Financial Analysis of USA, Inc.

[lektrode]

Re: Financial Analysis of USA, Inc.

Well, the USA, Inc. mission statement looks pretty clear to me:

1) subsidize overpaid government workers (now over 20% of the workforce) to leach on the real economy and wear down the resistance of the productive population (now less than 25% of the population by most standards - without even taking the FIRE employment out of the numbers!)

2) subsidize the uneducated and unproductive social services leaches who occasionally vote for the sham democracy (now nearly 40% of the population)

3) enforce regulation on the entire wage earning population, designed to push wealth into the ever shrinking renter/government classes (e.g. health insurance and FIRE economy)

4) protect the international-capital-returns-earning-wealth-class from taxation or accurate perception/action by the productive class

5) engage in poorly managed and largely irrelevant but expensive foreign interventions designed to protect No. 4 - the main result of which is to train the US military in counter insurgency techniques helpful to ensure continuation of No. 4.

6) completely ignore all of the foundations for US National success, as well as all proper high priority functions of the US government, including education; economic infrastructure; military and civilian dominance of air, space, sea, energy, and high technology; and ensuring the continued empowerment, expansion, and reward of the class of educated, productive citizens with solid ethics.

I have to say I have never seen an organization more efficiently accomplishing it's mission statement.

+1
and thats the best bullet-point list eye have seen to date.

[lektrode]

Re: Financial Analysis of USA, Inc.

I think this is a fair statement.
....
The problem I have with it is the assignation of blame to Volcker when Volcker's actions were specifically to compensate for the excesses of the Kennedy/Johnson adventures. Is then Volcker to blame?
....
.... I have many doubts as to whether too many people in the 1978 to 1984 period were really basing their entrepreneurial activities on a 3 decade long cycle of falling interest rates.

for those of us who were (and right out of HS in 76), it wasnt pretty - i watched (from the POV of a line-level grunt) as one manufacturing operation after another folded up - every company i worked for in them daze was bankrupted for one reason or another (and it sure as hell wasnt due to my salary/bene's) - the last mfg'g job i had (automated semicon test eqpt, with a whos who list of customers in silicon valley) went thru a tough period in the early 80's and in 84 was a victim of the big downturn in the semicon sector that year - the credit line we worked off was yanked by the bank and that was it - my observation at the time: there was NO FUTURE in manufacturing in the USA (at least not fer yers truly)

....
.....
The question is what the solution will be, as well as what will actually happen.

If in fact Janet Yellen, or the next President, or whomever will fact embark on a course which will reverse the past multiple decades of behavior, that would be great.

If, on the other hand, the same forces - impartial or otherwise - which shaped the past multiple decades continue on to shape the near future, I greatly doubt the outcome will be positive.

you can say that again...

[thriftyandboringinohio]

Re: Financial Analysis of USA, Inc.

could you expand on that a bit, T&B?
IMHO, lack of term limits is precisely why we see little in the way of action on anything (that isnt giving away the treasury, to one special interest or another (pick a complex: mil/industrial, edu/industrial or welfare/industrial)

Sure, lektrode.
I was responding to the comment that "the rulers of the democratic sovereign nations have far less longevity than their FIRE paymasters."

I think that is true, and getting more so. The end result of term limits is that FIRE lobbyists and other special interest lobbyists become the most experienced people walking the halls of congress and our statehouses. They get a chance to become intimately familiar with the small details of laws and regulations over many years, while our elected officials are always newbies playing catch-up.

[dcarrigg]

Re: Financial Analysis of USA, Inc.

Sure, lektrode.
I was responding to the comment that "the rulers of the democratic sovereign nations have far less longevity than their FIRE paymasters."

I think that is true, and getting more so. The end result of term limits is that FIRE lobbyists and other special interest lobbyists become the most experienced people walking the halls of congress and our statehouses. They get a chance to become intimately familiar with the small details of laws and regulations over many years, while our elected officials are always newbies playing catch-up.

There are those who call for more powerful bureaucrats for exactly this reason. It may be counterintuitve. Lind makes a reasonably consise argument for this position:

TUESDAY, NOV 15, 2011 08:00 AM EST

America needs more powerful bureaucrats

No one wants another Hoover, but we should remember that career public servants built this nation's infrastructure

BY MICHAEL LIND

A man works on a Works Progress Administration project in Tennessee.

(Credit: Library of Congress)

Following the passage of the American Recovery and Reinvestment Act of 2009, President Barack Obama appointed a little-known civil servant to become its public face. Displaying a genius for publicity, including self-promotion, the American infrastructure czar became one of the most visible figures in American public life.

