skip to Main Content

Hot News: Navy SEALs stake out US building

I have received many requests to discuss this article – Restoring Fiscal Sanity in the United States: A Way Forward. Essentially, the article is a non-article but a sign-up page to access a speech of the same title by David M. Walker, former top public accountant in the US (Comptroller General) which apparently makes him qualified to speak about monetary systems. The speech is full of nonsense but it gave me some insights into what seems to be unfolding in the national capital over there in America. While I was at the airport today I heard some very sensational news – Navy SEALs stake out US building! Perhaps I am the first to blog about this development. Twitter universe – where are you?

The article mentioned in the introduction was written by the self-aggrandising and self-styled “analyst” John Mauldin who apparently has “friends” everywhere. He has added another friend to his list recently – one David Walker – the accountant who used to work for the US government but is now on the payroll of Peter G. Peterson and who appears to have lost his grip on reality. I guess that is why Mauldin has befriended him.

I last wrote about Mauldin and his newsletter in this blog – Watch out for spam!. My opinion hasn’t changed. Perhaps he is just more fanatical and self-promoting now as he sells his distored hysterical version of mainstream economics – to further his own financial worth.

I implore all sound-thinking readers of this blog not to sign up for Mauldin’s newsletter. You will become his “friend”. He is an idiot!

To see that, just think about this statement that he makes while imploring you to sign up to read further idiocy from Walker:

If we do not bring the deficit down below the growth rate of nominal GDP, we become Greece. We hit an economic wall and everything collapses. It will be a real and true Depression 2.0. Fixing this is the single most important topic and task of our generation. If we do not, worrying about P/E ratios, moving averages, long-term investments – anything else, in fact – is secondary. Solve this and we can go back to the usual issues

What the hell does bringing the deficit down below the growth rate of nominal GDP mean? A deficit is a flow of positive net spending between the government and the non-government sectors and is measured in the unit of currency of the relevant country. The unit of measurement in the US is $. So we might have a deficit of 10 billion US dollars or something.

Nominal GDP is the market value of all final goods and services produced in a particular period by a particular nation. It also is measured in the unit of currency of the relevant country (that is, in the case of the US – $US).

The growth rate of nominal GDP is calculated over some period and is the percentage change in the market value of all final goods and services produced in a particular period by a particular nation. Its unit of measurement is per cent (%).

$ do not equal % – it is a meaningless comparison. Karl Marx wrote in Capital Volume III (Chapter 48. The Trinity Formula that trying to speak of a “”price of labour” is just as irrational as a yellow logarithm”.

So I wonder what John Mauldin thinks his advice to his readers is? I don’t think he has a clue what he is talking about here.

Further, I have this advice for John. I guess if the US had nicer islands, changed its national language, drank more ouzo, chilled out a bit, then it is possible – only maybe – that the US could pretend to be like Greece.

But John here are the facts mate:

  • The US issues its own currency ($US) whereas Greece uses a foreign currency (Euro).
  • The US can always honour any financial obligations denominated in US dollars, whereas Greece can only honour obligations denominated in Euro if it has enough Euro. That means it has to raise taxes in Euro or borrow. If it exhausts its tax base and borrowers refuse to lend then the Greek government is broke – out of Euros!
  • The US government can never run out of US dollars.

My advice is that John Mauldin should write to his Internet provider and request all files on the servers in his account be deleted. After that I would suggest he take up tiddlywinks, which when I think about it, might be too challenging and invoke anxiety attacks.

But I interrupt this blog to bring you some breaking news!

Exclusive – Breaking News – US Navy SEALs stake out building

Apparently, the crack US special operations force – the Navy SEALs are staking out a building at 1500 Pennsylvania Avenue, NW Washington, D.C. 20220 in the US.

I was just sent a photo that is hot off the press which shows the compound that the dangerous terrorists are holed up in. I cannot verify at this stage whether this is a genuine photo or one that has been photoshopped. Someone on Twitter will surely help us. It surely looks like a compound to me.

The building appears to have telephone and Internet connections – from which we can conclude that the occupants have learned the lessons of recent days and decided to reduce the suspicion associated with their compound. I imagine they have imposed strict rules on the occupants with respect to Internet use – which suggests they are restricted to accessing Fox News, the Peter G. Peterson Foundation, and various pornography sites.

An aerial view of the building (Marked A = code for “impending Ambush”) shows it is similar to those around it from which we can conclude the occupants have hastily renovated the exterior to allay suspicion from authorities.

Local residents in the area who have been interviewed by the media as the operation became public are astounded that there have been terrorists occupying this building. Some of them have said that they thought it was a fitness club of some sort with executive-looking people coming and going in joggers and headbands.

Unnamed sources are reporting that there is a general feeling of disbelief that such dangerous terrorists – threatening the very fabric of American society might have been weaving their deadly plan so close to the head of government.

Some people are starting to ask questions about who knew what. Who was covering up this deadly conspiracy?

Who broke this story?

Well it appears that to divert attention away from any notion that he might be a deficit terrorist, David M. Walker has given US authorities some intelligence about the location of a nest of arch-terrorists right on the doorsteps of the White House.

America – you were warned about this. On July 8, 2007, David M. Walker told CBS News – U.S. Heading For Financial Trouble? that:

I would argue that the most serious threat to the United States is not someone hiding in a cave in Afghanistan or Pakistan but our own fiscal irresponsibility

So the real terrorists that we need to attack are those in charge of fiscal policy in the US. That is, presumably why the Navy SEALs have now surrounded the US Treasury Building in Washington and are about to attack.

He repeated the call in his statement about the summary execution of Osama Bin Laden and added:

That statement was true then and it is even more true now. It’s now time for the President and the Congress to work together and address the fiscal debt bomb that represents a much greater threat to our country’s and families futures.

A debt-bomb. That is what those sneaky shadowy figures that come in an out of this building are making it seems. Not only is it a debt bomb but it is a fiscal debt bomb, which without knowing what that is, sounds awfully scary.

Anyway, you can read the speech by David M. Walker that Mauldin claims is worth attention – HERE. I wouldn’t actually bother reading it if I was you. It is my job to read things like this. You are all better advised to go to YouTube and find a suitable calming track – like Simmer Down – by the great Wailers and relax! Walker will go away eventually.

You can also see a PDF version of Walker’s Fiscal Sanity Roadshow.

It is littered with rhetoric and threats of impending doom as the “fiscal clock is ticking” and the dreaded “The Moment of Truth is rapidly approaching” but short on any economic analysis.

I suppose that is no surprise given that Walker is an accountant.

In a speech of 3,469 words – the word unemployment appears once. There is no mention of poverty, underemployment and no analysis of the external sector.

I think the people who listened to this speech would have been bored shi*less. But then Walker was speaking to the “Connecticut Society of CPAs” so maybe it was the high point of their day!

The point is that you can rant until the cows come home about the great American tradition of freedom, prudence, etc and make up stuff about how close to the tipping point the US public debt situation is – but unless you explain why the public debt is a problem and embed that explanation in a properly constructed macroeconomics then you are no better than a hot-gospeller on some street corner – you know the type that people cross the road to avoid.

Here is some analysis of Walker’s position though.

Walker says:

America has gone from the world’s leading creditor nation to the world’s largest debtor nation. We have also become unduly dependent on foreign nations to finance our excess consumption.

America’s consumption patterns might be a cause of concern but that mainly relates to private choice. America is apparently a free nation where individuals choose what to buy and when. It is clear that American consumers like to buy imported goods and in doing so enjoy their benefits. They also are providing the “finance” which allows the foreigners to accumulate financial assets denominated in US dollars.

Americans get real goods and services, the foreigners gets a bit of paper. All a matter of free choice.

I thought Walker extolled the virtues of free markets and free choice.

It is true that if the foreigners choose not to continue to accumulate financial assets denominated in US dollars then they will be less willing to ship real goods and services to the US consumers in order to get hold of US dollars. The real terms of trade will then turn against the American consumers and the junk they choose freely to buy of China etc will be offered on less favourable terms.

This will reduce demand for those particular imports and provide increased opportunities for other firms/nations to offers output to the US consumers. If these swings in sentiment are rapid then adjustmebnt pain might occur.

None of this has anything to do with public debt or fiscal policy.

Then Walker says that:

Many of these foreign investors have shunned our long-term debt due to concerns over future interest rates and the longer-term value of the dollar.

Evidence? Bond yields are very low so there is plenty of demand for the US Treasury debt from someone. It is irrelevant where that demand comes from.

But moreover, it is irrelevant whether there is any demand at all. Should the private bond holders deem public debt to be offereed on unfavourable terms then the US government has two options:

  • Stop issuing debt altogether – and watch the bond markets scream as their supply of corporate welfare (in the form of guaranteed, risk-free annuities) dries up and they actually have to do some work to create a low risk pricing benchmark;
  • Instruct the Federal Reserve to purchase the debt.

The former option is preferable but the second option – which amounts to the Government running through some accounting gymnastics so that it can “lend itself funds” and then “pay itself back” – would solve any voluntary (artificial) constraints that they US government might impose on itself whereby it has to issue debt to match its deficit.

Walker acknowledges that the Federal Reserve is now the “largest holder of Treasury securities?” which he calls “self-dealing”. Exactly!

He also acknowledges that:

The Fed may be able to hold down interest rates for a period of time; however, they cannot hold them down forever.

And why not? Of-course the Federal Reserve can hold down interest rates at whatever level they choose. They set the short-term rate and if they wanted to buy all longer-term public debt they could hold down rates in those maturities as well. But before the Federal Reserve had to step in the private bond markets would be very happy to be buying up the debt.

What Walker fails to acknowledge is that the outstanding public debt is just an expression of the private wealth portfolios held in that form. Why is he so against private wealth accumulation – especially when it is in the safest asset there is – a guaranteed public bond?

Walker then went on to talk about the new “Sovereign Fiscal Responsibility Index (SFRI)” which he and some economics students at Stanford University have come up with.

Please read my blog – Fiscal responsibility index – reductio ad absurdum ad infinitum – for more discussion on this index. I gave fail grades to the students who were involved in this. Sort of a remote assessment that I hope Stanford adopts!

Walker claims that the US government should invoke fiscal rules which ith:

… should include specific annual debt/GDP targets with automatic spending cuts and temporary revenue increases in the event the annual target is not met. In my view, a ratio of three parts spending cuts, excluding interest savings, to one part revenue would make sense.

What is sensible about that formula? How would it help the US cope with a dramatic private spending collapse such as occurred in 2008? What is the goal of macroeconomic policy?

I think the goal is to advance public purpose which includes keeping unemployment low and production growing. When private spending collapses, public spending has to step in to stop the economy faltering. The mindless application of fiscal rules would prevent the government from acting in this way and the swings in real activity (especially downwards) would be magnified.

In effect, the application of such fiscal rules means that the automatic stabilisers are prevented from smoothing out the business cycle. Fiscal policy also become pro-cyclical in times of recession – the worst thing that anyone would want to advocate.

But when you are an accountant that cannot see beyond numbers and you don’t really understand what is driving those numbers then I guess you lose sight of what the overall context is.

The US has endured a massive private sector collapse. Unemployment and underemployment have risen sharply and are now entrenched at destructively high levels. Poverty rates are rising. The rise in the budget deficits, in one sense, reflects that private spending collapse, but in another sense, also reflects the discretionary actions that the US government took to stop that collapse becoming another Great Depression.

The discretionary fiscal response was inadequate and remains so still. It was badly targetted and didn’t yield enough jobs. But it saved America from a catastrophe. The application of Walker’s fiscal rules would have hastened that catastrophe.

The last thing I will note about Walker’s speech was this section:

First, Congress and the President should reach a compromise agreement on an appropriate level of spending cuts in 2012 … Second, they should agree to re-impose tough statutory budget controls that will force much tougher choices on both the spending and tax side of the ledger beginning no later than 2013. Third, they should authorize and fund a national citizen education and engagement effort to help prepare the American people for the needed actions and to facilitate elected officials taking them without losing their jobs. Fourth, they should create a credible and independent process that will provide for a baseline review of major federal organizational structures, operational practices, policies and programs in order to make a range a transformational recommendations that will make the federal government more future focused, results oriented, successful and sustainable.

First, the spending cuts will cause the US economy to slow even further and will increase the budget deficit as a result. The deficit in the UK is rising as they try to hack it down. The reason? Because they do not understand that the budget outcome is a barometer of economic activity and when that collapses the automatic stabilisers cushion the fall – result – the budget deficit rises.

The guaranteed way to reduce a budget deficit is to restore private sector growth – and thus private spending.

Second, there is something insidious about these ideologues. They preach freedom yet advocate anti-democratic proposals. In the fiscal domain this usually relates to the promotion of “independent processes” to discipline the elected officials. Democracy means at least that the elected officials take responsibility for their decisions. Fiscal policy should not be devolved to “independent” commissions full of unelected and ultimately unaccountable ideologues.

Third, Walker takes this anti-democratic sentiment one step further – now he is advocating harsh austerity measures (which he knows will cause more unemployment and rising poverty) but he wants the “elected officials” to be able to impose these harsh austerity measures without the fear of “losing their jobs”. Elected officials can only lose their jobs (improper behaviour aside) if the voters kick them out. That is another essential aspect of democracy.

Why aren’t the Tea Party-types screaming about this?

