Let the Plunder Begin: The Return of Robert Rubin

Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.

– John Maynard Keynes

There’s no denying that the economy is getting better, but will it last? Many economists don’t think so, including experts at opposite ends of the ideological spectrum, like Paul Krugman and Martin Feldstein. They think the economy will begin to fizzle sometime in the latter part of 2010 when Obama’s $787 billion fiscal stimulus runs out and consumers are forced to pick up the slack in demand. That’s a safe bet, too, considering that unemployment will still be somewhere in the neighborhood of 9 percent and households will still be digging out from the $13 trillion they lost during the crisis. And the fact that the Fed is planning to end its quantitative easing (QE) program in early April, doesn’t help either. That will just suck more liquidity out of the system and push long-term interest rates higher. When that happens, housing prices will fall, inventory will rise, and a surge in foreclosures will put more pressure on the banks balance sheets. That’s why the pros are so glum, because they know the economy needs a second dose of stimulus to stay on track, but the politicos are dead-set against it. Congress is afraid of the backlash from voters in the upcoming midterm elections. They’d rather drive the economy back into recession then risk losing their jobs.

Despite the propaganda in the media, stimulus works. In fact, Goldman Sachs attributes all of last quarter’s (positive) growth to Obama’s stimulus. Here’s how Nobel prize winning economist Joseph Stiglitz sums it up in his China Daily article “Harsh lessons we may need to learn again”:

Keynesian policies do work. Countries, like Australia, that implemented large, well-designed stimulus programs early emerged from the crisis faster. Other countries succumbed to the old orthodoxy pushed by the financial wizards who got us into this mess in the first place.

Whenever an economy goes into recession, deficits appear, as tax revenues fall faster than expenditures. The old orthodoxy held that one had to cut the deficit — raise taxes or cut expenditures — to “restore confidence.” But those policies almost always reduced aggregate demand, pushed the economy into a deeper slump, and further undermined confidence.

When consumers are forced to cut back on spending, because they’re too far in debt or worried about their jobs, the government has to step in and make up the difference or the economy goes into a tailspin. The deficits need be big enough to maintain aggregate demand while the private sector regains its footing. Otherwise, consumer spending declines, which lowers earnings and forces businesses to lay off more workers. It’s a viscous circle. But if the stimulus is distributed wisely, multipliers kick in and help to lift the economy out of the doldrums. Here’s a good breakdown of how it works from an article in the New York Times:

Every dollar of additional infrastructure spending means $1.57 in economic activity, according to Moody’s, and general aid to states carries a $1.41 “bang” for each federal buck. Even more effective are increases for food stamps ($1.74) and unemployment checks ($1.61), because recipients quickly spend their benefits on goods and services.

By contrast, most temporary tax cuts cost more than the stimulus they provide, according to research by Moody’s. That is true of two tax breaks in the stimulus law that Congress, pressed by industry lobbyists, recently extended and sweetened — a tax credit for homebuyers (90 cents of stimulus for each dollar of tax subsidy) and extra deductions for businesses’ net operating losses (21 cents). 1

So far, the stimulus has done exactly what it was designed to do; give the economy a big enough boost to get through a deflationary rough patch. Unemployment is flattening out, manufacturing is expanding again, the stock market keeps climbing higher, and a recent survey of individual investors shows the highest ratio of bulls-to-bears since 2007. That’s a good start, but the economy is still weak and needs more help. So why are policymakers so eager to take the patient off the ventilator before he can breathe on his own again?

Politics, that’s why.

The congress is worried about voter rage at the ballot-box, but that doesn’t explain why Obama has started moaning about slashing deficits in the middle of a severe slump. The administration’s agenda is entirely different than congress’s. The White House economics team is trying to garner support for policies that will strap the faltering economy into a fiscal straightjacket and pound the green shoots into mush. All the railing against deficits is just empty blather backed by junk economics.

Here’s ex-Treasury Secretary Robert Rubin–one of the chief architects of the global financial crisis–articulating the position of his proteges at 1600 Pennsylvania Ave.

Putting another major stimulus on top of already huge deficits and rising debt-to-GDP ratios would have risks. And further expansion of the Federal Reserve Board’s balance sheet could create significant problems…. Today’s economic conditions would ordinarily be met with expansionary policy, but our fiscal and monetary conditions are a serious constraint, and waiting too long to address them could cause a new crisis….