Working tirelessly to rebut claims that the stimulus was nothing but a boondoggle, he made the otherwise boring subject of public investment in roads, bridges, parks and harbors glamorous in a way it had not been since the days of the WPA. From the beginning the infrastructure chief generated as much controversy as praise.

Investigative reporters accused him of sweetheart deals and political cronyism, while congressional demagogues roasted him regularly in auto-da-fés on Capitol Hill. Stories circulated of his vanity, paranoia and ruthlessness. But the criticism only increased the devotion of many young Americans who admired him and his team. For the first time in living memory, a career in public service was attractive to the young, talented and ambitious.

That didn’t happen, of course. And one reason it didn’t happen is the legacy of J. Edgar Hoover.

“J. Edgar,” the new biopic by Clint Eastwood with fine performances by Leonardo DeCaprio and Armie Hammer, has audiences across America asking the question: Did the founder of the FBI ever consummate his relationship with his life partner and No. 2, Clyde Tolson? The more pertinent question, from a political perspective, is: Why doesn’t America make powerful bureaucrats like Hoover anymore?

You cannot have buildings without builders. And the age of progressive and liberal state-building and nation-building in America, from the early 1900s to the 1960s, was an age of great bureaucratic empire-builders, many of whom, like Hoover, spent their entire lives in government. There was Thomas Harris Macdonald, known as “the Chief,” who was chief or commissioner of the Bureau of Public Roads from 1919 until 1953. To him as much as to anyone else we owe the interstate highway system. Another master builder was David Lilienthal, director or chairman of the Tennessee Valley Authority (TVA) from 1933 until 1946 and chairman of the Atomic Energy Commission from 1947 to 1950. And there was Adm. Hyman Rickover, the longest-serving naval officer in American history, who in his 63 years in public service developed the nuclear fleet and civilian atomic power. Because of the outsize importance of New York in the nation, Robert Moses, who dominated infrastructure planning in New York City and New York State from the 1920s to the 1960s, was another bureaucratic titan of the time. (Yes, in response to the hand in the back of the class, they were all white men, as this was before the civil rights and sexual revolutions.)

Try to think of a similar celebrated career federal bureaucrat today, of any race, gender or sexual orientation. Not a revolving door “in-and-outer,” who undertakes brief stints in government to increase his or her marketability on K Street or Wall Street, not a political hack appointed to head a federal agency because of campaign contributions or family connections — “Heck of a job, Brownie” — but an American career bureaucrat who is also a celebrity and the leader of a team with a sense of mission and a powerful esprit de corps. Such powerful civil servants are commonplace in other modern democracies. Nor are they un-American; after all, they flourished in the U.S. for most of the 20th century. Why is this species now extinct?

A major answer is J. Edgar Hoover himself. Following his death in 1972, long before false allegations of his cross-dressing and plausible theories about his homosexuality were widely discussed, Americans were shocked to learn that the seemingly incorruptible G-Man had stayed in power under eight presidents by blackmailing his bosses, and had neglected the fight against organized crime while carrying out campaigns against the civil rights movement and an imaginary threat of communist revolution. All of this became public around the Watergate revelations, made possible, we now know, by leaks to the Washington Post from Hoover’s high-ranking aide Mark Felt, aka “Deep Throat” (all right, class, keep it clean).

Along with exposure of CIA-sponsored coups and assassinations, the Watergate and FBI scandals created a generation-long backlash against the federal government in popular culture. The new symbol of the FBI was the sinister Cigarette Man in “The X-Files.” The film director Oliver Stone laundered lunatic fringe conspiracy theories into mainstream consciousness in movies insinuating that JFK was the victim of a coup. Needless to say, this anti-government paranoia benefited Ronald Reagan and his conservative successors, who found a growing audience for their claims that government is not only incompetent but also inherently tyrannical.

Post-New Deal liberalism also played its part in creating a climate inhospitable to bureaucratic power brokers. In the turmoil of the 1960s and 1970s, the social center of gravity of the liberal left shifted from blue-collar workers and farmers to upscale white professionals and their minority allies. In an Oedipal rebellion against their political parents and grandparents, the baby boomer liberals of the late 20th century denigrated the infrastructure accomplishments of the Progressive and New Deal eras. Hydropower dams kill fish! Interstate highways create suburban sprawl! Nuclear power is evil! Small-is-beautiful hippie romanticism merged with post-New Deal celebrations of free markets in neoliberals like Bill Clinton, whose assertion that “the era of big government is over” reinforced the propaganda of the right. Democrats paid a price when Clinton and Obama, respectively, were believed by much of the American public to have whacked former aides and political enemies or to have been a foreign national who forged his birth certificate and plotted to impose fascism or socialism on America. What else would you expect, in an America where the most famous FBI agents were Agent Scully and Agent Mulder?

