Save the Fed

By Capt. Fogg

Doomed to repeat history? Of course we are, but the fate I fear isn't the sort of doom that descends upon us from above unless you consider the cesspit of "Conservative" rhetoric to be a higher plane of thought. No, I'm not talking about the market bubble of the late 1920's that was brought about by slashing the top marginal tax rate or the deregulation of the markets that gave us the 1929 crash; I'm talking about where we were fourscore years ago in 1931 when the European banks began to fail and nobody was able or willing to do anything about it. Then as now, we had "Conservative" rhetoric attempting to blame the mess on the usual suspects, like lazy American workers and in Europe: the Jews. We had calls around the world for even more austerity, as if the world could save itself by saving money.

" Instead of easing monetary policy by cutting interest rates and buying bonds, the Fed tightened. The result was a catastrophic chain reaction of bank failures, which caused the money supply to contract by approximately a third, and economic output with it"

writes Niall Ferguson at the Daily Beast, lamenting the gross lack of knowledge of bankers, investors, fund managers, regulators, policymakers, and economists. Ferguson cites Milton Friedman and Anna Schwartz’s Monetary History of the United States, which argues that

"the stock-market panic of 1929 turned into a depression because of avoidable errors by the Fed. Instead of easing monetary policy by cutting interest rates and buying bonds, the Fed tightened. The result was a catastrophic chain reaction of bank failures, which caused the money supply to contract by approximately a third, and economic output with it."

The Gold Standard, the massive debt from The Great War, the partisan inability to compromise brought on the disaster we know as the Great Depression and only those countries that dropped that standard and began hiring while gearing up for war, began to recover. Germany led the way and the US followed.

With some Republican spokesmen demanding the return of the gold standard, demanding an end to the Fed, demanding more austerity, demanding that more capital be tied up in the hands of a tiny minority, the money supply diminished and the demand for goods and services curtailed, the few who understand what needs to be done are being shouted down by politicians who insist that the only solution is a bigger cut in the marginal rate, and the angry mob they feed.

"We are indeed fortunate that at least the world’s leading central bankers have studied this history: not only Ben Bernanke but also the heads of the Bank of England, the Bank of Canada, and the European Central Bank. The bad news is that so few politicians and voters understand what they are trying to do, or why. The even worse news is that central bankers by themselves may not be able to stop our depression from turning great."

Worse news even than that, is the fact that people like Dr. Ferguson, a professor of history at Harvard University, a senior research fellow at Oxford University, and a senior fellow at the Hoover Institution, Stanford University do not inform the Cains, Bachmanns, Palins or Gingrichs or the rabble who support them, nor would the public trust any "elitist" "Libtard" "pinhead" over the kind of small minded moral abomination now stumbling toward Washington.

(Cross posted from Human Voices)

Death and foxes

By Capt. Fogg

There's often some good to be found in our increasingly entropic economy -- like a pearl in a tainted oyster. I take comfort in the cosmic joke that is our mortal life; knowing that Rush Limbaugh and Dick Cheney and everyone at Fox News will go the way of Pol Pot, Nicolae Chaucescu, and Madman Muntz in due time. But even before all the chips are cashed, it's good to know that News Corp., Rupert Murdoch's media empire and the parent company of Fox, is down by the bow and taking on water -- nearly six and a half billion dollars worth of water, that is.

Blaming the grim economic situation, the obvious precursors of which the Fox fabricators have been denying for years whilst mocking the "Libs" for their warnings, Murdoch told the International Herald Tribune:

While we anticipated a weakening, the downturn is more severe and likely longer-lasting than previously thought.

Who could have foreseen that? Well I for one and other, better prognosticators heard only dimly through the angry roar of the Fox filibusterers. Remember when Fox claimed that the robust economy was being "talked down" by "the Liberal Media" and offered statistics showing the "proof" in the fact that there was more bad economic news than good?

We are implementing rigorous cost-cutting across all operations and reducing head count where appropriate.

