Tax to improve plans
Myths of Recovery
| Was the bailout a scam? Whatever, it’s not working. We trim, blend, and append six 2010 articles, the longest from CounterPunch, Jan 26, 2010 by Michael Hudson, former Wall Street economist, a Distinguished Research Professor at University of Missouri, Kansas City (UMKC), and author of Super Imperialism: The Economic Strategy of American Empire. The other five articles are from newspapers as noted. |
by Michael Hudson, 4 February 2010
JJS: According to Special Inspector General, Neil Barofsky, on the results of TARP: "bank lending continues to decrease,” foreclosures continue to increase, and the bailout could re-inflate the housing bubble. (MarketWatch, Jan 31)
- Myths of Recovery
During the Bubble, GDP was rising mainly for the FIRE sector -- finance, insurance, and real estate -- not the “real economy” of production and consumption.
The “irreal” economy is the “balance sheet” of property and debt. The wealthiest 10% lend out their surplus to become debts owed by the bottom 90%. By charging rent and interest and by shifting taxes off themselves onto workers, the wealthiest enjoy a rising share of gains.
This is not what Adam Smith described in The Wealth of Nations. This extraction is a form of overhead, not a technologically or economically necessary cost. It is a zero-sum game -- one party’s gain (that of Wall Street usually) is another’s loss.
FIRE lobbied Congress for the housing subsidy to new homebuyers. The pretense is that this is subsidizing the middle class, but homebuyers are only the intermediaries. The tax credit keeps home prices from falling further and keeps mortgages from losing any more profitability.
Nearly 90% of new home mortgages are being funded or guaranteed by the FHA, Fannie Mae and Freddie Mac -- all providing a concealed subsidy to Wall Street mortgage bankers (debt to be paid off by taxpayers).
It’s ironic that politicians worry about running a deficit for health care or Social Security, after giving away $13 trillion to Wall Street and a blank check to the Pentagon. The “stimulus package” was only about 5% of this amount.
The reality is that Keynesian-style deficits raise wage levels relative to the price of property (the cost of obtaining housing, and of buying stocks and bonds to yield a retirement income). Running a “Wall Street deficit” does just the reverse: It re-inflates property prices relative to wages.
Banks seem to think the game is over. They have taken the $13 trillion in bailout money and run -- paying it out in bonuses, or buying other banks and foreign affiliates.
Instead of lend more, banks have turned to credit cards -- raising interest rates, penalties, and fees.
They are borrowing low-interest credit from the Federal Reserve and investing it abroad, often in currencies rising against the dollar, which is lowering the dollar’s exchange rate. This threatens to raise prices for imports, on which domestic consumer prices are based. So easy credit for Wall Street means a cost squeeze for consumers.
The Federal Reserve plans to flood the credit markets to lower interest rates to revive bank lending –- at interest -- to buyers of real estate already in place (and stocks and bonds already issued). Reviving demand will inflate asset prices relative to wages (the second Bubble worrying Barofsky) and enable banks to balance their books.
What will “recover” is the rising trend of consumer and homeowner debt responsible for stifling the economy in the first place.
A genuine recovery means everyone can produce and consume. Consumer demand (actually, only Wall Street and the Pentagon’s military-industrial complex make demands) cannot be revived without reducing the debt burden. We must make bankers take a loss on their bad debts.
JJS: Economies recover when families and businesses can afford land again. Are we there yet?
In the Portland metro area, a lot that would have sold for $100,000 at the peak of the boom has dropped to between $55,000 and $65,000. It could take three years before the market lifts prices. (The Columbian, Dec 20, 2009)
In Utah, contractors were furiously buying up land, which kept driving prices higher. Construction and development loans constituted more than 70% of some bank portfolios. Today, prices are off as much as 50% in some areas and about a third of smaller community banks are poised to fail. (Salt Lake Tribune, Jan 25, 2010)
From November, December's home sales fell 16.7%, the largest monthly drop in more than 40 years of record-keeping. First-time buyers accounted for 43% of sales in December, down from 51% in November. The tax credit had led many buyers to complete sales earlier.
The median price plunged more than 12% last year -- the sharpest fall since the Great Depression -- to $173,500, down 23% from their peak in 2006 summer. However, for December it was $178,300 -- due largely to fewer first-time buyers who tend to buy less expensive homes. (AP, Jan 25)
JJS: A fundamental solution is geonomics: the public recovers the “rents” for sites and resources while de-taxing our efforts. Some societies seem headed that way.
- Tax to improve plans
A new land-value tax is the best system to support good planning, according to Bord Pleanala chairman John O'Connor in an interview with Architecture Ireland. (Irish Independent, Jan 29)
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Jeffery J. Smith runs the Forum on Geonomics.
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Also see: Following Wall St. advice proves costly
Earn Like Goldman Sachs, a ProPublica How-To
Richest Americans' Income Doubled as Tax Rate Slashed |
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