To make matters worse, many baby boomer liberals embraced an Orwellian rewriting of history, more conservative than liberal, according to which most of the major New Deal politicians and power brokers had been corrupt and tyrannical autocrats. “Biography lends to death a new terror,” Oscar Wilde observed, and the writer Robert Caro proved him right, by garnering Pulitzer Prizes for the hatchet jobs he penned about Robert Moses and Lyndon Johnson.

Caro was the Oliver Stone or Matt Drudge of the baby boomer highbrows. In the first volume of his biography of Lyndon Johnson, the second greatest liberal politician in American history, Caro portrays a governor of Texas, Coke Stevenson, a racist, anti-New Deal, isolationist Dixiecrat of the Strom Thurmond school, as a virtuous, incorruptible hero from a nobler time from whom the villainous Johnson stole a Senate seat in 1948. Quite apart from misleading readers by omission about Stevenson’s reactionary politics, Caro gets basic facts wrong, as Sidney Blumenthal pointed out in 1991:

In his climactic scene in “Means of Ascent,” Mr. Caro wrote: “Coke Stevenson and Frank Hamer walked side by side, two tall, broad-shouldered, erect, silent men — two living legends of Texas, in fact — two men out of another, vanishing age, another, vanishing code, marching down a street in a dusty Texas town to find out for themselves, and prove to the world, how Lyndon Johnson had gotten the two hundred crucial votes.” Mr. Caro goes on to describe how Hamer intimidated pistoleros blocking the way into the bank where the election records were kept, forcing them to part for Stevenson. About this passage, Rowe observed: “It left my mouth ajar when I read of the ‘dusty’ scene — after all, I followed the party into the bank and was the only reporter there … There were two banks, Texas State Bank and Alice National Bank. Furthermore the streets for many blocks around both banks have been paved for as long as I can remember. There wasn’t any dust around or near the bank when we went in. What is more, I never heard Frank Hamer say a word, nor did I see the pistoleros at or near the bank entrance as described by Caro.” Rowe added: “I share with at least several hundred thousand Texans astonishment over the picture of Stevenson painted by Caro.”

(For what it is worth, my father was a veteran of Texas politics who as a young lawyer gathered with others to listen to Frank Hamer, the Texas Ranger who killed Bonnie and Clyde, tell stories at the Driskill Hotel in Austin. In 1991 my father was baffled when I told him that the first volume of Caro’s biography idealized Coke Stevenson: “Coke Stevenson? He was just a tool of the oil companies.”)

Caro’s polemic against Robert Moses is even more of a travesty of the biographer’s art than his melodramatic morality play about Lyndon Johnson. Thanks to Caro, the only things that most people who have heard of Robert Moses think they know about him are that he deliberately built highway bridges too low for buses to keep blacks from riding buses to Jones Beach, and that he kept the water in public swimming pools in white neighborhoods cold, on the theory that this would repel black kids. Quite apart from being worthy of a cross between a Klan Wizard and Wile E. Coyote, these alleged schemes are urban myths that genuine scholars have long since refuted. They are comparable to allegations that Bush planned 9/11 or that LBJ and J. Edgar Hoover whacked JFK. (For fair and scholarly treatments of the men whom Caro defamed, see Hilary Ballon and Kenneth T. Jackson, “Robert Moses and the Modern City” and Robert Dallek’s“Lyndon B. Johnson: Portrait of a President.” )

No amount of revisionism is likely to rehabilitate the image of J. Edgar Hoover. Following Hoover’s death, Congress prudently imposed a 10-year term limit on FBI directors. The intelligence community was similarly reformed, after James Jesus Angleton, head of counterintelligence from 1954 to 1975, damaged it with his deluded belief that the Soviets had planted “moles” at the highest levels.

However, in other areas of public policy where there is no danger that personal or state secrets will be abused, a case can be made for effective career public servants who are allowed to spend at least a decade or two supervising major projects from gestation through legislation to completion. While it has real drawbacks, long tenure in office does eliminate the Future Employer Problem. A middle-aged power broker whose next career move is retirement is more likely to ask what private sector lobbies can do for his agency — not what his agency might do to please his future employers. (Among the figures I’ve mentioned, only Lilienthal went on to a long career in which he exploited his experience as an investment banker and businessman, having left public service in mid-career).

