MAKING CHANGE: BRING HOME THE BACON
Making CHANGE happen. We elected President Obama in Nov. We rallied for the economic stimulus and then for the budget resolutions. Now to finally bring home the bacon for our region we need to help our local governments and groups apply for grants. For example, this is how we get a summer jobs program.
GRANT WRITING WORKSHOP
Congresswoman Corrine Brown (D, FL, 2nd) is hosting a grant writing workshop this Wednesday, April 8, 2009 as a follow-on the the economic stimulus workshop held last week.
I am proud of our Obama's announcement today.
It is wonderful to see a smart, strong young man stepping up to the plate and doing what needs to be done. It is wonderful to see one of my "Change This!" Wish List items getting attended to. (see earlier blog "Change This!")
We have a lot of housecleaning to do - at least it's springtime and time for it anyway. I can't wait to watch this Failed Lead Executive Extirpation Program (FLEE, for short ;) become common practice as we go about our economic recovery. I look forward to courageous, honest and deserving players taking the place of a too-long-entrenched uncaring régime - good thing you have a lot of résumes to choose from.
My prayers are with you folks and, for what it's worth, I'm around for ya.
All My Relations, Gramma Willi
P.S. Bringing the Indian Tribes into the UN is a sheer stroke of genius. Mad props to everyone who is behind it! Suggestion - put some of those savvy Native Elders at the helm of some of these organizations.
Many claims of Democrats slipping in earmarks for frivolous projects aren't true. February 24, 2009, FactCheck.orgby Viveca Novak, Joe Miller, Lori Robertson, Jess Henig and D'Angelo Gore
Summary: Do some of the Republican claims you've heard about the stimulus bill sound too awful to be true? We find a few that are wildly exaggerated or downright false.
Our nation has begun implementing a nearly 800 billion dollar Economic Recovery Plan. This money is on top of the 750 billion dollar TARP, and as we frequently hear would cost over two trillion dollars in total if they were paid for by conventional issuance of treasury bonds. The stated goal of both programs is to head off economic collapse, raise the bottom of the downward trough of the business cycle, and restore the economy to a rational marketplace. Those goals for the economy are our hopes, but we hold back our faith in those hopes because we know that government is a notoriously inefficient spender, and we suspect that corrupt practices and special interests will divert the investment funds into foolish and pointless directions. Experience tells us this is true, so we would be foolish to place our faith in the latest economic theory, or our wise leadership in Washington, or the captains of industry. After all, it was pie in the sky economists, dogmatic politicians and greedy, irresponsible businessmen who put us into the situation we are in. We cannot seriously trust these guys to fix this mess, can we?
Placing our trust in mankind can only lead to disappointment; the Marxists already tried that. While I personally did not spend the wealth that was created for me in the housing bubble, that wealth is now gone, and I have nothing to show for it although I am also not in debt. I did hope we would eventually see a Dow 30,000, and placed my hopes and retirement funds in the stock market, and now much of that money is gone. I guess I can only conclude that I cannot place my hope in my own wisdom. Nevertheless, we live in a deterministic society that believes in the laws of science and nature. Perhaps it is time we stopped gaming the fundamentals of economics to project the disappearance of the business cycle and deal with what the fundamentals of the economy really are. If the wealth I theoretically had when my house was worth the most at the peak of the housing bubble was not real, then what is the worth of a dollar today? The worth of a dollar is the fundamental element that can explain how we can spend our way out of the current economic depression/recession, and the key to how we are going to pay for it.
Since 1973 the value of a dollar has been tied to our nation’s Gross National Product, or GNP. Before that, we were on the gold standard which meant that dollars were tied to the value of gold, or actually had something solid behind them. I was 12 when we went off the gold standard, so I really do not remember being on it, but I don’t see how that was really a big change. The value of gold was tied to how many goods and services could be purchased with it, so it strikes me that the dollar was still worth a percentage of our economic output or GNP. A dollar’s worth today can be described as the fraction 1 over the total number of dollars in the system, and the number of dollars in the system is equal to the value of the goods and services that our economy produces. To simplify this further, if there are 100 dollars in circulation and you have one of them, then you can buy 1% of our GNP with it. The worth of a dollar is determined by the number of dollars in circulation, and the value of the goods and services produced by our economy.
