William Black has the article Deprogramming Progressives Indoctrinated into Supporting Austerity on New Economic Perspectives web site.

A little bit of economics can be a truly terrible thing, for the introductory classes in micro and macro-economics are the most dogmatic and myth-filled part of the neo-liberal curriculum.  Dogmas that have been falsified for 75 years (such as austerity) are taught as revealed truth.  The poor indoctrinated student is then launched into the world “knowing” that austerity is the answer and that mass unemployment and prolonged recessions are small prices to be paid (by others) to achieve the holy grail of a balanced budget.  Students are taught that national budgets are really just like household budgets.  These dogmas are not simply false, they are self-destructive and cruel.  Neo-liberal economics is so bad and has gone downhill at such a rapid rate that it now worships the economic analog to bleeding patients – austerity – as a response to a Great Recession.  Millions of people are indoctrinated annually into believing this long-falsified nonsense, and that includes people who consider themselves progressives.

The remarkable aspect of neo-liberal economics is that the power of its myth has survived for many progressives even after its failed dogmas caused massive economic destruction, massive elite fraud with impunity, and crony capitalism so corrupt that it cripples democracy.  Indeed, the brainwashing they received is so effective that even after the eurozone ran a massive experiment with austerity that proved (again) to be a catastrophic failure they remain neo-liberal acolytes.  This column discusses three examples that exemplify the problem.

Then on his weekly Fraud report on The Real News Network he has the following conversation, Fiscal Cliff: Going Nuclear and the Grand Betrayal.

Some of the people who are supposed to be on our side in Washington are almost as bad as the people we know are working against us. We all must take some responsibility to educate ourselves on the real economics of the situation, and then try to educate others.

That education is one of the main purposes of my blog.

The following discussion is about how the system could be run if adults were in charge.  It is not necessarily about how it is being run now.

One of the things that the Federal Reserve Bank has tried to do to prevent the total collapse of the financial system and the economy is to pump liquidity into the economy.  The popular press likes to call this printing money, and many of the readers of the press have taken to this metaphor.

This metaphor annoys me because it is not an accurate picture of how most of the liquidity is created.  I have finally found one of the dangers of using this shorthand notation for what the Fed does.  If you think of what they do as “printing money”, then it makes it hard to imagine the “unprinting of money” which they will do when the economy recovers. (Again, presuming that adults are in charge.)

The money that the Fed “prints” is mostly in computer transactions that credit the major financial institutions with money in their accounts with the Fed or in money that the Fed takes back.  The Fed can buy government bonds and credit people with “money” in return.  It can also sell the bonds it holds , and in return take back the “money” that people have.

The previously posted “documentary” Overdose: The Next Financial Crisis, with all its faults, does provide some useful fodder for this discussion.

When the “documentary” discusses the formation of the most recent housing/financial bubble, it does demonstrate how the shadow banking system “prints” money in the same way and to an even larger degree than the Fed does.  Much liquidity is pumped into the economy, but no U.S. hard currency is actually created – no coins and no bills of various denominations.

In the subsequent discussion of the financial freeze when all the lending suddenly came to a halt, you can think of this as the “unprinting” of this money.  Again, no coins nor dollar bills of various denominations were injured in this “unprinting”.

So what the Fed was trying to do when it started pumping liquidity into the system was to replace the liquidity that the shadow banking system withdrew too quickly and in excess of what was needed.  Their trick is to put in just the right amount of liquidity, neither too much, nor too little.  And they need to withdraw the liquidity when what they pumped in becomes more than the economy needs.  This will happen when the shadow banking system starts putting back some of the liquidity it withdrew in excessive haste amidst the panic.

Their is a huge problem that the Fed has in trying to right the economy solely with the monetary policy at its disposal and without the aid of the fiscal policy that the Congress and the Executive branch have at their disposal.  As the Fed pours liquidity in while there are no good investments to be made in the private sector with this liquidity, the liquidity gets sucked right back out of the economy by the huge figurative sponge of the people trying to save money until the economy improves.

The one way to get around this problem of soaking up the liquidity almost as fast as it can be pumped in, is for the Federal government to spend this liquidity in investing in capital equipment formation for the long haul.  The Federal government is the only financial actor with the staying power and the foresight to be able to counter the short term trend.  Well, it could have the foresight if their weren’t so many people who were only looking out for their own personal well being (which they should do) and who think the government should be run in the same way (which it should not do).

When I talk about capital equipment, I am thinking in an expansive way to include not only hard infrastructure assets, but also in soft goods like education, research, and health care.

The Real News Network is featuring the “documentary” Overdose: The Next Financial Crisis.

Much of what is in this film is true, but much of it is very carefully edited to leave you with a certain impression that may not be true. It will take quite a bit of analysis to figure out how to separate the wheat from the chaff in this “documentary”. Don’t expect to see that analysis in this blog post.

Mistakes they point out are real mistakes.  There are things we could have done and could do in the future to avoid these mistakes.

You notice that one of the experts quoted said about solving this problem, “We  can do this…”, but the film editors cut him off without letting us hear the rest of what he was about to say.

The film spends 45 minutes telling us what we shouldn’t do, but is very careful not to tell us what we should do?  What is their agenda?

The New York Times has published the article Search for Way Through Fiscal Impasse Turns to the Senate.