In the 1970s, the excesses of imperial presidents like Nixon and bureaucratic empire-builders like Hoover needed to be checked. Unfortunately, conservatives, libertarians and neoliberals neglected to read No. 70 in the Federalist Papers, in which Alexander Hamilton listed the ingredients for “energy in the executive,” which are “first, unity; secondly, duration; thirdly, an adequate provision for its support; fourthly, competent powers.” To use the 18th century language of the Founders, a democratic republic can be destroyed by tyranny (unchecked power) or faction (special-interest policymaking). Obsessed with thwarting anything resembling tyranny in the post-Hoover, post-Watergate era, we Americans have allowed faction to run riot.

Today the chief danger to the nation is not rogue bureaucrats but a locust plague of in-and-outer lobbyists who worm their way into the civil service and the staffs of the White House and Congress, making policy on behalf of their private sector employers and clients. This may not bother the Predator State Conservatives and the Crony Capitalist Progressives, whose shared program seems to be the conversion of what is left of the American public sector into rent-extracting concessions, including “green energy” concessions like renewable energy mandates on utilities, for the benefit of private equity firms, investment banks, mutual funds, and well-connected politicians enriched by the IPOs of privatized government agencies. But other Americans must ask themselves some tough questions.

Can you call for New Deal-style infrastructure projects or a new WPA, while favoring environmental regulations or not in my backyard (NIMBY) litigation that cripples new initiatives? Can you accomplish any major public initiative, if backroom deals are ruled out and all deliberations must take place in the glare of publicity with the microphones on? Is it possible for politicians or public servants to succeed, without an irreducible minimum of bullying, bluffing and blackmail? Can you ask public servants to regulate business and banking, if they plan to ask firms in the industries they regulate for jobs after a few years in government service? Can you attract brilliant and ambitious people to public service, if they are poorly paid, overly hemmed in and not allowed chances at personal glory? Can you favor a strong and capable civilian government, without favoring strong and capable government career officials?

America doesn’t need any more J. Edgar Hoovers. But it could use fewer revolving-door lobbyists at the highest levels of government and more dedicated and effective G-Men and G-Women.

[Thailandnotes]

Re: Financial Analysis of USA, Inc.

On reforming the FED

JP Morgan Chase CEO Jamie Dimon will appear before the Senate Banking Committee on Wednesday to answer questions about his bank’s risk management, or lack thereof—how was it that a too-big-to-fail institution took dangerous gambles that recently resulted in multi-billion losses?

But there are deeper questions likely to come up as well. One is why Dimon is allowed to sit on the New York Federal Reserve’s board of directors, along with several other titans of finance. At the twelve regional Federal Reserve Banks, there are nine-member boards of directors. Six of the seats are selected by banks from the region—although, somewhat hilariously, the banks are supposed to pick three directors to represent their interests, and then three directors to represent “the public’s interest.”

Snip…

The Dodd-Frank legislation, thanks to a provision inserted by Sanders, required the non-partisan Government Accountability Office to study these conflicts of interest at the Fed and issue a report. It did so in October, issuing a detailed study which found that allowing members of the banking industry be on the Federal Reserve’s board of directors creates “an appearance of a conflict of interest” and poses “reputational risks” to the Federal Reserve System.

snip

• In 2008, the New York Fed approved an application from Goldman Sachs to become a bank holding company giving it access to cheap Fed loans. During the same period, Stephen Friedman, who was chairman of the New York Fed at the time, sat on the Goldman Sachs board of directors and owned Goldman stock, something the Fed’s rules prohibited. He received a waiver in late 2008 that was not made public. After Friedman received the waiver, he continued to purchase stock in Goldman from November 2008 through January of 2009 unbeknownst to the Fed, according to the GAO.

Sanders and Senator Barbara Boxer have introduced legislation that would end these conflicts of interest by prohibiting anyone who works for, or even invests in, companies that are eligible for aid from the Federal Reserve from sitting on a board of directors. Sanders singled out Dimon when announcing his legislation late last month. “How do you sit on a board, which approves $390 billion of low-interest loans to yourself?” Sanders said. “Who in America thinks that makes sense?”

http://www.thenation.com/blog/168351...licts-interest

[gnk]

Re: Financial Analysis of USA, Inc.

EJ said:

As far as villains go, I place the blame squarely at the feet of Paul Volcker and Allan Greenspan, Volcker for laying the economic and ideological foundation, and Greenspan for building the credit bubble on it. In fact, in my view we are in what I now call the Volcker-Greenspan Depression. It will end eventually with a sudden reversal of 30 years of credit excess.

With Volcker, I see more unintended than intended consequences. He was fighting to tame the violent birth of a global fiat monetary system born of a need for a Superpower to continue financing its growth and control.