So what has happened to those two variables in the last year? First of all, the collapse of the housing and stock bubbles greatly reduced the number of dollars that were in circulation. Some of that money, like the value of my house and the retirement funds that I did not borrow against, was in unrealized gains, and so was not an actual part of the active money supply, or M1. Much of it, however, was borrowed against and so was in the active money supply. The disappearance of all of that money, in theory, should make the remaining dollars more valuable. In the previous example a dollar was worth 1/100 of the GNP, well if we are now down to 95 dollars in the economy, my dollar should buy more since it is now worth 1/95 of GNP. It is this contraction in the money supply that has made it difficult for banks to lend. The dollars that they had have disappeared!
Another problem that we face in determining the worth of a dollar is that GNP has also been falling. To use the 100 dollar economy as an example, if the money supply fell by 5 dollars, but GNP also fell by 5% then the dollar would still buy the same amount of goods and services. There would neither be inflation nor deflation, just a lot of miserable people who have largely been kicked out of the economy since they have neither a job, nor any assets that they can spend.
So, what is a dollar worth today as compared to last year? The unsettling thing is that we really do not know. We know that the economy is contracting, and we know that the money supply has contracted, and continues to contract. Beyond that, we can see that there is an insufficiency of money supply to allow “normal” borrowing to take place. This uncertainty is the root cause of the volatility in world markets, and no argument about “moral hazard” is going to bring certainty. Since our economic problems are now rooted in both the GNP and money supply, it follows that we need to increase both.
Politically, our two parties fall into camps that each address one or the other of these problems, although Republicans have recently started to advocate a hands off approach. Republicans want to stimulate the economy through tax cuts, which basically gives free dollars to the beneficiaries since no corresponding reduction in government services is planned. This is the same as “printing” money to increase the money supply.
The Economic Recovery Plan seeks to expand GNP by creating demand in the marketplace. Right now, the only entity with money to spend is our government since the contraction of GNP makes investment by businesses undesirable. By spending money on fixing roads or building buildings we create jobs that would not otherwise be there, and those workers can then spend that money at the coffee shop, grocery store, or Wal-Mart. So, one dollar invested by the government in that sort of spending hopefully produces many more dollars in spending by the private sector, which increases the GNP. In economics, this concept is called “velocity.” Remember velocity because we will get back to it later, but understand that the velocity of money spent in the economy is likely to be greater than that of money saved in a tax cut. Beyond that, you have to have a job to get a tax cut.
Let us assume for a moment that the government, using either or both approaches, essentially prints the money to pay for this stimulus, since I have no idea who has the money to lend it to us. If every dollar we “print” creates two or three dollars in economic stimulus, then we actually raise our GNP numbers by more than we do our money supply, and a dollar actually gains in value! If we take the 100 dollar money supply, and “print” 10 more dollars, the economy would have to grow by 10% to keep the buying power of that dollar constant. If GNP grows by 20% on a 10% growth in money supply, the dollar is worth more! Now, this sounds like “pie in the sky” type economics!
The reason that this type of approach can be used now is two fold: we have a contracted money supply, and we have a contracting economy. If this approach were used in near full employment economic times, the money that the government spent would actually compete with the money the private sector had to spend and we would not see growth in GNP but would see growth in money supply. That would lead to inflation. Money supply increasing while the economy is stagnant or continues contracting will lead to the type of run away inflation that Germany experienced before the rise of Hitler. The key to a noninflationary increase in money supply is expansion of GNP, and that cannot happen if we are truly at full employment. (It can happen in full employment if worker productivity is increasing, but that is another subject.) The keys here are that we are not at full employment, and the money supply has definitely contracted. The difference between the contraction in money supply and the contraction in our economy is the amount of money we can literally print. We are in a window before the economy has contracted too much. We still have an opportunity to spend, but if the economy collapses, that opportunity will be gone. That is why we must act now!