And of course I have a list of candidates for decapitation, but before we get to feeling smug, the bad news in the good news in the bad news, is that amidst the general Murdoch meltdown, Fox News itself reported income of $428 million, which is up $91 million from the previous year. Fox News increased its operating income by 32 percent. Is this also a reflection of a desperate America's increased thirst for lies, damn lies and hysterical hatred? I'm sure that when the statisticians stop chewing on the news, we'll find that alcohol consumption has risen by a similar amount.

In any event, I'm sure that the global meltdown will some day fade into redacted and ill remembered history, but I'm not so sure about the United States of America as we know it. America is failing, Fox News is why.

Et evasi ego solus ut nuntiarem tibi.

(Cross posted from Human Voices.)

Sign of the Economic Apocalypse #1: Toyota in the red

By Michael J.W. Stickings

Well, it's time to kick off a new series here at The Reaction. As you may know, we already do Signs of the Apocalypse, (we're up to #61) mostly cultural indicators of imminent doom, but with the economy where it is, and worsening, it seems appropriate to turn our attention to the coming Economic Apocalypse. And not just in the U.S. This series will have a global reach. (Carl, our resident economics guru, been doing SOTEAs for some time, though he hasn't been calling them that.)

So... here we go...

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It ain't just the Big Three that are in trouble. According to The New York Times, Toyota, a far more successful automaker, is sinking into the red for the first time in seven decades:

TOKYO — Toyota Motor, the Japanese auto giant, said Monday that it expected its first operating loss in 70 years, underscoring how the economic crisis was spreading across the global auto industry.

On Monday, Toyota said it expected an operating loss in its auto operations of 150 billion yen, or $1.7 billion, for the fiscal year ending March 31. That would be the company’s first annual operating loss since 1938, a year after the company was founded, and a huge reversal from the 2.3 trillion yen, or $28 billion, in operating profit earned last year.

Analysts said Toyota’s downward revision, its second in two months, showed that the worst financial crisis since the Depression was threatening not just the Big Three but also even relatively healthy automakers in Japan, South Korea and Europe. Many other companies will also soon be reporting losses.

A friend and I were recently discussing whether, if looking for a new car, we'd consider buying an American one. (He drives a Japanese one, I drive a German one.) We both said no -- even though the quality of Big Three cars seems to be better now than in quite some time.

I drove a Chevy in high school and college, then had a Ford later on -- our family GM cars were great, while the Ford was mediocre -- so it's not like I have any sort of antipathy to American cars. But with all the other choices available, from VWs and Hondas to Volvos and Infinitis and Lexi and beyond, why go American? My friend and I may be behind the curve, assuming that American cars have in fact improved in quality, but our first instinct is to look elsewhere. And not just because of quality, but because of the Big Three's current, er, problems.

And yet here's Toyota, arguably one of the world's finest car companies -- I've never had one, but I have friends who do, and they love them -- losing money. Now, Toyota is clearly in a much stronger position than most of its rivals, including the Big Three:

Toyota said it still expected to report a small net profit, helped by interest and dividend income as well as tax-related savings of 50 billion yen, or $560 million.

With some $18.5 billion in cash, and relatively little debt, Toyota is still in far better shape to weather the downturn than General Motors and Chrysler, which on Friday received $17.4 billion in emergency loans from Washington.

Still, its loss signals a much deeper problem not just in the auto industry but, more broadly, throughout the global economy. If Toyota is struggling, after all, so must all the other car companies, and so must other manufacturers in other industries, and so must all of us consumers, who evidently aren't buying enough Toyotas. (And when you're having trouble paying your bills and putting food on the table, or when you've been laid off, or when you fear you may just be let go, your priority likely isn't a new car.)

Maybe we never should have been buying that many Toyotas in the first place, or maybe we shouldn't have been racking up massive amounts of debt, or maybe all these manufacturers, as undeniably successful as some of them have been, need to rethink their products and how they do business, and maybe we all need to adjust to the new reality, the new paradigm, whatever it may be, whatever it may entail, that lies ahead at the end of this meltdown, but, right now, the Economic Apocalypse seems to be at hand.