As for Greenspan, he's a very interesting, complex individual. A close follower of Ayn Rand, he was criticized by Rand as an opportunist and social climber. I guess after he became Fed Chair, (Rand was present at the swearing in ceremony) he totally sold out. Yet, when asked by Ron Paul decades later if he would change anything he wrote in "Gold and Economic Freedom", Greenspan replied: "No I wouldn't change a single word."

But I would also include three other things that advanced the FIRE economy in much of the West. In the past 40 years, technological developments, advancements in agriculture, and global wage arbitrage all affected price inflation in ways that never happened before in the history of the world.

So where did all that inflation from decades of money printing go? It pooled into the stock markets and real estate. Voila... FIRE.

Nicholas Brady, Treasury Secretary under Bush I once said of inflation: "If the assets were gold or oil, this phenomenon would be called inflation. In stocks, it is called wealth creation."

[ST]

Re: Financial Analysis of USA, Inc.

Volcker for laying the economic and ideological foundation,....

I'm a bit surprised by this as I always viewed Volcker as a bit of a hero for doing what he did, and rather blamed Milton Friedman for pushing the subsequent economic ideology past reason.

[jiimbergin]

Re: Financial Analysis of USA, Inc.

I'm a bit surprised by this as I always viewed Volcker as a bit of a hero for doing what he did, and rather blamed Milton Friedman for pushing the subsequent economic ideology past reason.

so did I, perhaps EJ will explain this comment further in his next article.

[EJ]

Re: Financial Analysis of USA, Inc.

so did I, perhaps EJ will explain this comment further in his next article.

The US faced a serious inflation problem immediately after WWII that the Truman administration handled with a great deal more finesse than the Reagan/Volcker regime did. It's The Forgotten Great Inflation of 1946 to 1949 and we cover it in detail in a future Ka-Poom Theory (Janszen Scenario) update. Consider this testimony of economist Paul Porter with my emphasis.

INFLATION CONTROL
THURSDAY, JULY 29, 1948
HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING AND CURRENCY, Washington, D. C
STATEMENT OF PAUL PORTER, SPECIAL ASSISTANT TO THE PRESIDENT OF THE UNITED STATES

The country today is in the midst of an unprecedented prosperity. By an index of material welfare, the average American should be more contented than ever before. I scarcely need to point out that such is not the case. This is an uneasy prosperity, haunted by fears for the future. It is also an unfair prosperity in which the condition of large groups within the country has become progressively worse. This paradox, of good times and bad tempers, and the quite justified fear that our present prosperity may be built on quicksand, are primarily rooted in one fact: higher an higher prices.

Prices have been rising rapidly for over 2 years, and they are still rising. There is, in fact, danger that some of us have become so hardened to this process that we may assume that nothing can be done about it and thus forget the certain consequences. But for millions of people these consequences are very real today, as they see their purchasing power and living standards shrink.

Let us review briefly the price history of the last 2 years. Between June 1946 and June 1948 consumers’ prices have, on the average, risen 29 percent; the retail price of food is up 47 percent, the retail price of apparel is up 25 percent, and rents are up 8 percent. Consumer prices are now at the highest point in our history. Wholesale prices have shown even more substantial increases. Thus, the average of all wholesale prices is up 47 percent, the wholesale price of food is up 61 percent, farm products are up 40 percent, and all products other than farm products and foods are up 42 percent. Wholesale prices are now more than double their prewar level and the highest in our national history.

This drastic rise in prices has had its inevitable effect on the real income of the average man. While the per capita disposable income rose from an annual rate of $1,086 in the first half of 1946 to $1,273 in the first half of 1948, a rise of over 15 percent, its real purchasing power has been cut by almost 10 percent.

The point I want to make is that these price increases are not something that happened only in the second half of 1946. They happened again in the second half of 1947, when wholesale prices rose 10 percent and consumer prices rose 6 percent. They are happening again now. Since the temporary decline early this year, wholesale prices by June had risen 3 percent. Consumer prices had also risen about 3 percent. Price rises on a broad scale are taking place right now. The situation in retail food prices, which have risen 6 percent between March and June, is particularly acute. It might be noted that in the last few weeks alone wholesale food prices have risen around 6 percent.

How far are we prepared to permit this inflationary spiral to go? Can the Government, under its responsibility to the people, risk the consequence of further increases, which will undermine the foundations of economic prosperity and bring still greater hardshipsThe weight of evidence indicates that this is what will happen unless effective action is undertaken quickly.

If we look at the present situation in historical perspective, the country’s precarious economic condition becomes apparent. A chart which has not arrived yet, Mr. Chairman, which shows the movement of wholesale prices since 1749, which I will submit to the committee when it arrives, brings out the fact that every previous inflation of this character has been followed by a sharp decline. Such declines have always been accompanied by unemployment and depression.

