Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Can We Lock Up Rachel Maddow Now? - 25th Mar 19
Real US National Debt Might Be $230 Trillion - 25th Mar 19
Friday's Stock Market Sell-Off - New Downtrend or Just Correction? - 25th Mar 19
20 Days Left to Find Buying Opportunities In Gold - 25th Mar 19
Will the Historic Imbalance in Gold Stocks to Gold Price Resolve ? - 25th Mar 19
EasySMX Wireless Games Controllers Review - 25th Mar 19
Stock Market Short-term Top - 25th Mar 19
UK Population Growth - Latest ONS Immigration Statistics and Consequences - 24th Mar 19
The Fed Follows Trump's Tweets, And Does The Right Thing - 24th Mar 19
Yield Curves, 2yr Yield, SPX Stocks and a Crack Up Boom? - 24th Mar 19
Risk/Reward in Silver Favors Buying Now, Not Waiting for Big Moves - 23rd Mar 19
Similarities Between Stock Market Today and Previous Bull Market Tops - 23rd Mar 19
Stock Market DOW Seasonal Trend Analysis - 23rd Mar 19
US Dollar Breakdown on Fed Was Much Worse Than It Looks - 23rd Mar 19
Gold Mid-Tier GDXJ Stocks Fundamentals - 23rd Mar 19
Which Currency Pairs Stand to Benefit from Prevailing Risk Aversion? - 23rd Mar 19
If You Get These 3 Things Right, You’ll Never Have to Worry About Money - 22nd Mar 19
March 2019 Cryptocurrency Technical Analysis - 22nd Mar 19
Turkey Tourist Fakes Market Bargains Haggling Top Tips - 22nd Mar 19
Next Recession: Finding A 48% Yield Amid The Ruins - 22nd Mar 19
Your Future Stock Returns Might Unpleasantly Surprise You - 22nd Mar 19
Fed Acknowledges “Recession Risks”. Run for the Hills! - 22nd Mar 19
Will Bridging Loans Grow in Demand and Usage in 2019? - 22nd Mar 19
Does Fed Know Something Gold Investors Do Not Know? - 21st Mar 19
Gold …Some Confirmations to Watch For - 21st Mar 19
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

Open Letter to Dr. Joseph Stiglitz and Challenge to Debate

Economics / Economic Stimulus Feb 05, 2009 - 10:36 AM GMT

By: Richard_C_Cook

Economics Best Financial Markets Analysis ArticleNote: Dr. Joseph Stiglitz is a professor at Columbia University, former chairman of President Clinton’s Council of Economic Advisors, former chief economist for the World Bank, and a recipient of the Nobel Memorial Prize in Economic Sciences.


Dear Dr. Stiglitz:

I have just finished reading your article published on Alternet.org entitled, “Is the Entire Bailout Strategy Flawed? Let’s Rethink This Before It’s Too Late.” http://www.alternet.org/story/124166/

With all due respect, I believe you have missed the point of what is going on within the U.S. economy, which causes your proposed solutions to be similarly flawed.

The purposes of this letter are to delineate my objections to what you have written, to bring our differences before the public, and to challenge you to a debate when I visit New York City on February 27-March 1, 2009.

You state that, “America's recession is moving into its second year, with the situation only worsening.” But you then say, “The hope that President Obama will be able to get us out of the mess is tempered by the reality that throwing hundreds of billions of dollars at the banks has failed to restore them to health, or even to resuscitate the flow of lending.”

You thereby imply that the economic crisis is due to problems within the financial sector and that it would be a good thing to “resuscitate the flow of lending” without challenging why that lending became such a huge factor in our economy.

I say: The problem does not lie with the financial sector except that the debt-based monetary system acts as a parasite on the producing economy, resulting in the vast overhang of debt that can never be repaid. “Resuscitating the flow of lending” will do no good, because the collapse of consumer purchasing power due to job outsourcing and income stagnation has made it impossible for people to pay their debts. Most of this debt now needs to be written off and our producing economy restored as our chief source of wealth.

You say of the government’s bailout actions late last year: “Then there was the hope that if the government stood ready to help the banks with enough money -- and enough was a lot -- confidence would be restored, and with the restoration of confidence, asset prices would increase and lending would be restored.”

I say: In making this observation you may be correct, but you fail to challenge the policy whereby asset price inflation, in the absence of real economic growth, has become an ersatz economic driver. Throughout your writings you have ignored the fact that the government and the banking system have deliberately created financial bubbles to shore up the economy, engender profits, and maintain tax revenues. This is what the Federal Reserve under Alan Greenspan did in collusion with the Bush administration to create a recovery when the Dot.com bubble was collapsing in 2000-2001. None of your proposals would revitalize the producing economy or restore consumer income. You seem to be mainly trying to re-inflate the asset-financial bubble in your own way.