First, there must be sound fiscal and monetary policies. The United States faces projected 10-year federal budget deficits that seriously threaten its bond market, exchange rate, economy, and the economic future of every American worker and family. Those risks are exacerbated by the context of those deficits: a low household-savings rate, even after recent increases; large funding requirements for federal debt maturities every year; heavy overweighting of dollar-denominated assets in foreign portfolios; worsened fiscal prospects in the decades after the current 10-year budget period; and competing claims for capital to fund deficits in other countries.2

Interesting. Rubin admits that the recession “would ordinarily be met with expansionary policy”, but suggests that he has a better remedy than stimulus. Does that make sense? After all, it was Keynes counter-cyclical public spending (stimulus) that just produced positive GDP for the first time in 4 quarters, whereas, it was Rubin’s deregulation of the financial system that pushed the global economy to the brink of disaster. There’s no question of whose theory is more credible or likely to work. Even so, it’s worth considering what Rubin has to say, because it clarifies the views of Obama’s chief economics advisors Geithner and Summers. After all, the trio is joined at the hip.

Rubin again: “The American people are growing increasingly concerned about deficits, creating a public environment more conducive to political action. And the Obama administration, in my view, has a deep understanding of the critical importance of addressing this issue….. ”

Indeed. So, Obama has already joined the ranks of the deficit terrorists.

Rubin again: “As President Obama and the other G20 leaders warned, restrictive trade measures in response to the current crisis could lead to highly destructive trade wars. For the long run, we should continue pursuing the open markets that the Peterson Institute for International Economics, a Washington think tank, estimates have added $1 trillion to America’s current GDP.”

So Rubin is working for Peterson? That explains everything. Here’s an excerpt from a Dean Baker article which appeared in the UK Guardian this week:

Peter Peterson is a Wall Street billionaire and former Nixon administration cabinet member who has been trying to gut Social Security payments and Medicare for at least the last quarter of a century. He has written several books that warn of a demographic disaster when the baby boomers retire. These books often include nonsense arguments to make his case. For example, in one of the books making his pitch for cutting social security as matter of generational equity, Peterson proposes reducing the annual cost of living adjustment.3

Ah ha! So, the real goal is to slash spending to impose onerous austerity measures that will lay the groundwork for dismantling critical social programs, like Social Security, Medicaid and Medicare. That’s why Rubin is working hand-in-hand with his allies in and out of the White House. It has nothing to do with what’s best for the country. It’s another looting operation spearheaded by the same band of Wall Street pirates who just blew up the financial system.

Rubin again: “For American workers, sustained growth is the most powerful force for higher wages and greater personal economic security…. The dynamism of American society, its flexible labor and capital markets, its entrepreneurial spirit and the sheer size of its economy, are great strengths for succeeding in a rapidly transforming global economy…. Finally, in an increasingly interdependent world, transnational issues key to all of us can only be addressed through effective global governance.”

Yada, yada, yada. More free trade, more outsourcing, more off-shoring, more lost jobs, more structural adjustment (at home, this time) more privatization, more screwball globalist Utopianism. It’s all right out of the Neoliberal playbook, corporate America’s sacred text. And it looks President Moonbeam is marching in lockstep with the rest of the hucksters.

Face it; the Obama administration is less interested in engineering a strong recovery than they are with micromanaging a protracted downturn. That’s because a long drawn-out mini-Depression puts the Rubin troupe right where they want to be—with one hand choking the life out of the economy while the other steals whatever is left in the national vault.

  1. New Consensus Sees Stimulus Package as Worthy Step,” Jackie Calmes and Michael Cooper, New York Times. []
  2. Getting the Economy Back on Track,” Robert Rubin, Newsweek. []
  3. Hard times at the Washington Post,” U K Guardian. []

Mike Whitney lives in Washington state. He can be reached at: fergiewhitney@msn.com. Read other articles by Mike.

5 comments on this article so far ...

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  1. Don Hawkins said on January 8th, 2010 at 10:38am #

    Oh dear this doesn’t sound good. Maybe your wrong this time Mike. Then again maybe not and one heck of a vision. I mean you can’t make this stuff up well then again.