If we take effective action, even at this late date, there is reason to hope that the price readjustments which are inevitable in the future can take place without general depression and unemployment.

The price increases which have already occurred have undoubtedly made such a successful readjustment difficult. If prices continue to rise, the possibility of successful readjustment will progressively diminish and may soon be lost entirely.

[snip]

The process of inflation is characterized by three interrelated phases. First, there is the excess of total demand-by consumers, business, Government, and foreign countries-over available supplies at existing prices. The effects of this initial phase are then intensified by the price-wage spiral. Finally, an increasing credit and money supply is essential to support the operations of the economy at the higher income and price levels; and the increased money supply, in turn, tends to reinforce the excess demand.

An effective anti-inflation policy must, at the some time limit the increase in total demand and, by selective action, bring to a halt the inflationary spiral. Without support of other measures a restrictive credit policy would have to be so drastic to combat inflation that it would run the risk of causing s depression.

What did the Truman administration do to halt the inflation spiral? It undertook eight policy measures in a piece of legislation with seven titles.

The President in his message has outlined a balanced and constructive program of eight measures to stop inflation. This program has been incorporated into the anti-inflation and excess-profits tax bills which, it is hoped, Congress will consider and adopt. These bills are designed to halt further increases in the general level of prices by a comprehensive program that attacks the problem at all the strategic points. This is necessary to deal both with the basic cause of the inflation and with the factors that cause it to spread through the whole price system. This is legislation, Mr. Chairman, which Mr. Spence advises me he will present to the House when it convenes at noon today. The proposed bill deals with all of these points except taxation, which will be covered in another bill.

Title I of the present bill authorizes the reimposition of control for 2 years over consumer credit by the Board of Governors of the Federal Reserve System but only with respect to installment credit.

Title II authorizes the Federal Reserve System for 2 years to increase the reserves that member banks are required to hold against

demand and time deposits.

Title III authorizes the reestablishment of control over key prices and wages and then only under specified conditions. I do not propose, at this time, to treat with the standards in the pricing and wage provisions. The committee has just received the bill, and I will be glad to appear in support of the criteria used at the pleasure of the committee and when the members have had the opportunity to study its provisions in greater detail.

Title IV gives the President power to establish allocations and inventory control over scarce materials or facilities that basically affect production or the cost of living and where they are necessary to fulfill defense requirements, carry out United States foreign policy or curb inflation, and also to establish priorities, where necessary, for these purposes. It is under this title that rationing would be established for key cost-of-living commodities in the event such rationing should become necessary. This title also extends export control powers to June 30, 1950.

Title V authorizes the Housing Expediter to establish or reestablish maximum rents and strengthen enforcement.

Title VI gives the Secretary of Agriculture authority to regulate margins in connection with trading on the commodity exchanges, a power which he does not now have.

Title VII establishes an Anti-Inflation Coordinator in the Executive Office of the President to coordinate the anti-inflation activities of the executive agencies and an Anti-Inflation Advisory Board to advise the Coordinator; requires the President to submit a report to Congress at least once every quarter on the progress made in controlling inflation and on desirable legislative action; and contains certain other miscellaneous provisions.

These policies at first struck me as a heavy handed, big government approach that offended my sense of the proper role of government in markets. But the reader has to consider the times. Durng WWII the economy had been under rationing and price and controls. Re-instituting some of these policies with a two year time limit ensured that such policies would not be institutionalized. The Truman/Roberts program was so effective at bringing inflation under control without inducing a depression that the entire episode has been forgotten even though the inflation was far more severe than the 1970s inflation.

The Truman policies produced no great drama as occurred from 1980 to 1983 when the Volcker dealt with a far less severe inflation spiral by hitting the economy with a monetary sledge hammer. He instituted monetary policy that was so restrictive that it sent not only the US economy but the world economy into a depression from 1980 to 1983, and launched the largest number of sovereign defaults in history. It was the quick and dirty way to end an inflation spiral: raise interest rates so high as to cause a mini-depression and high unemployment, which in turn produced a decline in demand to stop the inflation spiral.

The finesse approach to ending an inflation spiral taken by Truman won him, Roberts, and the Fed under Thomas McCabe no hero status. It was forgotten precisely because it lowered inflation by reducing demand but without inducing a memorable era of depression and high unemployment. The Volcker Fed approach, considered too disruptive by Truman, Roberts, and McCabe in the 1940s, earned Volcker a reputation as a hero in the 1980s. It's an interesting historical lesson in the Power of Simple Ideas, such as "Inflation is always a monetary phenomenon." It obviously is not, and Roberts does the best job I've seen of explaining in layman's terms the three interrelated phases of the inflation process.