You say: “The underlying problem is simple: Even in the heyday of finance, there was a huge gap between private rewards and social returns. The bank managers have taken home huge paychecks, even though, over the past five years, the net profits of many of the banks have (in total) been negative. And the social returns have even been less -- the financial sector is supposed to allocate capital and manage risk, and it did neither well. Our economy is paying the price for these failures -- to the tune of hundreds of billions of dollars.”

I say: It is true that bank manager salaries and bonuses are obscene, but the way you characterize “social returns” is shortsighted. You speak of bank profitability falling short even though, since the financial deregulation of the 1980s and 1990s, the banks have become the nation’s chief growth industry, with profits as late as 2006 of over $500 billion. Further, the financial sector doesn’t really “allocate capital.” What it does is skim the cream off the top of the producing economy by financing consumption and facilitating the most irresponsible types of speculation in the real estate, equity, hedge fund, and derivative markets. For example, up to 97 percent of futures contracts comes from bank loans irrespective of whether such lending has any benefit for consumers or producers. The banks allocate capital primarily for their own benefit, which I believe you recognize, but we now need to find alternatives to a monetary system based on bank-created debt, not just try to get it running again while ignoring the disasters that have befallen working men and women and their families.

You say, in regard to the ongoing government actions: “But even were we to do all this -- with uncertain risks to our future national debt -- there is still no assurance of a resumption of lending. For the reality is we are in a recession, and risks are high in a recession. Having been burned once, many bankers are staying away from the fire.”

Again, you speak favorably of a “resumption of lending” as resolving the problem. I say: “What you are proposing is simply to shore up our debt-based monetary system without addressing the facts that our manufacturing jobs have been exported to China and other low-cost labor markets, our automobile industry is collapsing due to the failure of consumer demand, wages and salaries have stagnated for two decades, workers have not shared in productivity increases, and the total societal debt load on a GDP of $14 trillion is now approaching $70 trillion. These are the problems that must be addressed, not getting the banks to lend again when people can’t pay off the debts they already have.

You say: “What's the alternative? Sweden (and several other countries) have shown that there is an alternative -- the government takes over those banks that cannot assemble enough capital through private sources to survive without government assistance…Inevitably, American taxpayers are going to pick up much of the tab for the banks' failures. The question facing us is, to what extent do we participate in the upside return?”

I say: “Having the government run the banks instead of the private sector will not restore the economic fundamentals of a weak economy. Availability of bank credit does not by itself lead to greater production of goods and services. What it should do is make the liquidity available for the production-consumption cycle to work smoothly. The idea that a deregulated financial sector should be given precedence over all the other economic sectors is the essence of the supply-side, trickle-down philosophy that began during the Reagan years and has catastrophically failed.

You say: “Eventually, America's economy will recover. Eventually, our financial sector will be functioning -- and profitable -- once again, though hopefully, it will focus its attention more on doing what it is supposed to do.”

I say: Please tell us exactly HOW America’s economy will recover. Will it recover after real unemployment, including “discouraged workers” hits 20 percent, which it is likely to do over the next few months? Will it recover after millions of more people have their homes foreclosed? Will it recover after the automobile industry dies? What exactly is your prescription? If you don’t have one, I would ask you to consider what I am proposing in my paper: “A Bailout for the People: Dividend Economics and the Basic Income Guarantee.” In that paper I put forth what I am calling the “Cook Plan.” This consists of a $1,000 a month payment per capita made by the government through a system of vouchers for necessities that are then deposited in a new series of local community savings banks that would lend at one percent interest for small business, local manufacturing, and family farming. The vouchers would be a dividend, distributed as each citizens’ fair share of our amazing productive economy without recourse to government taxation or debt. The dividend would provide income security, eliminate poverty, and result in a renaissance of local and regional economic activity, and it would start to act immediately, not “eventually.”

On Friday, February 27, 2009, I will be in your hometown of New York City presenting the “Cook Plan” at the 8th Congress of the U.S. Basic Income Guarantee Network and the Annual Convention of the Eastern Economic Association. That evening I will present the program at a Town Hall meeting in connection with President Obama’s series of citizens’ forums at Nola Studio B, 244 West 54th St., 11th floor in Manhattan, at 8 p.m.

On the evening of Saturday, February 28, I am free, and would be glad to meet you to debate these ideas at a location of your choosing.

Respectfully,

By Richard C. Cook
http:// www.richardccook.com

Copyright 2009 by Richard C. Cook

Richard C. Cook is a former U.S. federal government analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, NASA, and the U.S. Treasury Department. His articles on economics, politics, and space policy have appeared on numerous websites. His new book, We Hold These Truths: The Hope of Monetary Reform , can now be ordered for $19.95 from www.tendrilpress.com . He is also the author of Challenger Revealed: An Insider's Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age , called by one reviewer, “the most important spaceflight book of the last twenty years . ” His Challenger website is at www.richardccook.com . A new economics website at www.RealSustainableLiving.com is upcoming with partner/author Susan Boskey.

Richard C. Cook Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules