increasingly large end-of-year bonuses. Many others I could cite. If this is news to you, you haven't been paying attention to Latest Breaking News over the last three years.

[nels25]

38. Oh I know about it

and am outraged by it.

My point is that if this situation is going to approach that of the great depression, then what common sense steps should be taken to enable us navigate through what will surely be rough waters.

How do we get the jobs back??

Does anyone honestly think that the Chinese will willingly watch the jobs return to the US??

The need to keep their economy humming in order to avoid social unrest (or so I have read).

I would support some kind of law that would deal with the disparity of CEO's pay in reference to the pay of the line worker, though I wonder about the legality of such a law.

It goes without saying that the bankruptcy law should be scrapped and reworked.

I have no problem with allowing the tax breaks to lapse (see other post) either.

:)

[closeupready]

40. As to outsourcing, there is a tax benefit to outsourcing jobs.

I don't recall the specific tax code language, but I believe that was one of the tax provisions which John Kerry was going to repeal.

[Arctic Dave]

29. Hmmm.

It seems like throwing the R word around wasn't enough to scare us into their trap, now it seems they are trying ratchet up the fear with the D word. All so they can keep their tax cuts permanent, cut our social programs and then give us the bill for it. Wow, they really have nothing but contempt for us rubes.

[raccoon]

67. You may have something there, Dave. nt

[Megahurtz]

30. Quick! Bail Out The Rich!!!

:cry: OMG they won't be able to eat! They will be out on the streets they won't be able to live! Oh poor them! :sarcasm:

:eyes: Same shit different day.

[fascisthunter]

41. Maybe We Can Scavenge for Them

since they wouldn't know how to survive on their own.

[kineneb]

51. hmmm, no. Would you like fries with that? Catsup?

:evilgrin:
Maybe soy sauce.

[Trillo]

31. The making of The Corporatist as an explicit fact?

The Top 400 own most everything already. It appears that corporate entities are just a 'shell game' to make it appear their ownership (controlling) is different, while consolidating income, expense, and tax benefits.

Does this article suggest making 'new' public policy what has been in past corrupt practice, but previously somewhat hidden under the shell game of the rich?

[elocs]

32. I thought that I had heard, once upon a time, that in 1929 they called it a "depression"

because they did not want to use the scare word "recession". Semantics.

[AlertLurker]

33. "Recession" wasn't a scarey enough term for this Administration.

You have to FEEL the FEAR!!!

[jaybeat]

35. What kind of a RW hack is this guy?

"a large, quasi-permanent increase in the budget deficit -- preferably tax cuts -- or restoring overvaluation of equity prices"???

:wtf:

Please correct me if I'm not translating correctly, but it sounds like he's saying we need to either

a) Cut taxes even further, no doubt on the rich (and then either borrow more money from China, et. al., if they'll loan it to us, or cut services--aka entitlements--to the bone), or

b) Prop up the overvalued stocks and bonds in which most of the wealthy keep their assets and from which they receive most of their income. (Couldn't have them WORK for a living, oh, no.)

So things will get shitier for everyone except the top 1%--THAT'S supposed to prevent a DEPRESSION???!!!

Someone ought to give this buffoon a history lesson. What got us out of the last Republican Depression was big tax INCREASES on the wealthy, plus protections for ordinary citizens against profiteers, scammers and corrupt banks, and public works projects that both provided jobs to people out of word AND improved the public infrastructure the economy would need once it started to grow again. Oh, and that OTHER big public "works" project, called WWII.

[donkeyotay]

50. Gotta love these free marketeers.

The poor should compete with even poorer Chinese, but as soon as it turns out that the Smartest Crooks in the Room have turned Wall St. into a casino and lost the rent, they come whining for a bail out. To paraphrase Marie Antoinette, "Let them pay for their own bailouts."

[Thor_MN]

66. Yes, "free markets" until it comes to wages as well.

Then, it's "We can't find enough skilled workers, so we need to bring people in on special Visas." If they can't find the workers they need, they are not paying enough money. If the wages go up, people will train for those jobs.

The trickle down, supply side crap they preach is just so much fermenting bullshit. There is no mountain where the rich are at the top and money flows down, it's a funnel. The wealthy are at the bottom of the funnel, and the money flows to them. If they spend it, they pump it back into the economy, which raises the money against its natural flow, higher up the funnel where the workers get paid for their labor. The truely poor are even higher up than that and only get a bit damp when money is splashed around. Taxes are also a pump, taking money from all levels and redistributing it through services and programs. If the taxes are progressive, they raise the money up the funnel. Regressive taxes push it further down.

To give money to everyone, you have to introduce it at the top of the funnel - it will flow down nicely on its own to the rich. The neocons have faith in pumps, that rewarding the rich will make that money flow up to the top and wet everyone down. I tend to believe in gravity and that the Bush economy has turned the funnel into a toilet and it's about to flush.

[DCKit]

39. With what money? Are they going to FORCE privatization of SS "to save U.S."?

Somehow, I wouldn't be shocked if that were the plan.

[ozone_man]

44. That was the first plan.

Then you probably heard Hillary Clinton talking about a national 401K plan. They won't give up until Wall Street is bailed out with our money.

[Name removed]

45. Deleted message

Message removed by moderator. Click here to review the message board rules.

[fascisthunter]

49. I Like Your Idea.... (nt)

[fascisthunter]

48. "quasi-permanent increase in the budget deficit -- preferably tax cuts"

uh huh.....