Ever inflation episode starts with a demand shock, a supply shock, or both. The post-WWII inflation was both. Newly formed families presented enormous pent up demand for consumer goods, but the productive capacity of the US was geared to military not consumer goods. A good part of production was geared to export. At the same time, commercial banks that financed half the war began to lend against bonds that they by law were allowed to use as reserves. Consumer credit exploded. That's the second phase of the inflation spiral process. Finally there was "an increasing credit and money supply is essential to support the operations of the economy at the higher income and price levels; and the increased money supply, in turn, tends to reinforce the excess demand."

The irony is that toward the end of the war economic policy makers worried about a return of The Great Depression when the war ended, or at least a major recession as occurred after WWI, which is why war-era wage and price controls were halted right after the war. Instead of a depression they got an inflationary boom.

McCabe is as far as I know the only Fed Chairman to come out of productive industry. Per wikipedia: "McCabe graduated from Swarthmore College in 1915. He joined Scott Paper Company after serving as a Captain in the United States Army in World War I. He was 26 when he joined the company, and advanced to CEO by the time he was 34. Under McCabe's leadership, Scott Paper expanded from a single mill, employing about 500 people, into a multinational giant, employing over 40,000 at 60 locations throughout the world. McCabe retired from the board of Scott Paper in 1980." All the rest, including Volcker, have professional backgrounds as either economists or bankers.

[c1ue]

Re: Financial Analysis of USA, Inc.

The US faced a serious inflation problem immediately after WWII that the Truman administration handled with a great deal more finesse than the Reagan/Volcker regime did.

...

The finesse approach to ending an inflation spiral taken by Truman won him, Roberts, and the Fed under Thomas McCabe no hero status. It was forgotten precisely because it lowered inflation by reducing demand but without inducing a memorable era of depression and high unemployment. The Volcker Fed approach, considered too disruptive by Truman, Roberts, and McCabe in the 1940s, earned Volcker a reputation as a hero in the 1980s.

Thank you for the exposition. I do understand your point: that what Volcker did (taming inflation) was necessary, but the means of doing so was not.

The part which is still missing, however, is motive.

Do you believe Volcker chose his specific policy deliberately in order to promote some agenda, or was Volcker chosen for his likely policy choice, or was the rise of Volcker/Volckerian inflation fighting merely accident, or something else?

If in fact, as you've demonstrated, that a far worse inflation was tamed previously by a coherent and well planned program, then the actions of Volcker seem far less benign or accidental.

While in general I am not a conspiracy theorist, on the other hand it isn't difficult to imagine a few smart, long term view and politically connected FIRE types seeing an opportunity in the tumultuous '70s to steer US policy toward several decades of pro-FIRE action.

And while this might be of purely academic interest, on the other hand a coherent agenda also requires intent. Perhaps the biggest control fraud of all?

[jk]

Re: Financial Analysis of USA, Inc.

the problem volcker faced was the same one that bernanke et al face: the inability or unwillingness of the legislature and executive to use fiscal and regulatory policy in a responsible way. truman had more guts than his successors in his willingness to use fiscal and regulatory policy.

the same thing happened in europe. when germany slowed with the reunification, it was unwilling, or unable under the treaties in place, to use fiscal stimulus sufficient to deal with its problem. instead, monetary policy was used, policy which was appropriate for the "core," but triggered a bubble in the periphery.

to blame volcker is to assume he had the option of being more subtle in cooperation with a responsible fiscal and regulatory policy. unfortunately, the phrase "responsible fiscal and regulatory policy" sounds more and more like "wonderflonium" to me.

[c1ue]

Re: Financial Analysis of USA, Inc.

the problem volcker faced was the same one that bernanke et al face: the inability or unwillingness of the legislature and executive to use fiscal policy in a responsible way. truman had more guts than his successors in his willingness to use fiscal policy.

One of the reasons I'm asking these motive questions is because Reagan, even to most of his fans, was not in any way to be confused as a hands-on President.

I wonder greatly at the likelihood Reagan conceiving and ordering Volcker to undertake any such radical policy as Volcker wound up executing. Congress in Reagan's first term was also Democrat, with Volcker having come in under Carter and executing his 'great interest rate leap forward' right at the beginning of Reagan's first term.