  2. Maryb said on January 9th, 2010 at 1:21am #

    The banksters’ nests will continue to be well feathered in this illusion of well-being that is being fostered. It is no wonder that we are cynical.

    http://www.guardian.co.uk/business/2010/jan/08/bonus-time-city-banks

    Bonus time as banks pay out £40bnExclusive: Chancellor Alistair Darling’s windfall tax has not led to cut in rewards for bankers

    Jill Treanor guardian.co.uk, Friday 8 January 2010 21.08 GMT

    Alistair Darling’s efforts to deter banks from handing out multi-million pounds bonuses appear to have failed. Photograph: John Stillwell/PA

    The world’s biggest investment banks are expected to pay out more than $65bn (£40bn) in salaries and bonuses in the next two weeks, reinforcing the view that it is business as usual on Wall Street and in the City barely a year since the taxpayer bailout of the banking system.

    Despite efforts by Alistair Darling to deter banks from handing out multi-million pound bonuses through the introduction of a 50% windfall tax, City sources believe that the biggest employers will absorb the cost of the tax rather than cut the size of the bonus pools they amass throughout the year.

    This will mean that while proceeds from the tax could top £2bn – more than four times the £550m estimated by the chancellor in the pre-budget report – the government will have failed to alter the traditional bonus culture in the City.

    Lord Oakeshott, the Liberal Democrat Treasury spokesman, described the size of the potential bonuses as “global greed by banks when global governance has failed”. He added: “Britain’s bonus tax only toys with the symptoms of the sickness, not its cause. These last few investment banks left standing have state-backed licences to print money so they must pay supertax on their superprofits, not hold taxpayers to ransom.”

    The leading Wall Street firms employ thousands of people in the City – Citibank alone employs 10,000 – and bankers are hoping their payments will not be reduced because of the 50% tax on bonuses over £25,000 implemented in last month’s pre-budget report.

    The major US players are scheduled to report their full-year trading performance in the next fortnight, starting with JP Morgan on Friday and culminating with the titans of Wall Street the following week when Goldman Sachs and Morgan Stanley will announce their results. Their bonus policies will be watched closely by their European rivals, particularly Royal Bank of Scotland – of which the taxpayer owns 84% – which has a large investment banking business and must have its bonus payments approved by the government.

    Figures already published by the five highest-profile US banks reporting in the next fortnight show they have already set aside $50bn to pay their staff in the first nine months of the year. In the final three months of the year, analysts at Sanford Bernstein reckon a further $10bn will have been put aside by Goldman Sachs, Morgan Stanley and JP Morgan even though 2009 was the worst year for the US economy in 30 years.

    While the Sanford Bernstein estimate takes the Goldman compensation cost to $19.8bn, analysts reckon it could swell further to $22bn and the other two banks might amass an estimated $5bn. Brad Hintz, an industrialist turned banker and now an analyst, conceded that workers on Wall Street are overpaid. “I’ve worked in the industrial world and I know there was equal talent in industrial America but when I went to Wall Street my compensation went up by a factor of three.”

    The potential for a $22bn compensation bill at Goldman was cited by an Illinois pension fund in a lawsuit filed on Thursday which argued that the payments harmed shareholders. Goldman maintained the lawsuit was “completely without merit”.

    The figures that the banks report as “compensation” include a number of costs including salary and benefits which are paid throughout the year, as well as the one-off cost of bonuses.

    Staff at the banks will be informed of their bonus payouts in the coming fortnight although they may not receive the payments for a few more months.