So, we can print noninflationary money now, but will we ever have to pay the piper? Of course we will. Eventually it is hoped that the economy will recover and grow under its own momentum. At that time, the Fed will lose a lot of control over the money supply as stocks recover and housing values potentially begin to recover. At that time the economy will be “printing” its own money through velocity. (I told you we would get back to it.) When velocity increases the government must decrease money supply or new bubbles, like the ones that did us in this time, will occur. Essentially there are three ways that the government can do this:
1) Reduce spending. Fortunately, the new money created in the ERP has time constraints. Both the tax cuts and the projects will expire. While this does not actually take money out of the money supply, it at least stops pumping more money into it. Further cuts will probably be desirable, but I doubt politicians have the courage to make them.
2) Raise Taxes. If I doubt politicians have the courage to cut spending, I know they do not have the courage to raise taxes. Nevertheless, raising taxes to pay off our debts would reduce the money supply and counter the final option.
3) Inflation. This is the cruelest tax of all, and will eventually lead to another economic down turn. If velocity increases while economic output stays constant, money supply increases while GNP stays the same. A dollar will no longer buy as many goods as it did before the money supply increased. The Fed can counteract this by raising interest rates, but in essence that amounts to the same thing as inflation.
In the final analysis, some spending will expire, some taxes will be raised as tax cuts expire, and some inflation will inevitably occur. The mix of those paybacks will largely be determined by the economic policies we follow at that time.
Does this mean that we are placing our hope in politicians that we have not even elected yet? I guess that it does, and that is not a place I want to place my hopes for a fulfilling life. Nor do I want to trust the latest fad to come out of economic academia, and I have already said that I demonstrated a poor ability to perceive economic reality before this crash happened, so I am not a good place to deposit my own hopes. There must be something greater in which we can entrust our hopes. Maybe if we make wealth a means rather than an end we can escape the trap of measuring our lives against the economy. Forget about what a dollar is worth, what are you worth, and to whom? If we begin the search for those answers, maybe we will resist buying houses that we cannot afford and bidding up the prices of stocks. Both Karl Marx and Adam Smith agreed that the economy would function better if there were better people in it; Smith, however, unlike Marx, did not put forth a plan to accomplish that goal, since he already knew that one existed.
I'm looking for good news around the Bay. If you find some, please Comment and link. - Thanks; Leo
Creative Entrepreneurship in a DownturnHarvard Business Review, February 23, 2009by Martha LagaceEntrepreneurs, take heart. True, the global economic malaise removes opportunities and precious resources—but also adds them in new and interesting ways, argues HBS senior lecturer Bhaskar Chakravorti. In this Q&A he identifies reasons for optimism, and shows how entrepreneurs can think differently about bad news. Key concepts include:
Obama's plan to stem foreclosures is key to economic recoveryContra Costa TimesPosted: 02/22/2009 12:01:00 AM PST
THE OBAMA administration has launched a promising $275 billion effort to substantially slow down the rate of housing foreclosures. It is designed to keep more families in their homes by helping them and lenders with restructured mortgages and to stem the decline in housing prices
President Barack Obama correctly emphasized that using taxpayer money to stem foreclosures is not just in the interest of those who are struggling and failing to make mortgage payments.
The massive number of foreclosures and plummeting real estate values affects everyone. It is the folding of the housing market that is at the root of the current economic crisis and what makes this recession different from previous ones.
Housing plan must help the undeservingSunday, February 22, 2009, San Francisco Chronicle
President Obama's new housing plan is as elegant a solution as we're going to see to end the foreclosure crisis. That doesn't mean it's perfect.
It will help some people who don't "deserve" to be helped, just as the bank bailouts have helped Wall Street executives - none of whom deserved to be helped. But no effective solution to the economic crisis facing this country is going to feel fair to the vast majority of Americans who played by the rules. What would be even less fair would be for Americans to refuse to support this quite good solution out of spite. Stopping the cycle of foreclosures is the only thing that will slow our country's downward economic spiral.
Some residents see opportunity as gold spikes upBy Jondi Gumz, Santa Cruz SentinelPosted: 02/21/2009 01:30:26 AM PST
Some were curious, some were downsizing and some had bills to pay.
