Geithner The Stooge


From an interview in the WSJ and my random thoughts thereupon….

The challenge we face in Washington is to decide how to provide more support for demand that’s going to be good not just for short term growth but long term growth. Our view is that shifting the mix to incentives for business, incentives for investment, is better than the feasible alternatives. We’ve had some experience with short term incentives, that pulled forward spending on housing and automobiles. These helped spark recovery but are not what is needed for the long term.

No they didn’t.  You pulled forward demand (again) which is what we have done repeatedly since the 2000 Tech Wreck.  There’s been no intelligence displayed here – it didn’t work in 2000, it didn’t work in 2003, and it didn’t work this time. 

Home buyers waving Obama “freebies” kept demand going for a while, but the snapback has decimated sales.  Now that this has expired we’ve seen monthly sales reports where fully half or more of the sales are foreclosures and other distressed situations (short sales, etc.)  The original plan was idiotic – it didn’t stimulate organic demand, it instead pulled forward people into homes at prices that were still well above affordable levels, and will simply spark another round of foreclosures in a year or two.

When it comes to automobiles it’s even more stupid.  “Cash for Clunkers” did indeed result in the sale of plenty of cars.  But last month was the worst August since statistics began being kept.  Worse, the program crushed and therefore destroyed virtually all of the lower-priced used cars that people of lower economic means rely on in order to get to work.  I’ve been there – many years ago I bought the literal $500 car (an AMC Pacer) with which to get to my job every day.  Without it I would have been on the street as my job was 15 miles from my apartment, and I could simply not afford a car loan.  Cash for clunkers ruined people in that situation and was nothing more or less than a sop to union labor at the expense of those in society who had more-limited means.

We just don’t think it would be responsible for this country, given the size of our future deficits, and given the substantial burden the middle class has been bearing over the past decade in particular, to go out and borrow $700 billion from our children so we can sustain those Bush tax cuts that only go to the wealthiest 2% of Americans

That’s fine.  The problem you’re going to run into is that tax policy influences behavior.  There were several years where I simply bought municipal bonds and lived on the tax-free interest.  That’s perfectly legal for me – or anyone else who would be hit by these “wealthiest Americans tax” – to do. 

Believe me, it was nice sending in a zero-balance 1040.  It’s not that hard either, and in muni interest it’s perfectly legal.  Anyone with a million dollars can live in a reasonable fashion in retirement in this way.  No, you won’t be rich like a king, but you will be tax-free – entirely tax-free – at the federal level.  Giving the finger to the government is not only entirely possible, it is something I’ve done before, and am likely to do again if my personal threshold for the money I earn is exceeded by the amount you propose to tax.

Works for me Turbo.

There are some Republicans who think you should never have to pay for tax cuts. Their view is that it’s better to make those permanent for the high end. We had a 10-year experiment in doing that. It did not prove very effective at stimulating growth or job creation or income growth for average Americans, and it was incredible expensive. It added a huge amount to our long-term deficits.

Actually, the problem with Bush – and you – in that regard is in so-called “Free Trade.”  It is nothing of the sort.  You and your predecessor have allowed wage and environment arbitrage to eviscerate the working class in this country.  The fix is found in Tariffs, but you won’t do that because your Chinese masters demand their blowjobs, and you’re all too happy to oblige on your knees.  You know that if you stop they stop funding your $1.5 trillion deficits, and that means instant “kaboom” for your plans.

So instead you screw Americans, and then play the class warfare game.  Again, that’s fine.  Americans of means can legally erect the middle finger in your direction, and those without means will lose their jobs. 

Speaking of jobs, here’s the real problem you’re unable to deal with via these policies:

The only way to address this is to bring the jobs back home.  This means you have to cut off wage and environment arbitrage.  There is no other alternative, but you won’t do it.  We never got the jobs back after the 2000 Tech Wreck and we won’t get ’em back this time either.  But without fixing that graph you can’t possibly fund your federal programs. 

You’re trapped Turbo – and you know it.

Are you satisfied with China’s progress on the yuan?
Of course not. China took the very important step in June of signaling that they’re going to let the exchange rate start to reflect market forces. But they’ve done very, very little, they’ve let it move very, very little in the interim. It’s very important to us, and I think it’s important to China, I think they recognize this, that you need to let it move up over a sustained period of time.

China isn’t going to do crap until they’re forced.  They’re a mercantile command economy.  That’s a fact, and nothing you can do will change it.  You can only deal with it – or refuse to.

So far you’ve refused, despite all the campaign rhetoric before President Obama was elected.  Congress is similarly small-balled when it comes to this issue, as the big multinational corporations that import all the plastic crap we consume in this country are absolutely dependent on that cheap labor to support their alleged “profits” and thus your much-vaunted “stock market” prices.

Cutting off the ability to enslave people in what amount to labor camps and spew poison-laced air and water means that those constituencies get very pissed at the Administration.  It also means much lower stock prices, as costs will go up and thus margins will go down, and that translates into P/E compression.  This is very bad for your mantra that the DOW must rise.

But the DOW won’t give people jobs.  Only work does that.  And only reasonable-paying jobs producing goods can support a middle-class in our economy – a sound middle class.

We had it in the 1950s and 60s, but after the oil shocks of the 70s it started to migrate over to China and India.  Now our manufacturing base has been eviscerated.  We don’t produce computers or televisions in the United States any more.  We don’t run fab lines in the US to produce microprocessors and other components for our computers either.  Increasingly, we don’t even do our accounting in the United States or our customer service, instead offshoring that to sweatshops in India at a fraction of the labor expense here.

We cannot have a solid middle class in this country comprised of people who flip burgers and pull espressos at Starbucks, but that’s all that will soon be left here in the US.

You needed to designate China as a currency manipulator on the day you were sworn in, but you didn’t and you won’t do it now, even though there’s no argument available to you on the facts for avoiding doing so.

Bluntly, you’re once again dodging the issue, because despite the populist rhetoric the only people you give a damn about are the bankers and the “captains of industry” – all of whom are interested in only one thing – maximizing profit.  So long as that can be done with slave labor and pumping environmental poisons into the air and water in China, it will be, and Americans will not find meaningful employment.

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