MAKE THAT ONE DIP OR TWO?

No, I am not selling ice cream with sprinkles. The term, double dip, refers to a second recession that may collapse an already fragile economy and trigger the second Great Depression.

About two weeks ago, I discussed the possibility in this post, The Looming Unemployment Bomb. To recap some key points:

When you look at this multimedia visualization, you can see why joblessness represents an even bigger threat to economic recovery than the credit crisis that triggered this mess. Watch the black death of unemployment sweep over the country in 30 seconds or less. And notice the data feed: It does not even include the latest unemployment figures. The visualization gives you a snapshot through September 2009 when the unemployment rate reached 8.5 percent.

In fact, the current official unemployment has reached 10.2 percent and still rising. When you count real unemployment, the one that includes discouraged workers who have stopped looking for jobs and those marginally working part-time jobs, the true unemployment rate (also known as U-6 - Alternative measures of labor underutilization) is closer to 17.5 percent.

Paul Krugman has joined the ranks of pessimists with a Double Dip Warning:

I’d be more sanguine about all of this if there were any indications that private, final demand is taking off — consumers, business investment, whatever. But I haven’t seen anything suggesting that sort of thing (…) The chances of a relapse into recession seem to be rising.

The stimulus has run its course, and all leading indicators suggest a continuing downward trend. One problem is that the econometric forecasting methods used by Washington assumed an unemployment rate of 10.3% by the end of next year. In fact, we arrived at this level a year earlier, and the worse case turned out worse than expected and sooner than expected.

The problem with the stimulus may not be the stimulus, although Krugman advocated for more robust aid, but the TARP bill that was cobbled together in the closing months of the Bush administration. If you recall, then Secretary of the Treasury Hank Paulson sounded the alarm in the form of a one-page memo that would have given him unbridled power to distribute the almost $800 billion in TARP funds with no controls. The compromise bill rushed through Congress did not anticipate the chicanery that would render it ineffective. Here is what the TARP bill should have accomplished:

Rule #1. Never leave it up to banks to decide for themselves what to do with public funds. Tell them how and where the funds should be allocated. The purpose of the funds was to unlock frozen credit markets. Why this did not happen? The banks used the money to improve their balance sheets when they should have been making commercial loans.

Rule #2. When banks are bailed out with public funds, make sure banks get out of the lobbying business. How is the public interest served when public money is used to buy influence that may go against the public interest! Post-bailout lobbying smacks of double-dealing, self-dealing, and conflict of interest. That is why current reform efforts are stalled in Congress.

Rule #3. No bonuses or wage increases until all public money has been paid back. The hubris of Wall Street offends us and turns upside down our basic values: We should reward merit, not failure, nor entitlement.

Rule #4. Community banks play a larger role in distributing commercial loans to local businesses than big banks. Why were these NOT included under TARP?

On the subject of reform, I have two more pet peeves. First, there are other professions - doctors, lawyers, real estate brokers, and teachers - that undergo some form of accreditation or licensing. Why not those on Wall Street to whom we entrust our assets, our retirements, indeed our lives. The same fools who authored the credit default insurance swaps that brought down AIG are the SAME fools who authored the junk bond crisis 25 years ago. When you recycle fools back into the system, you perpetuate their culture.

Second, if a bank is too big to fail, it is too big to exist. The regulatory system installed during the Great Depression and dismantled in 1999 must be restored and the Glass-Steagall Act reinstated. Regrettably, our diversified financial institutions are bigger, more arrogant, and more dangerous than before. To suggest that it is too unrealistic to put the genie back in the bottle is unacceptable.

Let them eat Lobster

I just don't know any more and perhaps soon enough I just won't care. I got cornered by a woman at my club last night who went on and on about her money being wasted in earmarks for tattoo removal. This seems to be the red herring this week and the fishy smell of course is emanating from Fox, with people ( and I use the term loosely) like Michelle Malkin working overtime to make the most of it.

Apparently some money will go to a program to remove gang tattoos in California. Some will go for the Lobster fishing industry in Maine -- I don't need to repeat the litany, just turn on Fox or read any of the Ditto sites that repeat it ad nauseam, but we're hearing far less about billions to companies that use it for executive pay and bonuses; jets and yachts than we are about millions to entities that spend money on the poor and disadvantaged or on industries that employ Americans. All around her, of course are bankrupt businesses, foreclosed houses and homeless people. Perhaps one of them works for a dermatologist who removes tattoos. Perhaps there's someone who works in maintaining the 20,000 or so acres of parkland in this county -- land that attracts more in tourism than we spend making it pretty.

