Tuesday, February 10, 2009

 

Deer In The Headlights?

OK, I'll cop to it: I am very uneasy with Timothy Geithner as Treasury Secretary. Every time I see a picture of him I think, "what is his problem?" And I don't mean tax cheating.

He always looks either guilty or scared shitless. Every time. He never shows any sense of "I'm here in my body, and I like myself". He's almost like the Obama's opposite; whereas the President was elected largely I think for his calm temperament -- he doesn't have that much of a record on which to run -- Geithner seems always to be ready to jump out of his skin. Or in the process of jumping right now!!!

Is writing about this unfair? Probably so; I know nothing about him other than what I read and see. But I just cannot visualize him filling J.P. Morgan's size 12's. He seems more like indecisive Henry Paulsen.

Everyone is very complementary of Secretary Geithner's intellect and far be it from me to say he should not be involved in the rescue planning. If everyone from both the right and left is impressed with his skills, he must certainly have them in abundance. But it doesn't mean he should lead the effort. A volatile personality may be just fine in a technocrat -- I'm sure my I/T managers would say I've got one -- but it is not appropriate for a person responsible for making the final decision on so important a task as is before the Treasury now.

Would the Senate have bounced Tom Daschle had he not withdrawn? Of course we cannot know. But I sure wish it had bounced Tim Geithner.

Thursday, February 05, 2009

 

Who's The Buyer? Who's The Seller?

"The rise in Treasury yields has been pushing mortgage rates higher, complicating efforts to revive the economy. The US Federal Reserve said last week it was “prepared to” buy Treasuries if that would be a “particularly effective” way of reducing private borrowing costs." (From the Financial Times article of February 4 "US Treasury in plans for record debt sale". Link: http://www.ft.com/cms/s/0/bdf4ee70-f2e4-11dd-abe6-0000779fd2ac.html. There is a fee for the FT, but you get three articles free every two weeks. )

"Gosh-a-moley paw, those guys at the Feder'l R'srve shure do have lots a money!" "They shure do, Opie".

Where do those boys get their money? Just eighteen months ago the Federal Reserve "Balance Sheet" showed accumulated assets of $850 billion. Today it's north of $3 trillion and counting fast!

Just now Billiard Ball Bernanke proposes to "buy" treasuries in order to drive down long period interest rates. If he is successful, mortgage rates -- which are typically the 10 year treasury rate plus ((900 minus your FICO) times two and a half then divided by 100) or thereabouts -- will fall. Now I grant that doing so will "strengthen" the Fed's balance sheet, because it's full of worthless trash right now. And treasuries are somewhat worthful trash. Ten percent is better than nothing.

But exactly how is B-cubed going to PAY for those treasuries? Is this the fabled "printing press" in action? And if so, how come no inflation?

Classical economics defines inflation as "more dollars chasing the same assets" which bids up the price (sound familiar, little house?) By definition the Feds have added over two trillion to the money pot in the past little while, but prices are falling! What's that about?

Well, it seems that the removal of the capital represented in Bear Stearns, Lehman Brothers, failed banks and the Wall Street wipeout has exceeded the "creation" of capital by the Fed. Hence fewer dollars are chasing the same assets: that's deflation.

Deflation is tough on an economy because people stop spending, waiting for prices to fall further. That has certainly been true for housing, stocks and commodities. So the generally agreed plan to stop further deflation is for government to run a big deficit while the public cobbles together new capital to restart investment. It may not work, but there is no other plausible plan on offer. Without someone being the "spender of last resort" the deflationary spiral will swirl downward until some man on a horse convinces people "I can fix it if you'll let me". Even the corporadoes don't want that because they might not be able to control such a person.

However, (ah, the caveat), there will come a time soon when the impossibility that the accumulated indebtedness of the nation will ever be discharged becomes glaringly obvious to anyone with money to lend. And the spigot will be turned o-f-f! At that point the next Treasury auction will fail, and the bonds which were to have been refunded by that auction will fall into default. The dollar will be worth a dime the next day. Now that's inflation!

Wednesday, February 04, 2009

 

Mea Culpa

Well, it seems that the President has admitted to some bad personnel decisions. I agree wholeheartedly and commend him for his honesty and willingness to take the heat. I'd like to address him directly:

Now, Sir, do you realize that the whole sickening stew of Washington "veterans" with few exceptions is marinated in icky slime? They may be hale-fellows-well-met but they've been swimming in sleaze too long. I'm very glad you took the opportunity to climb out of the cesspool before you drowned, too.

You advocate "Change we can believe in" and 53% of the people in the country were willing to take a chance on a relatively unknown you. Because "Change we can believe in" is exactly what they want to see. Tom (and Linda) Daschle are NOT change agents. Yes, yes, yes; ol' Tom's knowledge of health care issues is broad and deep, and his wife knows even more (mostly where the bodies are buried). But they're both bound hip and thigh to the health care giants who have made them rich. Good riddance.

Supposedly you are now considering former Senator Bradley for Secretary of HHS. He'd be a great choice, and you guys could shoot HOOPS together! Pretty cool to go up against an NBA Hall of Famer! One of the perks of the job that nobody can begrudge you.

But you seriously need to slap Rahm down and tell him, "Make nice with Howard, because I need him". Because you need him as your health care advisor. If there is anyone in the party less likely to succumb to the siren song blandishments of the Big Pharma/Big Insurance lobbyists (like Linda Daschle), it's Dr. Dean. Look Sir, the old ways have run their course. There are lots of good ideas that have been created by the health care insurance industry, and winding the companies down has to be done very carefully, because there are many people working for them. But wound down they must be. Nearly 1/5 of that 15% of GDP our care system consumes is profit for Big Pharma and Big Insurance. Three percent of the US GDP is a bundle of bucks. Obviously, we don't want to kill the goose that laid the golden pills, but I truly fail to see what value the carriers bring to the table.

They're sort of the ultimate bureaucracy; they exist for no other reason than to create an insurance pool for health care coverage, but they're not mutually owned by the insured. This puts them at permanent conflict with the people who they "serve", and this conflict can not be eliminated nor even significantly ameliorated. A single-payer system is essentially a gigantic mutual insurance pool, since taxpayers are very much the same group as the insured. Obviously the government can't pay for every Hollywood face-lift, but overall there will be less conflict in a single-payer system and therefore less gaming of the system. Though it's probably true that more healthcare will be provided, the overall cost is likely to rise less than it would have in an adversarial system, because there will be significantly less administrative cost.

We already have single-payer for people over 65, and it doesn't appear to most researchers that they are suffering a woeful inadequacy of care. At the very least establish a tax and mandatory premium funded catastrophic care system now, in order to get the transition to single-payer started.

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