[EJ]

Re: Financial Analysis of USA, Inc.

the problem volcker faced was the same one that bernanke et al face: the inability or unwillingness of the legislature and executive to use fiscal and regulatory policy in a responsible way. truman had more guts than his successors in his willingness to use fiscal and regulatory policy.

the same thing happened in europe. when germany slowed with the reunification, it was unwilling, or unable under the treaties in place, to use fiscal stimulus sufficient to deal with its problem. instead, monetary policy was used, policy which was appropriate for the "core," but triggered a bubble in the periphery.

to blame volcker is to assume he had the option of being more subtle in cooperation with a responsible fiscal and regulatory policy. unfortunately, the phrase "responsible fiscal and regulatory policy" sounds more and more like "wonderflonium" to me.

Your point on Volcker's options under the Reagan administration is well taken, considering the tragic-comic results of Carter's attempt to finesse the inflation spiral.

I'm not condemning Volcker. I'm pointing out that another hard-nosed US leader, Truman, the man who said he never regretted his decision to drop an atomic bomb on a civilian population and would do it again, when it came to dealing with an economic problem preferred to work a complex solution to address all of the phases of the inflation process rather than rely entirely on attacking the credit and money supply phase. He got no credit for it whereas the man who tamed inflation with tight money policies designed to lower demand by inducing a depression is credited for taking heroic action in the face of crisis. The fact that the dramatic approach The Great Inflation is remembered whereas the finesse approach to a greater inflation is lost in the abyss of history says more about human nature than anything else.

As an aside, the main reason I never worry about competition with iTulip is that 99.9% of the analysts out there are too lazy and impatient to work out the dynamics of lengthy and complex processes that produce economic change in the real world, especially when they can use ideology as a shortcut. They do not see events within the sweep of history except in a superficial way, through the lens of this school of economics or that.

To this day when I tell an economist that Volcker induced recessions on purpose they look at me with the same confusion I saw in their faces five years ago when I explained to economists that the housing bubble resulted from a set of government subsidies to the real estate industry, but both assertions are equally factual. Ideological blinders make these assertions incomprehensible to the believers.

Isn't the real estate industry dominated by political conservatives, with Donald Trump as the icon? Aren't political conservatives against government subsidies to private industry? Then how can the real estate industry be the beneficiary of government subsidies? Doesn't compute.

But in the real world a bad government subsidy is the other guy's subsidy, the one that doesn't benefit oneself, regardless of one's personal ideological bearing. Same with Volcker and his pro-recession monetary policy.

How can this be? Isn't Volcker hero of free markets, a hard-nosed pragmatist who did what was necessary to end the inflation spiral, damn the political consequences? The reason it's important to understand the facts of the events in both periods of high inflation, the McCabe era and Volcker's, is the next period of high inflation will be launched with a supply shock; understanding how the administration at the time is likely to cope with it is critical to our investment decisions. There isn't only one way. It doesn't do us any good to see a hero there and a villain there. What we need is clear vision and clear thinking, unimpeded by ideology. Easier said than done, however. Again, my initial reaction to the Truman program was that it read like a New Deal program in reverse. But it worked, and after it worked all of the controls were ended and the economy boomed.

In 2011 I handed Paul Volcker a copy of my book. He asked, "Got everything figured out here?" I never heard from him after that. Either he didn't read it or he did and didn't appreciate the implication of my argument that the FIRE Economy followed from a combination of falling interest rates, tax subsidies to FIRE industries and FIRE deregulation after he turned things over to Greenspan in 1987.

Also, I asked him if the same conditions occurred today whether the Fed could pursue the same policies. He said absolutely not. Today the US is a net foreign debtor sitting on a mountain of foreign and domestic debt liabilities that are not affordable at short-term interest rates much above 2% never mind 10% or 20%.

[ST]

Re: Financial Analysis of USA, Inc.

It doesn't do us any good to see a hero there and a villain there. What we need is clear vision and clear thinking, unimpeded by ideology.

Point taken. Though, it is hard to reconcile Truman's war comments along with his other comments during the inflationary period in question when he was dealing with the railroads and went before Congress to seek the power to draft all strikers into the armed forces (!) (audio of speech), with someone who chose deliberately to use a light touch. Maybe the '29 implosion of credit had still been influencing him.

My recollection (probably badly damaged) was that after wage and price controls didn't work in the early 70s (a pet peeve of mine I've mentioned in many posts-they do work for their intended end-to break the momentum of a wage price spiral), that attacking credit was an alternative, but truly an experiment. I recall Schutlz of the Fed said something like - we didn't know we were hitting the mule with a two by four, we thought we were turning off a light switch. (mixed metaphors aside, I thought he got the point across, at least in books that I read as an adult- I was more concerned with watching sesame street at that particular time).

[bart]

Re: Financial Analysis of USA, Inc.

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