That's why they brought gold rings, lockets and necklaces to the Capitola Mall Friday to be evaluated by Gold Buyers. The company, based in Appleton, Wis., visits malls across the country offering to turn gold into cash.
As the line formed a few minutes before 10 a.m., the spot price for gold topped $1,000 an ounce in New York trading before dropping back. Analysts said investors sought a safe haven from a wild ride in the global markets.
Funding for Sacramento region road rehabilitation authorizedBy Bill Lindelof, Sacramento BeePublished: Friday, Feb. 20, 2009 - 8:23 am
Even before the federal stimulus money is in hand, the transportation board responsible for funding projects in the Sacramento region has authorized $32 million for road rehabilitation.
The Sacramento Area Council of Governments authorized release of the money Thursday for projects in Sacramento, Sutter, Yolo and Yuba counties. Transportation funds from the Economic Recovery Act first pass through the state Department of Transportation with a portion based on a formula going to SACOG.
Will Obama's mortgage plan help Silicon Valley homeowners?By Pete Carey and Sue McAllister, Mercury NewsPosted: 02/19/2009 12:25:46 AM PST
The Obama administration unveiled a three-pronged plan to stop the nationwide slide in real estate values, saying it offers potential relief for struggling homeowners and a possible shot in the arm for an ailing economy.
The package could help up to 9 million homeowners, many of whom could face foreclosure, the administration said.
But it's unclear how many in Silicon Valley will benefit since so many homeowners have big mortgages that may not qualify for one of the programs announced Wednesday.
Overall, the plan was greeted warmly by the housing industry and economists, who said it provides a way for homeowners to reduce their loan payments while helping ease the gridlock in the nation's home lending sector.
Foreclosure wave, stocks' slide sink Silicon Valley home pricesBy Sue McAllister, Mercury NewsPosted: 02/19/2009 10:50:21 AM PST
Bargain-minded buyers snapped up deals on foreclosed properties in Santa Clara County in January, even as some high-priced Silicon Valley cities saw a record-low number of sales during the same period.
The number of homes sold in the county rose by more than one-third last month compared with January 2008. But with home values still generally sliding and foreclosure properties accounting for about half of all sales, the median price fell precipitously from last year.
The median price of resale, single-family homes sold last month in the county was $420,000, down 39 percent from January 2008 and down 8 percent from December 2008, according to a report MDA DataQuick released Thursday. The last time the county's median price was lower was in February 2000, when the figure was $417,500. The median price of condos sold in January was $262,000, down 43 percent from a year earlier, and 13 percent from December.
Obama's mortgage relief not designed for high-cost areas February 19, by Broderick Perkins, Examiner
Struggling homeowners in California and other high-cost housing markets will benefit less from the Obama administration's "Homeowner Affordability and Stability Plan (HASP)" than those in lower-cost housing markets.
The $275 Billion Plan, with a planned March 4 rollout, includes a refinancing program for "responsible" borrowers who haven't missed payments and whose loans are larger than the value of their homes, and a loan modification provision with incentives for lenders to modify certain mortgages.
Many Californians and others in high cost areas may not see much immediate relief but federal aid earmarked for those areas could follow.
Questions and answers about Obama's plan to avert foreclosuresBy the Mercury NewsPosted: 02/18/2009 09:00:00 PM PST
Who will be helped? Those who may be at risk of foreclosure as well as some homeowners who are "underwater" on their loans.
What are the broad outlines of the plan? A refinancing option for those who are making payments but are paying high interest rates and would otherwise not be able to refinance, either because they do not have enough equity or because their houses are worth less than they borrowed.
Groups back remedy for Silicon Valley downturnSan Jose Business JournalTuesday, February 17, 2009
More green energy development and better job training are being called for in a report that details the sudden drop in the Silicon Valley economy last fall.
The annual Silicon Valley Index from Joint Venture: Silicon Valley Network and the Silicon Valley Community Foundation show a region that abruptly shifted from its long recovery from the tech bust at the turn of the century.
The report compiles many previously released statistics from 2008 that show three quarters of growth and a sudden downturn that began in the fourth quarter and continues this year.
