Stop Me Before I Vote Again

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Larry Summers has banged the drum and shaken the rattles -- the Starving season cometh swift upon us: "The odds now favour a US recession!" He speaks in charcoal gray of course, but the content is unmistakable: it will "slow growth significantly on a global basis."

Now you all prolly agree with me that this Crisco-faced prick with eyes as sharp as diamonds carries behind that face a brain as close as one gets these days to a thinker in chief, a maker of medicine memes within "the plain folks' party". He's "our doc macro" for such as follow the lead of the Clintons and Obamas and Edwardses and so on. So when he sees a real good shot at a bluesy future for "the rest of this decade and beyond" -- well, it ain't, er, hopeful. Example, Homer family-wise: "Nationwide, house prices could fall from their previous peaks by as much as 25 per cent over the next several years." Ugga-bugga!

Now Larry has his remedy ready of course. I'ts got plenty of angelic detail, no doubt, but here's the short version: "Feed the credit hogs, feed 'em good, feed 'em fast and furious, give the fat fuckers all the Uncle sucker support they want" -- but make sure you wear a sober censorious sceptical expression while you do so:

"We do not have comparable experiences on which to base predictions about what this will mean for the overall economy, but it is hard to believe declines of anything like this magnitude will not lead to a dramatic slowing in the consumer spending that has driven the economy in recent years....it is now clear that only a small part of the financial distress that must be worked through has yet been faced.... These figures take no account of the likelihood that losses will spread to the credit card, auto and commercial property sectors. Nor do they recognise the large volume of financial instruments that depend for their high ratings on guarantees provided by credit insurers whose own health is now very much in doubt.... [T]he capacity of the financial system to provide credit in support of new investment on the scale necessary to maintain economic expansion is in increasing doubt. ..The extent of the flight to quality and its expected persistence was powerfully demonstrated last week...."

(By the way, "flight to quality" means flight to sterile rentier wealth storage -- i.e. capital class hoarding.)

Sum up of the action ahead:

"Banks and other financial intermediaries will inevitably curtail new lending as they are hit by a perfect storm of declining capital due to mark-to-market losses, involuntary balance sheet expansion as various backstop facilities are called, and greatly reduced confidence in the creditworthiness of traditional borrowers as the economy turns downwards and asset prices fall."

"Then there are the potentially adverse effects on confidence of a sharply falling dollar, rising energy costs.... lower global growth as economic slowdown and a falling dollar cause the US no longer to fulfil its traditional role of importer of last resort."

Policy Rx? Well, at the outset, the proviso "All of this may not be enough to avert a recession" -- especially one that powerful interests prolly find healthful -- but beyond that, numero uno is, up the Wall Street bail to the max:

"In such an environment, economic policy needs to be governed by the clear and public recognition that restoring the normal functioning of the financial system and containing any damage its breakdown may do the real economy is the central macro-economic and financial challenge facing the US."

Now by the light of Keynes and humanity, we carry through best in times of trouble by "maintaining demand" -- but not in quite the classic Keynesian way, but by means of "cost of capital" reduction which

"means the Fed has to get ahead of the curve and recognise – as the market already has – that levels of the Fed Funds rate that were neutral when the financial system was working normally are quite contractionary today."

I.e.: cut the Fed funds rate, like Greenspaniel did to "counter" the last El-Contracto. And by jingo, if that's not enough, -- as it really wasn't last time, till households went on the usury-gunned buying binge that by its unsustainable effective demand increase set up today's little schmuck-outta-luck contretemps -- if that's not enough, we need to ready the real Keynesian elixir: more and deeper federal deficit finance. Or as Larry puts it, "As important as long-run deficit reduction is, if the situation worsens, [fiscal policy] can provide... immediate temporary stimulus through spending or tax benefits."

... and not to Republican favorites that won't spend it, but to "low- and middle-income families" who will .

Larry quickly gets to the crux: let's not punish the evildoers!

"The time for worrying about imprudent lending is past.... The priority now has to be maintaining the flow of credit."

To Homer and Blondie, . translation: send in Uncle's credit card. Or, as Larry puts it:

"There needs to be a comprehensive approach taken to maintaining demand in the housing market to the maximum extent possible. The government operating through the Federal Housing Administration, through Fannie Mae and Freddie Mac, or through some kind of direct lending, needs to assure that there is a continuing flow of reasonably priced loans to credit worthy home purchasers. At the same time there need to be templates established for the restructuring of mortgages to homeowners who cannot afford their resets, so every case does not have to be managed individually."

The pointy hat frown face now appears:

"The current main policy [Republican] thrust – the so-called 'super conduit', in which banks co-operate to take on the assets of troubled investment vehicles – has never been publicly explained in any detail by the US Treasury."

Read: a major rip is in progress.

"On the information available, the “super conduit” has worrying similarities with Japanese banking practices of the 1990s...."

... not to mention, closer to home, the S&L bail of the Bush I years.

"for lack of transparency, suppression of genuine market pricing of bad credits, and inhibiting effect on new lending."

I note Larry the porcine avenger is not willing to drop the axe here and call a wicked grand theft by its last name. Instead, the fudgey fuck wiggles off this loose-ender:

"Perhaps there is a strong case for [the super conduit] but that case has yet to be made.

"