John Kemp has a great take on the the debt disaster facing the
US and UK and the rest of the world.

To understand the scale of the problem, and
why it leaves so few options for
policymakers, take a look at Chart 1
which shows the growth in the real economy
(measured by nominal GDP) and the financial
sector (measured by total credit market
instruments outstanding) since 1952.

In 1952, the United States was emerging from
the Second World War and the conflict in
Korea with a strong economy, and fairly low
debt, split between a relatively large
government debt (amounting to 68 percent of
GDP) and a relatively small private sector
one (just 60 percent of GDP).

Over the next 23 years, the volume of debt
increased, but the rise was broadly in line
with growth in the rest of the economy, so
the overall ratio of total debts to GDP
changed little, from 128 percent in 1952 to
155 percent in 1975.

The only real change was in the composition.
Private debts increased (7.8 times) more
rapidly than public ones (1.5 times). As a
result, there was a marked shift in the debt
stock from public debt (just 37 percent of
GDP in 1975) towards private sector
obligations (117 percent). But this was not
unusual. It should be seen as a return to
more normal patterns of debt issuance after
the wartime period in which the government
commandeered resources for the war effort
and rationed borrowing by the private
sector.

From the 1970s onward, however, the economy
has undergone two profound structural
shifts. First, the economy as a whole has
become much more indebted. Output rose eight
times between 1975 and 2007. But the total
volume of debt rose a staggering 20 times,
more than twice as fast. The total
debt-to-GDP ratio surged from 155 percent to
355 percent.

Second, almost all this extra debt has come
from the private sector. Take a look at
Chart 2.Despite acres of newsprint devoted to
the federal budget deficit over the last thirty
years, public debt at all levels has risen
only 11.5 times since 1975. This is slightly
faster than the eight-fold increase in
nominal GDP over the same period, but
government debt has still only risen from 37
percent of GDP to 52 percent.

I remember when certain American corporations
decided not to compete in the market place and
can pinpoint the era on these charts. But I cannot
in all honesty blame just the management or
the stock holders for the decline in American
products. The designers and engineers share a
good part as well. Instead of being competitive with
the rest of the world, corporate America chose to
"take the money and run" or produce cheesier and
cheesier products giving consumers the choice
between junk make here or made in Japan.

Then outsourced the junk all together while paying
their workers less and less.

At the same time the carrot of easy credit was waved
in the faces of these self same consumers. Now the
bill has come due and everyone is tapped out.

As has been stated here and elsewhere, the
nationalization of the financial institutions will have to
come to pass and as is stated here..

The solution must be some combination of
policies to reduce the level of debt or
raise nominal GDP. The simplest way to
reduce debt is through bankruptcy, in which
some or all of debts are deemed
unrecoverable and are simply extinguished,
ceasing to exist.

Bankruptcy would ensure the cost of
resolving the debt crisis falls where it
belongs. Investor portfolios and pension
funds would take a severe but one-time hit.
Healthy businesses would survive, minus the
encumbrance of debt.

But widespread bankruptcies are probably
socially and politically unacceptable. The
alternative is some mechanism for
refinancing debt on terms which are more
favorable to borrowers (replacing short term
debt at higher rates with longer-dated paper
at lower ones).

Unfortunately raising the GDP will require the changing
of corporate attitudes and get away from this monetary
ends justify the means way of doing business that has
been the center of American capitalism for far too long.

C

I'm trying to figure out why this is news to anyone. It has been
my belief that all used car sales are Ponzi schemes.

U.S. regulators sued a used-car
salesman from West Texas for touting a
$45 million hedge fund that they said
was actually a Ponzi scheme.

Rod Cameron Stringer misappropriated
millions of dollars from investors
since 2001, the Securities and Exchange
Commission said in a federal lawsuit
filed in Lubbock, Texas. The resident
of Lamesa, 60 miles south of Lubbock,
said he generated annual profits as
high as 61 percent, according to the
suit.

One would think that a used car salesman would be good
enough at this not to get caught.

C

It would seem that the two people who tried to make their
milk appear better than it was are going to be dealt with
rather harshly.

Two men have been given the death
penalty for their involvement in China's
contaminated milk scandal.

The former boss of the Sanlu dairy at
the centre of the scandal was given life
imprisonment.

They were among several sentences handed
down by the court in northern China,
where Sanlu is based.

The scandal, in which melamine was added
to raw milk to make it appear higher in
protein, led to the deaths of six babies
and made some 300,000 ill.

It led to product recalls across the
globe, and further damaged China's
reputation for producing safe and
reliable products, the BBC's Quentin
Sommerville in Beijing says.