In speaking with people about the president’s Economic Recovery Plan, a common question from both supporters and detractors is: “Has the government ever succeeded in something like this?” As a person with degrees in both Economics and History I can state confidently that there have been several times in recent history where something like the current plan has succeeded in reversing our country’s economic fortunes. Perhaps the one example that best illustrates the point is the post World War II example of the Servicemen’s Readjustment Act of 1944, or GI Bill.
As World War II was drawing to a close President Roosevelt and many of our nation’s leaders faced a daunting challenge: what will happen when more than 15 million soldiers, sailors, and airmen get laid off from their jobs at a time when demand for the industrial goods produced by war time industry collapses? The country had faced a similar crisis after World War I, and lack of action had led to the veterans’ “Bonus March” of 1932, and contributed to the depth of the Great Depression. Social upheaval and economic collapse were a very realistic fear!
Harry W Colmery, a former Republican National Committee chairman, was one of the earliest proponents of a government program to mitigate the effects of the war’s end on the economy. Warren Atherton of the American Legion greatly influenced the content of the bill, and Arizona Democratic Senator Ernest W McFarland guided the legislation through Congress. So, the bill had initial support by the minority party, was greatly influenced by a “special interest group,” and was championed by the majority party! The Economic Recovery Plan also enjoyed initial support from Republicans, but largely managed to escape special interest input because the speed in which it was passed, and ended up having to be passed by the Democrats with little support from the minority party.
The main parts of the bill were provisions for college or vocational training, and one year of unemployment benefits for returning service men. So, it invested in our future by creating a more educated and skilled work force while deferring many people’s entry into the work force, and provided immediate help to the unemployed. Subsequent legislation, after the war including the Employment Act of 1946, and various programs aimed at making home ownership a practical goal for most families also had a stimulative economic effect. The Marshall Plan, with its buy American provisions did as much to bolster our economy as it did to rebuild Europe.
While our challenges after World War II were brought on by different circumstances, they were similar to the problems we face today: industry that needs to be retooled, a collapse of world wide demand caused by the inability of consumers to pay, a surge of suddenly unemployed workers, all of which is happening after years of deficit spending by the federal government. The actions that the United States took spurred demand across our economy by directing government spending into programs that created long lasting value for our nation. The Economic Recovery Plan has exactly the same goal.
Our country’s reaction to the economic challenge that it faced after World War II was hugely successful and can largely be credited with creating the middle class that became, and remains, the main economic driver in the U.S. economy. Our country eventually had to stop deficit spending, and bring forth a balanced budget when the economy got to a stable point, but it can be said that government fiscal (spending) policy has a long and mostly successful history as a tool for dealing with economic hardship. President Obama’s Economic Recovery Plan, like the GI Bill, is aimed at solving a problem BEFORE it gets out of hand. History says that it can work, and it is worthy of our enthusiastic support.
Alternate caption: "Well according to this list, there's supposed to be only twelve of you and, um, no girls."
Photo Source: White House photo 2/10/09 by Pete Souza.
From http://www.whitehouse.gov/photogallery/The-story-of-the-economic-recovery-package/
FORECASTER OF THE MONTH
Economy needs help urgently, top forecasters say
By Rex Nutting, MarketWatch
http://www.marketwatch.com/news/story/Economy-needs-help-urgently-top/story.aspx?guid=%7bA2887F22-E41D-452D-9106-9FC1F57F6611%7d&print=true&dist=printMidSection
Feb. 9, 2009
WASHINGTON (MarketWatch) -- Congress and the Federal Reserve should act with more urgency to help the economy, say top economic forecasters at IHS Global Insight.
Even with the expected approval of the economic stimulus plan and a new program at the Fed to fix consumer credit markets, the nation will likely endure at least several more quarters of economic misery, said Nigel Gault and Brian Bethune, domestic economists for Global Insight, who won the January forecaster of the month award from MarketWatch.
Gault and Bethune now have won three of the past four monthly contests, an unprecedented stretch of forecasting fortune in the five years we've been running the contest to honor those forecasters who do the best job of anticipating the monthly economic numbers that move markets.