  3. Mulga Mumblebrain said on January 9th, 2010 at 4:11am #

    The idea that the ‘House Negro-in-Chief’ has joined the deficit terrorists or any other group or tendency as an act of his own free will, is bunkum . The ‘first Jewish President’ does what his Zionist controllers tell him to do. Emanuel, Rubin, Geithner, Summers…what amazing cultural and religious synchronicity! The features of this global putsch by the international parasite class have been plain from the beginning. Beginning in the 1970s, but more ferociously since 1989 and the death of the socialist threat, the parasites led by the Anglosphere have set out to craft a global neo-feudal order. They have ferociously attacked unions and driven down conditions in the First World, the Anglosphere in particular. The serfs have been induced to go into debt to replace real wages, making them more entangled in the system,less likely to rebel. The rewards of usurious interest rates on credit cards has accrued to the usual suspects.
    The distribution of income and wealth has become more skewed. Relentless market fundamentalist propaganda in a uniformly Rightwing mass media has driven a viciously regressive redistribution of wealth. Taxes have been radically reduced on the rich, while those imposed on the serfs, like VAT and uniform consumption taxes, have been raised. The laughable propaganda for these changes, no longer peddled because too ridiculous, was that the rich would use this unearned gelt to invest in productive industry and hence the wealth would ‘trickle down’ to the serfs. Ho, Ho! Instead the parasites used this wealth to speculate, and the orgy of financial fraud, malfeasance and corruption needed to feed their literally insatiable greed burst in 2007. Naturally their bought and paid stooges in Western politics immediately mobilised trillions of the tax-payer-suckers’ money to bail out these kleptocrats, and the parasites immediately returned to paying themselves larcenous bonuses and pumping up new speculative bubbles, using the patsies’ own money to do so.
    This has resulted in huge deficits. The parasites have long openly argued for large deficits as an excuse to destroy social welfare, and the hour of that denouement has arrived.These deficits will be addressed not by raising taxes on the rich, but by the destruction of what is left of the social welfare provisions, by attacks on public education, health, transport etc, by privatisation of whatever is left of the ‘common wealth’ including public assets including if they can get away with it, national parks etc. The feudal order of a tiny, parasitic elite lording it over a world of subservient serfs is daily becoming more intractable,more firmly established.
    Naturally in a society where people had any self-respect and concern for their children, this situation would lead to insurrection. But the masters take no chances, using their absolute dominance of the mass media to brainwash the rabble, and, crucially, divert them by inciting hatred of others.Never the masters, of course, but hatred of Moslems, hatred of environmentalists, hatred of those less well-off, hatred, hatred, hatred, allied with its brother-in-arms, fear. The system is now terminally unstable. The ecological crisis is terminal. If anthropogenic climate change doesn’t get us, ocean acidification,species loss, resource depletion,widespread pollution or one of a plethora of other disasters will.Any return to ‘normal’ levels of demand for hydrocarbons will lead to skyrocketing prices, throttling ‘recovery’ in its crib. Global religious war might please the Zionists, but it is radically de-stabilising.
    Obviously the masters are, if radically evil psychopaths with an undisguised detestation of other people (including one another), not stupid. Perhaps they are just interested in their own greed and do not care for the future. I prefer to be realistic and recognise the signs that clearly outline their true intentions. I think we are entering an age of deliberate global de-population, that Malthusian final solution to ‘over-population’. We shall see, but I’ve never erred in anticipating elite behaviour by simply imagining the most evil course, and confidently expecting that that will be the one taken.

  4. Don Hawkins said on January 9th, 2010 at 1:42pm #

    Take a look at this from Rolling Stone.

    http://www.rollingstone.com/politics/story/31633524/the_climate_killers

    Turn on your TV and what do you see Fox News being number one, inciting hatred of others. That would be page two from rolling stone. The truth the knowledge calm at peace the hardest things for them to attack. Do these people use the truth, no how about knowledge no illusion are they calm and at peace no. Read that article very well done.

  5. Don Hawkins said on January 9th, 2010 at 2:34pm #

    Any return to ‘normal’ levels of demand for hydrocarbons will lead to skyrocketing prices, throttling ‘recovery’ in its crib. Mulga

    I do not understand this driving force for progress well progress is probably the wrong word growth at all costs. With what we now know not long before the you know what hit’s the fan but yet we still try so hard to bring back growth to normal. Normal I think not. Could it be those people who I just read about in rolling stone and a few more with great knowledge and wisdom? Yes it sure could and not knowledge and wisdom but arrogant little God’s who laugh at humanity never once stopping to hear that laughter off in the distance. The cunning, driven. Could they sit and have a nice cup of coffee maybe a game of checkers calm and at peace in a town square with some good conversation? No they or people who work for them would be on a stage in the town square with maybe a country and western band as back-up and with the use of loud speakers telling the people of the town who to not like a nice way of saying hate. Who is in power now in the greatest nation on Earth do we know? If we could find out my first question would be what is your purpose.