[Heywood J]

52. Governments should never be buying stocks.

If the government buys them, it means your tax dollars are being used to enrich people who made poor decisions (and often preyed upon the country to do so) and to bail them out. It's also the equivalent of being forced into loaning someone money to play the stock market - a very dangerous practice associated with the crash of 1929. It isn't going to be you who gets any money made in the process. That may also make government a for-profit entity now.

If the fed does it, they'll just print that much more money to do it and make ours that much more worthless. That just reminds me of Chief Clancy Wiggum yelling "No, no, stupid. Dig up!" when trapped at the bottom of the hole.

[daleo]

55. The ultimate Plunge Protection Team (PPT)

"Avoiding a depression is, unfortunately, going to have to involve either a large, quasi-permanent increase in the budget deficit -- preferably tax cuts -- or restoring overvaluation of equity prices," Connolly said on Monday.

"If conventional monetary policy is not enough to produce that result, the government may have to buy equities, financed by the Fed," Connolly said.
------------------------------
Google it, if the term is new to you.

[fasttense]

63. Can You say Bail Out? So much for those "free market" theories.

If this isn't blatant welfare for the uber rich, I don't know what it is. Those "leave the market alone and the world will be perfect" idiots seem to throw their theories away when they start to feel the results of their "free market" and globalization scams.

The poor and middle class can suffer tremendously but just let them wealthy financiers suffer and the bushes come running.

Don't you just love how the US government has become one giant wealth transfer machine? Transferring the wealth from the middle class and poor to the uber wealthy. All in the name of conservatism. Americans sure were idiots to vote for the bushes twice or let the bushes get away with stealing the election twice.

Now we think a Democratic President is going to make everything all right. I don't think so. More is yet to come.

[daleo]

76. Favoritism towards the rich is a somewhat less blatant under Democratic presidents

But, as you say, it is a difference of degree rather than a difference of kind.

[truthisfreedom]

58. bushco has driven us so close to the edge that any tiny act of terror could push us into the drink.

bushco is the mafia of all mafias. They pulled the greatest heist in history... they opened up the US Treasury and dumped it all into their own pockets, and left us penniless and without hope of recovery.

[polticalpout]

60. Hey, why not just invest Social Security into the stock market?

You add billions to the markets, they zip up, and everyone wins, it's fool proof! -sarc

[cottonseed]

78. Who needs Paulson?

Sounds like you've got US financial policy down pat.

[Auntie Bush]

70. Well we can get out of a depression by going to war with Iran.

We can feed the military industrial complex with jobs and money by going to war. Isn't that how Roosevelt got us out of the last great depression? Maybe that's why bush* doesn't want to bring the troops home...think of all the unemployed! Horrors! There won't be an uninhabited bridge anywhere.

Didn't bush* start talking about what a threat Iran was just about the time we/they realized our economy was headed over a cliff? I actually remember thinking that very same thing when the war drums started rumbling...that it was an excuse to employ more men and create all kinds of profitable defense jobs for his cronies. We won't have a recession as long as we have a war on.

[Lone_Star_Dem]

72. I'm one of those who believe that the Gulf War finally laid the myth of a war economy to rest

Here's an op-ed by economist Joseph Stiglitz from 2003 that states such.

The myth of the war economy

War is widely thought to be linked to economic good times. The second world war is often said to have brought the world out of depression, and war has since enhanced its reputation as a spur to economic growth. Some even suggest that capitalism needs wars, that without them, recession would always lurk on the horizon.

Today, we know that this is nonsense. The 1990s boom showed that peace is economically far better than war. The Gulf war of 1991 demonstrated that wars can actually be bad for an economy. That conflict contributed mightily to the onset of the recession of 1991 (which was probably the key factor in denying the first President Bush re-election in 1992).

The current situation is far more akin to the Gulf war than to wars that may have contributed to economic growth. Indeed, the economic effects of a second war against Iraq would probably be far more adverse. The second world war called for total mobilisation, requiring a country's total resources, and that is what wiped out unemployment. Total war means total employment.

By contrast, the direct costs of a military attack on Saddam Hussein's regime will be minuscule in terms of total US spending. Most analysts put the total costs of the war at less than 0.1% of GDP, the highest at 0.2% of GDP. Much of that, moreover, includes the usage of munitions that already exist, implying that little or no stimulus will be provided to today's economy.

Bush's (admittedly wavering) commitment to fiscal prudence means that much, perhaps most, of the war costs will be offset by cuts elsewhere. Investments in education, health, research, and the environment will almost inevitably be crowded out. Accordingly, war will be unambiguously bad in terms of what really counts: ordinary people's standard of living.

America will thus be poorer, both now and in the future. Obviously, if this military adventure were necessary to maintain security as its advocates claim - and if it were to prove as successful as its boosters hope - then the cost might be worth it. But that is another matter. I want to debunk the idea that it is possible both to achieve the war's ends and benefit the economy.

More at link: http://www.guardian.co.uk/politics/2003/jan/22/iraq.economy

Five years later I have to say I agree even more now than I did when I read this the first time.

[sarcasmo]

75. Looks like the Democrats are going to win, throw out that Depression word a little sooner than I

Expected.

[cottonseed]

77. Fannie and Freddie are allready slopping up mortgages.

Let's see, we're on the hook for deposit insurance, pension insurance, municipalities... what else.. i'm guessing university trusts, corporations "too big to fail"... you name it..