Gault said the U.S. economy desperately needs the fiscal stimulus now being debated in Congress. "It doesn't fix the fundamental problems, but it prevents things from getting worse while we take care of the other problems."
"It's big and it's going to make a difference, I just wish it were happening sooner," Gault said. "We could be in a much deeper hole by the time the stimulus kicks in."
"We need aggressive monetary policy and aggressive fiscal policy," Bethune agreed. Bethune, who focuses on the financial side of the economy, says the Fed has dragged its feet on two promising programs that would provide support for mortgage lending and other consumer loans. The Fed's Term Asset-Backed Securities Loan Facility (or TALF) will finally get under way later this month.
Gault doesn't buy the argument that the economy would be better off without the stimulus plan, that what's needed is some "cathartic bloodletting," that we "need to take our lumps."
"The Great Depression tells what happens if you try to let the private economy sort it out," Gault said. "The private economy can get stuck at an abnormally low level of activity."
The economy is falling so fast now, that the economy will have plenty of slack for a long time. The unemployment rate won't fall back to a normal level for years, Gault said. That's an incredible waste of human potential. There's almost no chance that the stimulus will work too well.
IHS Global Insight is forecasting the economy will contract at a 6% annual pace in the current quarter, followed by a 3.4% annualized decline in the second quarter. Growth should be flat in the third quarter and grow at a 1.7% annualized rate in the fourth quarter. Those figures assume a vigorous response by the Congress and the Fed.
Government spending is needed to fill the gap left by businesses and households, which are hoarding as much cash as they can. When everyone saves, it reduces economic activity so much that you end up with less savings than before, Gault said.
"The private sector is acting in its own self-interest," Bethune said. "But they neglect to see what they are doing collectively."
Getting credit flowing again is as essential as the stimulus is.
"Banks are in a very difficult position," Bethune said. "Whenever you have depletion of capital, the natural reaction is to tighten credit. Securitization is contracting at an incredible rate."
Bethune figures banks need between $50 billion and $300 billion in capital. The Treasury plan to be announced on Tuesday should help. "That might be starting to push the sled downfield," Bethune said.
In the January contest, Gault and Bethune narrowly beat Stephen Stanley of RBS Greenwich Capital. The other runners-up in January were Brian Fabbri of BNP Paribas, the team of Maury Harris and Jim O'Sullivan of UBS, and Neal Soss's team at Credit Suisse.
The Global Insight team had the most accurate forecasts among 46 economists on three of the 10 indicators tracked in the contest: ISM, the trade gap and new home sales
The median forecasts that MarketWatch publishes each week in the Economic Calendar come from the forecasts of the 10 economists who've scored the highest in our contest over the past 12 months, as well as the forecasts of the most recent winner and the forecasts of MarketWatch chief economist Irwin Kellner.
Over the past 12 months, the top economists are, in order: Stanley of RBS Greenwich Capital; Harris and O'Sullivan of UBS; Gault and Bethune of Global Insight, Dean Maki and Ethan Harris's team at Barclays Capital; Michael Feroli at J.P. Morgan; Soss's team at Credit Suisse; Stephen Gallagher and Aneta Markowska of Societe Generale; David Greenlaw and Ted Wieseman of Morgan Stanley; Jan Hatzius's team at Goldman Sachs; and Michael Moran at Daiwa America Securities.
Rex Nutting is Washington bureau chief of MarketWatch.
I did just realize I forgot to mention a couple of things in my report, probably because I am not sure where they would have fit and I am not sure I remembered to note them during the meeting. One of the things we talked about and specifically that I like about this Bill is that it isn't just an Economic Stimulus Package with only the short term in mind. I had heard a valid complaint about the cost of this Bill; I am a little conservative when it comes to Federal Government spending. When this Bill is viewed in terms of only being an Economic Stimulus Bill compared to a proposal to say just cut taxes and maybe a tax rebate of some kind, then the cost of this Bill does seem preposterous. Some might even argue that the Bills attention to areas such as infrastructure, education, unemployment, health care, energy/environment and provisions for parts that will not show immediate or even short term results are special interest or private agendas. I think however that this is the strength of this plan.