Certainly some of them in this coastal village are commercial fishermen whose boats are being foreclosed on, which is affecting the sales of gasoline and services which is forcing marinas to close and people in boatyards and grocery stores and tackle shops to be laid off. Saving an industry that employs Americans is at least a bridge to somewhere and criticism from people who have represented and supported the greatest orgy of non-productive pork barrel spending is almost as disgusting -- well, as Michelle Malkin.

It's easy to call any budget a series of "earmarks" and it beats me to think about how one allocates funds without allocating funds, unless you follow the Bush/Paulson "don't ask because we won't tell, you liberal bastard" model. One thing is for sure; some Maine fisherman is more likely to be salting cod with whatever comes his way from this package than salting money away in the Caymans or buying German cars or yachts made in Taiwan and Hong Kong.

The whole idea of economic stimulus is to produce liquidity and improve the velocity of money so that maybe fewer people will lose their homes and jobs and businesses. The sudden parsimony of people who said nothing as tens of trillions of debt piled up, as money disappeared into the bowels of offshore corporations like Halliburton, was disbursed in pizza boxes to Iraqi war profiteers and corrupt politicians, should be embarrassing. Being a Republican however, is never to feel embarrassment, guilt or remorse, but to look for the solace of being told it's the doing of the "liberals."

As I said, I'm almost to the point of not caring any more. If we really are a nation of people hypocritically obsessed with the motes in other people's eyes, or stimulus packages, to the point where they would gladly see the end of the United States as a world power, we deserve what we get.

Moving On From Stimuless?

My mind has been unfortunately consumed with thoughts of the economic stimulus for what feels like at least a decade. I don’t even really know what to think anymore - maybe I never did. The President didn’t do an effective enough job selling his plan to the American people early on. He should have been hitting us over the head with talk of how badly we need this package - about how it may be imperfect, but for God’s sake at least it’s something. For the second half of this week, he succeeded at doing this - often with a bit of flare the usually cool leader shies away from. And he tried for the first half of the week, but his cabinet appointments seem to have a bad habit of not paying their taxes. Since the media can’t focus on more than one thing at a time, discussion of ethics and poor accounting practices consumed the airwaves. Nonetheless, Obama tried. Plus, while the President and his party could have executed better, blame for the recovery catastrophe lies almost entirely with the Grand Old Patronizers.

The Republicans systematically undercut everything logical about this economic discussion simply because everything logical about this economic discussion came from the Democrats. They offered no ideas, save the tired ones about cutting taxes for rich people. John McCain reverted to campaign mode, complaining, “This is not a stimulus bill; it is a spending bill.” Thanks John. McCain’s concession speech after the election seemed very heartfelt. I even inquired as to whether the old McCain, the one unencumbered by political theater, would return to - wait for it - getting things done. I guess I was wrong.

I’ve championed bipartisanship, and I still believe it can work. But it is certainly more difficult than seems reasonable. Paul Krugman says there’s no room for compromise with a party that is as “irresponsible" as the GOP. I don’t want to be corrupted, I want to believe in Obama’s call for unity, but Krugman makes a good point. If the Republicans continue to obstruct to this degree in the future, and the Democrats are again outmaneuvered, then I certainly hope the Democrats are at least able to mobilize enough support to push these yahoos out of office. I firmly believe the GOP is going to remake itself as a party of moderates - if they don’t, they will die off - but in the mean time, we have a lot of serious stuff that we need to deal with. And yet the Republicans seem set on standing in the way.

Luckily, a deal on the Senate version of the recovery package seems to have been reached. It cuts a substantial amount of spending - about $100 billion - from a bill that probably didn’t have enough spending to begin with, but it's a step in the right direction. Maybe Democrats ceded too much, maybe they did the right thing. We'll have to wait to see how effective the plan ends up being. But Republicans! Seriously! You guys have got to get your act together. The economy is collapsing on all sides and the only thing you can think about is scoring political points. We cannot afford to have the battle over reconciling the two versions of the stimulus bill take this long. So GOPers...play nice. And Democrats...don't let Republicans dominant the argument - your ideas are right, you are on the right side of history. Act like it.

(I'm afraid to imagine what passing universal healthcare is going to be like.)