Weekly Audit: Banks Get Big Bucks, Consumers Get Bupkis

 

by Lindsay Beyerstein, Media Consortium blogger

Last week, the Federal Reserve announced a plan to buy an additional $600 billion worth of Treasury bonds in an attempt to stimulate the economy. On Democracy Now!, economist Michael Hudson argues that the $600 billion T-bill buy will help Wall Street at the expense of ordinary Americans.

The Fed justifies the purchase as an infusion of cash into the U.S. economy. The buy-up will certainly be an infusion of cash into U.S. banks. In effect, the Fed will help the government pay back the banks that lent money to finance deficit spending. The hope is that these banks, suddenly flush with cash, will help the U.S. economy by lending money to finance projects that will create wealth and jobs (i.e. opening factories and hiring more workers).

However, as Hudson points out, there’s no guarantee that the banks are going to use the windfall to build wealth in the U.S. On the contrary, he argues, there’s every reason to suspect that they’ll invest the money overseas in currency speculation deals. Why? Because the Fed has also put massive pressure on Congress to push China into raising its currency by 20%. The banks know this because the House voted overwhelmingly to approve such a threat in September.

If the banks convert their extra billions to Chinese currency, and China raises the value of its currency in response to the threat of an across-the-board U.S. tariff on its imports, then banks that bought Chinese RMB when it was still artificially cheap will reap huge profits overnight.

Later in the Democracy Now! broadcast, Nobel Laureate Joseph Stiglitz describes how the U.S. employed a similar strategy of currency devaluation to insulate itself against the ravages of the Great Depression, with devastating global consequences:

So, the irony is that money that was intended to rekindle the American economy is causing havoc all over the world. Those elsewhere in the world say, what the United States is trying to do is the twenty-first century version of “beggar thy neighbor” policies that were part of the Great Depression: you strengthen yourself by hurting the others. You can’t do protectionism in the old version of raising tariffs, but what you can do is lower your exchange rate, and that’s what low interest rates are trying to do, weaken the dollar.

Trade war between the U.S. and China

The U.S. and China have a longstanding trade rivalry, but suddenly the two powers seem to be even more at odds than usual.

William Greider of The Nation argues that plummeting global demand has ratcheted up tensions as the two exporting nations fight over a dwindling pool of customers. The U.S. accuses China of artificially deflating its currency to make its exports cheaper. In retaliation, the U.S. imposed tariffs on Chinese tires and tubular steel. China, in turn, imposed a tariff on U.S. poultry. As I mentioned above, the House voted 348-79 in September to impose additional tariffs on nearly all Chinese imports if China doesn’t revalue its currency, though the Senate has yet to vote on this legislation.

The U.S. acts indignant about China manipulating its currency, but Grieder argues that this stance is hypocritical in light of the Federal Reserve’s decision to buy an additional $600 billion worth of Treasury bonds from the federal government to help finance the budget deficit. One effect will be to weaken the U.S. dollar, which will make our exports more competitive relative to those of China.

Voters reject free-for-all trade

In last week’s midterm elections, voters rewarded candidates who oppose unfettered free trade, according to Kari Lydersen of Working In These Times. According to a new report by Public Citizen, 60 congressional races were fought wholly or largely on trade issues in 2010. Only 37 candidates favored NAFTA-style free trade pacts and half of them lost. Not all the candidates who won on a protectionist trade platform were advocating a progressive agenda of fairly compensating trading partners, protecting American jobs, and upholding environmental regulations. Senator-Elect Rand Paul (R-KY) argued that the World Trade Organization is a threat to U.S. sovereignty.

Anti-union ballot initiatives win big

Mikhail Zinshteyn of Campus Progress brings us an update on the anti-union initiatives that appeared on the ballots in many states last week. Voters in Arizona, South Carolina, South Dakota and Utah approved legislation to preemptively neutralize the already-stalled Employee Free Choice Act (EFCA), should it ever become federal law. EFCA, also known as card check or majority sign-up, would allow workers to organize by signing up for a union, instead of going through a grueling National Labor Relations Board (NLRB) election process, which makes workers sitting ducks for management threats and propaganda.

Bean there, done that

Move over, Elizabeth Warren. The White House may be poised to appoint one of Wall Street’s favorite Democrats to head the new Consumer Financial Protection Bureau. Andy Kroll and David Corn report in Mother Jones that Rep. Melissa Bean (D-IL) is a favored contender for the job if her still-undecided race for reelection doesn’t work out. That would be heartening news for Bean’s former chief of staff, John Michael Gonzalez, now a leading lobbyist for Big Finance.

Bean, who serves on the House finance and small business committees, has received over $2.5 million in campaign contributions from the financial sector over the course of her 5-year career. Bean was also a big beneficiary of the Chamber of Commerce, which vehemently opposed the Dodd-Frank financial reform bill that created the CFPB in the first place. Bean ultimately voted for the bill, but not before she unsuccessfully attempted to water down the consumer financial protections therein, the very provisions Bean would be tasked with enforcing.

“The White House needs to beat back the Bean idea, otherwise they’ll look like fools,” one Democratic strategist told Corn and Kroll. “This is the craziest thing I’ve ever seen. She’s a tool of the financial industries.”