Meanwhile across the Atlantic

The much-vaunted manufacturing led recovery in Britain, which replaced the consumer-led recovery when that never appeared, has also disappeared.

The UK Guardian (May 3, 2011) article – Manufacturing falters as figures show output has fallen to a seven-month low – tells us that David Cameron’s hope that manufacturing would save Britain as his government systematically vandalises the nascent recovery with their austerity campaign have been dashed. See also this article – Manufacturing recovery runs out of steam in April.

No real analysis is needed. The facts are clear. Manufacturing output is collapsing again as demand for its output falters. Why is that? Answer: spending is declining because people have less income overall and are becoming increasingly pessimistic

Basic rule of macroeconomics – spending equals income which leads to output and employment growth. Cut spending and growth diminishes. Firms need orders to produce and employ.

The austerity campaign seemingly convinced voters that the basic rule of macroeconomics was wrong. Instead they invented a new concept – a fiscal contraction expansion. Problem is that the political spin was lies. The Brits are now finding that out the hard way.

What will the ideologues hold out as the next great growth hope in the UK given that private spending is contracting, manufacturing is declining and public spending is declining? I guess they will still hold out hope for an export-led recovery. Stay tuned.

Conclusion

You cannot seemingly reason with ideologues – especially those who have lost their grip on reality.

Anyway, I am back home tonight – which is the best place to be!

Postscript

I promise not to make a theme of this but I thought this headline which appeared in the New York Times (May 4, 2011) was one of those times when you realise how stupid the American government spin doctors are.

We were led to believe that there was a fierce “fire fight” in the compound in Pakistan which invoked images of OBL with some serious weapons hiding behind barricades giving it to the brave Navy SEALs. All sorts of speculation has been over the Internet with various amateur military experts detailing the type of weapons OBL had (AK47s and all sorts of other alphabetical-numerical options) and what went down.

Now we know – he wasn’t even armed.

Sounds like an summary execution to me.

I guess he resisted with a pillow or something given the time of night that the incident took place.

We were also told by the “US officials” that he hid behind his wife, using her as a human shield. Ahh, the dirty coward – what sort of “man” would hide behind his wife – we knew all along what sort he was – etc etc.

Now, we know – he didn’t hide behind her at all. She was shot in the leg and he was executed.

That is enough for today!

Spread the word ...
    This Post Has 15 Comments
    1. Bill,
      Thanks for taking Mauldin to task yet again. He is either an idiot or a stubborn fool. He actually uses the sectoral analysis deveoped by Wynn Godley, yourself and others, and claims to understand it, but repeatedly comes to the wromg conclusions.
      Of course I don’t think he ever reads critical commentary….unless it comes from one of his many “friends” !!
      All the best

    2. Re: the UK economic situation:

      Some current headlines on the Business section of the BBC website this week:

      -Retail sales ‘sluggish’ in April
      -Growth In UK manufacturing slows
      -Households ‘face falling income’
      -Construction sees slower growth
      -House prices ‘still on the slide’

      Here we go again! Osbourne will probably try to blame Mervyn King, but we all know this is Osbourne’s fault.

    3. I just wonder how much pain the poor old Brits have to suffer before they twig something is wrong with the unsustainable deficit story? One of the most cunning political canards ever devised. Shame for the ultra wealthy, small government libertarians that devised the scheme. The conservative Bourgeois have hijacked the agenda and turned their show into a comedy of errors.

      Super fit Navy Seals, armed to the teeth, encased in body armour, experts in unarmed combat. The only way they could have felt threatened by an unarmed middle age man is if they suspected a bomb in his underpants.

    4. OBL did not have the attributes of a human being so I consider him to be a biological lifeform no different than a bacteria. I am sure you would irradicate a bacteria that indiscriminately does us (including children) harm. Is the US any different than OBL? What would Islamic nations do if the US laid down all its weapons? What would the US do if all islamic nations laid down their weapons? Hint: the US could now or over the last 50 years annihilated any Islamic nation but chose not to.
      And yes there is a lot of greed that has done harm to many people around the world. But this is not limited to the US or its citizens. How much oil wealth does the Saudi royal family share with its citizens?

    5. I would have liked to see a trial. There have been rumors about Osama having worked with the CIA in Afghanistan during the soviet occupation. It would have been nice to put those rumors to rest.

    6. markg, you were not the first to have this idea. Nazis had in in 1930s, it worked out great.

      I can bet that nobody theorizing about “militant Islam” has ever been to any Muslim country. I have been to many, they are not more fundamentalist than US protestants. The terrorist groups, a tiny minority, use Islam as a rallying cry for political reasons, not surprising.