At home, the scandal left parents
terrified and caused outrage across the
country, coming only four years after an
earlier milk powder scandal which left
13 babies dead, he adds.

Not sure if their punishment is appropriate but you have
to admit it is effective. Sometimes I feel that the way we
here in this country deal with such people is a bit too
lenient. And the ideal of hauling their respective rear ends
out of the fire to be the hight of cynicism.

C

Well it seems that mass transit gets the shaft.

A summary of the proposal released
today said it would provide $90
billion for infrastructure projects,
including $30 billion for highway
construction and $10 billion for
transit and rail projects. It would
spend $43 billion on unemployment
and job-training programs, including
a $25-per-week increase in jobless
benefits.

Well I guess that figures. I mean how can you look at
rescuing Detroit and build roads and still justify the
funding of mass transit too. Even though cars guzzle
petroleum and roads require asphalt which also comes
from oil. Where as trains just need electricity that can
come from various sources.

So obviously cars and roads trump mass transit.

(Sarcasm off)

C

 
 

Well looks like the "Stimulus" is going to include the
same tired out crap. Tests and regurgitation.

But tucked into the text of the proposal's
328 pages are a few surprises: If they
want the money - and they certainly do -
schools must spend at least a portion of
it on a few of education advocates'
long-sought dreams. In particular, they
must develop:

* High-quality educational tests.

* Ways to recruit and retain top teachers
in hard-to-staff schools.

* Longitudinal data systems that let
schools track long-term progress.

"The new administration does not want to
lose a year on the progress because of the
downturn in the economy," says Rep. George
Miller, D-Calif., who chairs the House
Education Committee. "So I think these are
all things that are clearly doable."

Testing, a key part of the No Child law,
has gotten short shrift from most states,
says Thomas Toch of Education Sector, a
Washington, D.C., think tank.

God save us from think tanks. Testing is not the solution, it's
part of the problem. All we are generating is a bunch of brain
dead, test passing zombies. Kids today are not unintelligent,
they're bored out of the minds by the drivel they are forced to
memorize. What is needed is an atmosphere that encourages
expression and creativity. That allows free thought and it's
expression. That teaches people how to learn. Kids are smart.
I know, enough of them try hacking into our machines. If give
the change most young people can and do excel at something.

We need teachers who are good at teaching, not just getting
their students to pass tests. Teaching is hard work and requires
not just intelligence but wisdom and patience. The ability to
inspire and encourage. And such people will not enter teaching
if they are not payed accordingly.

Don;t skimp on the basics but make them relevant.  The young
people I have know who have opted out of school did so not
because they could not hack it, but because they found it to be
as interesting and enlightening and relevant as an old rerun of
My Mother the Car.

C
 

FDR's Grandson thinks so. I'm not so sure.

"FDR never did get the Keynsian
thing, and therefore the whole
New Deal effort was not big
enough," said Roosevelt, 70. "I
mean, it didn't get us out of
the Depression, really, until
World War II came along, and
then government spending really
got big enough to really employ
everybody and then some."

"I think Obama has to learn from
that and forget about balancing
the budget," Roosevelt said.
"Spend, spend, spend until we've
done enough to stop this
decline.

"So if I could talk with him I
would say go for broke," he
said. "Literally, go for broke."

He seems to forget a few things. First of all WWII
had nearly all the men from the age of 18 to in their
40s in the armed forces. Secondly nearly everything
in this country went to the war effort. There is no
way this country could have put that many people
back to work in a piece time environment.
Thirdly the rest of the world was in a depression as
well. There simply would not have been many, it any,
countries to export our products to.

One of things that brought on the depression of the
30s was simply people were not buying things. Despite
what Wall Street thought was going on, the economy
was already slowing down well before the market tanked.
There were also farm failures do to the drought and dust
bowl.  The 29 crash was not the beginning, it was the
coup de grace.

The problem is not one of money, as such. But one of
attitude. Where quarterly profits are more important that
innovation and product. The "get rich quick" scheme.
This not something you can fix by throwing money at it.
What is needed is a long term investment in research
and innovation aimed more toward smaller businesses
and private experimentation. Most of the best ideas
of the last 100 years came not from corporations,
they are to interested in the bottom line. But from
individuals and small groups that could take an idea
and run with it without all the bureaucratic paper work
most corporations require.

Throwing voluminous amounts of cash at ailing big
business and expecting to get something in return
is worse than naive.

Yes invest in education, infrastructure, health and the like.
But don't throw money down some corporate rat hole. They'll
just take it and run just like the banks did. 

C