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

 

The President on the Economy

The text courtesy of the White House:

THE PRESIDENT: Good afternoon, everybody. I just finished a meeting with my economic team about the current state of our economy and some of the additional steps that we should take to move forward.

It’s been nearly two years since that terrible September when our economy teetered on the brink of collapse. And at the time, no one knew just how deep the recession would go, or the havoc that it would wreak on families and businesses across this country. What we did know was that it took nearly a decade -- how we doing on sound, guys? Is it still going in the press -- okay. What we did know was that it was going to take nearly a decade in order -- can you guys still hear us? Okay. Let me try this one more time.

What we did know was that it took nearly a decade to dig the hole that we’re in -– and that it would take longer than any of us would like to climb our way out. And while we have taken a series of measures and come a long way since then, the fact is, that too many businesses are still struggling; too many Americans are still looking for work; and too many communities are far from being whole again.

And that’s why my administration remains focused every single day on pushing this economy forward, repairing the damage that’s been done to the middle class over the past decade, and promoting the growth we need to get our people back to work.

So, as Congress prepares to return to session, my economic team is hard at work in identifying additional measures that could make a difference in both promoting growth and hiring in the short term, and increasing our economy’s competitiveness in the long term -- steps like extending the tax cuts for the middle class that are set to expire this year; redoubling our investment in clean energy and R&D; rebuilding more of our infrastructure for the future; further tax cuts to encourage businesses to put their capital to work creating jobs here in the United States. And I’ll be addressing these proposals in further detail in the days and weeks to come.

In the meantime, there’s one thing we know we should do -– something that should be Congress’ first order of business when it gets back -- and that is making it easier for our small businesses to grow and hire.

We know that in the final few months of last year, small businesses accounted for more than 60 percent of the job losses in America. That’s why we’ve passed eight different tax cuts for small businesses and worked to expand credit for them.

But we have to do more. And there’s currently a jobs bill before Congress that would do two big things for small business owners: cut more taxes and make available more loans. It would help them get the credit they need, and eliminate capital gains taxes on key investments so they have more incentive to invest right now. And it would accelerate $55 billion of tax relief to encourage American businesses, small and large, to expand their investments over the next 14 months.

Unfortunately, this bill has been languishing in the Senate for months, held up by a partisan minority that won’t even allow it to go to a vote. That makes no sense. This bill is fully paid for. It will not add to the deficit. And there is no reason to block it besides pure partisan politics.

The small business owners and the communities that rely on them, they don’t have time for political games. They shouldn’t have to wait any longer. In fact, just this morning, a story showed that small businesses have put hiring and expanding on hold while waiting for the Senate to act on this bill. Simply put, holding this bill hostage is directly detrimental to our economic growth.

So I ask Senate Republicans to drop the blockade. I know we’re entering election season, but the people who sent us here expect us to work together to get things done and improve this economy.

Now, no single step is the silver bullet that will reverse the damage done by the bubble-and-bust cycles that caused our economy into this slide. It’s going to take a full-scale effort, a full-scale attack that not only helps in the short term, but builds a firmer foundation that makes our nation stronger for the long haul. But this step will benefit small business owners and our economy right away. That’s why it’s got to get done.

There’s no doubt we still face serious challenges. But if we rise above the politics of the moment to summon an equal seriousness of purpose, I’m absolutely confident that we will meet them. I’ve got confidence in the American economy. And most importantly, I’ve got confidence in the American people. We’ve just got to start working together to get this done.

Thank you very much.

While it is reassuring to hear the President speak out on the economy, I am still left somewhat wanting by his remarks. Over the weekend, I chatted with my good friend Norm Jensen who runs the free-thinking blog One Good Move and he remarked that Obama "knows how to give a campaign speech but doesn't know how to give a Presidential one." I think that's a fair assessment but Obama's problems in getting his message across seem deeper than that. If this is his clarion call to action, I suspect the response is going to be muted.

To begin with, I would prefer that the President framed the crisis not just differently but also more succinctly. This is not simply a decade long debacle attributable to George W. Bush, this is a 30 year crisis in the making that needs to be pinned on Ronald Reagan and his misbeggotten policies. I think it important to remember that Reagan didn't just run against Jimmy Carter, he ran against FDR. This entire mess has to be pinned on the GOP going back to Reagan, not for political reasons, but for economic ones. Give the devil his due, this is Reaganomics biting our collective butts.

There's more...

"Now You Won't Be Joining a Union Now, Will You?"

 The debate over measures to fix America’s broken labor laws took a back seat during the long debate on health care.  Now that the focus has shifted to efforts to stimulate economic growth and job creation, it’s time to put workers’ rights front and center.

 

 

There's more...

NY-23- Union Members Help Beat Back Right-Wing

Dennis Affinati, business manager of Electrical Workers Local 910 in Watertown, N.Y.,--located near the Canadian border--doesn't turn his back on his friends.  

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Economic Hardship Increases Need for the Employee Free Choice Act

Crossposted from Hillbilly Report.

With the ever-encompassing debate over healthcare another Progressive initiative that is greatly needed has been overlooked in the last several months. The Employee Free Choice Act is still desperately needed to even the playing field for American workers, and the recent trouble in the economy despite what some will say has only deepened the need. As pointed out in one great piece, with the current crashed economy it seems as if once again the only ones who are feeling the pinch is the working American.

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