    7. Foxnews debate (Bill O’Reilly vs Catholic Priest) on the Osama killing. Interesting debate if nothing else.

      http://www.youtube.com/watch?v=dxKIF42J8tY&feature=player_embedded

      Interesting at 2:10 O’Reilly brings in the Roman Poll Tax issue (which was payable in external currency): “Render to Caesar, etc …” , as a statement by Christ that he (OReilly) interprets as being in support of this military action, but the Priest I think gets the economics (and interpretation) right when he tells Bill that statement is simply “about money”.

      Resp,

    8. I am adding a couple more words in addition to “Weimar,” “Zimbabwe,” and “hyperinflation” to my list for Godwin’s law of economics — “in the long run” and “forever.” They are markers of either ignorance or desperation.

      BTW, the Seals seem to be surrounding the wrong building. It is Congress that does the budgeting and appropriation. The Treasury just writes the checks. Walker’s rant is directed against “profligate” politicians spending too much on the have-not’s in society. Shame on them for being altruistic. Haven’t they read Ayn Rand like Paul Ryan?

    9. Peter,
      I was talking about one individual. How you made the huge leap in comparing OBL to the Jewish people is beyond even common sense.
      The majority you refer to should be able to squash this minority. Why don’t they? The Saudi royal family could easily fund fighting this minority. Why don’t they?
      Fighting over religion is the stupidest waste of human endeavour.

    10. From your link “Export orders continue to grow at a very healthy rate but domestic demand is suffering as a result of falling consumer confidence and spending,”

      -In fairness our dear leaders did say we need to re-balance to exporting manufactured goods and that is the one thing that is staying above water in the face of the cuts.

    11. markg,

      you say: How you made the huge leap in comparing OBL to the Jewish people is beyond even common sense.

      No, i refered to you simply defining somebody a nonperson. I has been tried. By Nazis.

      you say: The majority you refer to should be able to squash this minority. Why don’t they?

      I guess b/c they don’t have “Al Qaeda” written on their foreheads. Same as right-wing militant groups in US. Or because the violence is directed outside their societies so they don’t care like you don’t care when a million Iraqis dies.

      you say: The Saudi royal family could easily fund fighting this minority. Why don’t they?
      I have no idea, but it doesn’t matter. “Saudi royal family” and “Islam” are not the same thing. Saudis funding terrorists is not the same as “Islam is inherently violent”.

      you say: Fighting over religion is the stupidest waste of human endeavour.

      Agreed. Islam has still not caught up with the level of destruction wrought by wars waged by Christians for religious reasons. Nothing special about Islam here.

    12. “I was talking about one individual. How you made the huge leap in comparing OBL to the Jewish people is beyond even common sense”.

      Ahhhhhh, the meme, the meme……

    13. “I would have liked to see a trial. There have been rumors about Osama having worked with the CIA in Afghanistan during the soviet occupation. It would have been nice to put those rumors to rest.”

      He’s not really dead. Osama cut a deal. He provided DNA samples, posed for photos, and is now in a witness protection program. He’s now a school teacher in a red state that doesn’t teach evolution.

    14. Every human being is supposed to be treated the same way by a modern democratic state and its agencies. We are able to treat humanely serial killers, who are horrible human beings beyond redemption. We are able to treat humanely leaders of extremely murderous organisations, military formations and regimes, such as Nazi generals, political leaders and SS officers. We have treated all of them with dignity, giving them food, shelter and protection from their victims’s abuse. Then we brought them to Justice, the modern, democratic state’s justice, which involves a proper arraignment and trial. Where the accused has the right to defend himself. Why can’t we treat the same way people like arch-terrorist Osama Bin Laden?

      It’s not difficult to grant freedom of speech to someone we agree with. It’s not difficult to grant the right to be tried in a court of law to someone we sympathize with (because for example he committed a crime in the course of a political action we sympathize with). What’s difficult is granting freedom of speech to the neo-Nazis in Skokie, Illinois or bringing people like Bin Laden to trial. That’s where democracy is truly tested; not in the “easy” cases.

      When we start de-humanizing opponents, no matter how horrible their deeds, and publicly celebrating the state-execution of an individual, then we are starting on the road to barbarity – and the terrorists, who are enemies of freedom, score one against us.

    Leave a Reply

    Your email address will not be published. Required fields are marked *

    *
    To prove you're a person (not a spam script), type the answer to the math equation shown in the picture.
    Anti-spam equation

    This site uses Akismet to reduce spam. Learn how your comment data is processed.

    Back To Top