The article discusses the possibility that the Senate Democrats could pass a bill that would prevent the rise of taxes on the 98% of the people that both Republicans and Democrats agree should not have their taxes raised.  This would require an assurance that the bill would not be filibustered by the Republicans.  The article goes on to state the following:

Republican leaders in both chambers of Congress appear stymied by a conservative wing that will not tolerate a vote on legislation that even tacitly allows taxes to rise. Don Stewart, a spokesman for Mr. McConnell, said the minority leader could not declare by fiat that a bill could be presented for a simple majority vote with no threat of a filibuster. That would require the consent of every Republican, and Mr. Stewart gave no indication that Mr. McConnell would seek it.

I hope the Republicans in the Senate do not promise not to filibuster the bill.

What better evidence will the next Senate need to prove to them that the rules on filibusters must be changed?

If the Republicans in this Senate play nice, perhaps the impetus to change the filibuster rules will abate by the time the next Senate convenes. Then we will have lost the opportunity to fix the filibuster problem.

I think it is worth going over the fiscal bump in order to get the filibuster fixed.

The Real News Network has the interview Untold History: The Rise and Fall of a Progressive Vice-President of the USA as part three of the series that has begun with The Making of “Untold History of the United States” and Untold History: Early US Imperialism, Hitler, Roosevelt, The Spanish Civil War

KUZNICK: Had Pepper gotten five more feet and got Wallace’s name back in nomination, what we’re arguing is not only would there have been no atomic bombing in 1945; there very possibly would have been no Cold War in 1945. Wallace was that much of a visionary and that much of a fighter against these kinds of policies.

I do like this series, but I get a little uncomfortable when there is this much idol worship of one person. Maintain a little skepticism as you watch this.

Quartz has the article Five ways the world could actually end by Friday.  In case time is running low and you don’t have time to read the article, see if what’s happening now fits any of these 5 ways:

1. Electrical grid-killing solar flare
2. Planet-killing asteroid
3. Loose nukes
4. Death-ray from space
5. Magic

As they say at the end of the article “If you’re reading this on Saturday and it turned out that the world did end after all…”

McClatchy News has the story Obama, Boehner return to verbal fisticuffs on fiscal cliff.

President Barack Obama on Wednesday accused House Republicans of letting their animosity toward him prevent them from approving a deal to avert the nation’s imminent fiscal crisis, even though the two sides had been close to a compromise days ago.

“They keep on finding ways to say no as opposed to finding ways to say yes,” Obama said at a midday news conference at the White House. “I don’t know how much of that just has to do with, you know, it is very hard for them to say yes to me. But, you know, at some point, you know, they’ve got to take me out of it and think about their voters and think about what’s best for the country.”

The President is getting close to understanding the problem.  While it may be true that there is some personal animosity toward him from the Republicans, the real reason why this revolves around him personally is something else.

The Republicans have figured out what a patsy he is, and they are determined to take advantage of what they know of his behavioral patterns.

The quickest way for the President to turn this around is to say, “No” and then walk away.  No more negotiations.  Another tactic the President might employ is to find a stand-in for himself in the negotiations.  He needs to find someone with a stiffer spine than he has.  Some actual vetoes might do wonders for his negotiating position in the future.

We don’t need for the President to prove what a great guy he is because he is willing to have his backers suffer the consequences.  We need for him  to decide what is right and fair, and not compromise on fairness.  He seems to be willing to give the people earning between $250,000 and $400,000 a year a tax break paid for by cuts in the Social Security payments to the near poverty line seniors.  How is this right and fair to pick on the people least able to manage the sacrifice in order to comfort the people most able to withstand some sacrifice?

This compromise plan also takes money out of the hands of people who are so close to a minimum living standard that they spend almost every cent they get on goods and services that stimulate the economy.  The money he takes out of their hands goes to people who have enough to spare that they can suck this money right out of the economy and just save a good deal of the extra money instead of spending it.

The Fed is pouring liquidity into the economy at a furious rate, and the people who can afford to save are sucking it right back out almost as fast. Just imagine how much better we could do if the Fed and the rest of government weren’t working at cross purposes to each other.

Mark Thoma has posted the transcript of speech Galbraith: Change of Direction.  Here is the link to the audio of the speech.  The audio has some annoying background noises, but is quite understandable.  If this noise is too annoying for you, you can read the transcript.  If the following teaser is not enough to get you to listen, then there is probably nothing I could have said to change your mind.

Yesterday we heard Professor Nouriel Roubini give a magisterial and very high speed tour of the world situation making it clear of course that the promised recovery has not occurred. But if Nouriel is Sir Isaiah Berlin’s fox, who knows many things, let me try this morning to be the hedgehog who knows one big thing, and that one big thing is that what we are experiencing is a single, unified, global crisis of the economy and of the financial system. It is not a cluster of distinct and separated events; a subprime crisis in the United States; a public debt crisis in Greece; a bank crisis in Iceland; a real estate bust in Ireland and Spain; nor are there distinct U.S. and European crises, nor can the financial be separated from the real, nor is Germany a country to which crisis has not yet come with the suggestion that there might be some separate way out. There is one crisis, only one crisis, a deeply interconnected crisis of the world system. This crisis has, I think, three deep sources going back not twenty years but forty years to the early 1970s and the end of what we sometimes call the “golden age,” the “glorious thirty” years in the immediate aftermath of the second World War.

For the sake of context, you might be interested in the WikiPedia definition of IG Metall.

IG Metall (German: Industriegewerkschaft Metall, “Industrial Union of Metalworkers'”) is the dominant metalworkers’ union in Germany. Analysts of German labor relations consider it a major trend-setter in national bargaining. As a metalworkers’ union, it represents workers in the motor vehicle industry. Significantly, IG Metall represents both blue- and white-collar workers.