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Monday, January 31, 2011

Some good news for a change

As you probably know, 30% of all U.S. adults are overweight and 33% are clinically obese. Last fall, I reported on our 6,000 mile road trip and all the sadly overweight people we encountered.

But today, Secretary of Agriculture Tom Vilsack gave a short, to the point, speech that pointed out we have to reduce the salt, sugar and fat in our diets. In addition, Louisville, Kentucky, Corpus Christi, Texas and Philadelphia, Pennsylvania have created city wide weight reduction programs. Good for them all.

Unfortunately, Mother Nature has played a dirty trick on us. Salt, sugar and fat are the three things that make food taste good.

Stay tuned for further developments, and make sure there are no overweight kids in your family.

Sunday, January 30, 2011

Aw gee....we hurt the feelings of the crooked Wall Street Bankers

A Cross of Rubber

Last Saturday, reported The Financial Times, some of the world’s most powerful financial executives were going to hold a private meeting with finance ministers in Davos, the site of the World Economic Forum. The principal demand of the executives, the newspaper suggested, would be that governments “stop banker-bashing.” Apparently bailing bankers out after they precipitated the worst slump since the Great Depression isn’t enough — politicians have to stop hurting their feelings, too.

But the bankers also had a more substantive demand: they want higher interest rates, despite the persistence of very high unemployment in the United States and Europe, because they say that low rates are feeding inflation. And what worries me is the possibility that policy makers might actually take their advice.

To understand the issues, you need to know that we’re in the midst of what the International Monetary Fund calls a “two speed” recovery, in which some countries are speeding ahead, but others — including the United States — have yet to get out of first gear.

The U.S. economy fell into recession at the end of 2007; the rest of the world followed a few months later. And advanced nations — the United States, Europe, Japan — have barely begun to recover. It’s true that these economies have been growing since the summer of 2009, but the growth has been too slow to produce large numbers of jobs. To raise interest rates under these conditions would be to undermine any chance of doing better; it would mean, in effect, accepting mass unemployment as a permanent fact of life.

What about inflation? High unemployment has kept a lid on the measures of inflation that usually guide policy. The Federal Reserve’s preferred measure, which excludes volatile energy and food prices, is now running below half a percent at an annual rate, far below the informal target of 2 percent.

But food and energy prices — and commodity prices in general — have, of course, been rising lately. Corn and wheat prices rose around 50 percent last year; copper, cotton and rubber prices have been setting new records. What’s that about?

The answer, mainly, is growth in emerging markets. While recovery in advanced nations has been sluggish, developing countries — China in particular — have come roaring back from the 2008 slump. This has created inflation pressures within many of these countries; it has also led to sharply rising global demand for raw materials. Bad weather — especially an unprecedented heat wave in the former Soviet Union, which led to a sharp fall in world wheat production — has also played a role in driving up food prices.

The question is, what bearing should all of this have on policy at the Federal Reserve and the European Central Bank?

First of all, inflation in China is China’s problem, not ours. It’s true that right now China’s currency is pegged to the dollar. But that’s China’s choice; if China doesn’t like U.S. monetary policy, it’s free to let its currency rise. Neither China nor anyone else has the right to demand that America strangle its nascent economic recovery just because Chinese exporters want to keep the renminbi undervalued.

What about commodity prices? The Fed normally focuses on “core” inflation, which excludes food and energy, rather than “headline” inflation, because experience shows that while some prices fluctuate widely from month to month, others have a lot of inertia — and it’s the ones with inertia you want to worry about, because once either inflation or deflation gets built into these prices, it’s hard to get rid of.

And this focus has served the Fed well in the past. In particular, the Fed was right not to raise rates in 2007-8, when commodity prices soared — briefly pushing headline inflation above 5 percent — only to plunge right back to earth. It’s hard to see why the Fed should behave differently this time, with inflation nowhere near as high as it was during the last commodity boom.

So why the demand for higher rates? Well, bankers have a long history of getting fixated on commodity prices. Traditionally, that meant insisting that any rise in the price of gold would mean the end of Western civilization. These days it means demanding that interest rates be raised because the prices of copper, rubber, cotton and tin have gone up, even though underlying inflation is on the decline.

Ben Bernanke clearly understands that raising rates now would be a huge mistake. But Jean-Claude Trichet, his European counterpart, is making hawkish noises — and both the Fed and the European Central Bank are under a lot of external pressure to do the wrong thing.

They need to resist this pressure. Yes, commodity prices are up — but that’s no reason to perpetuate mass unemployment. To paraphrase William Jennings Bryan, we must not crucify our economies upon a cross of rubber.

Reality Bites

The Economic Collapse author does a really good job of describing Obama's meaningless State of the Nation address. Read on.

Empty Promises: 5 Reasons Why Barack Obama’s State Of The Union Address Was Completely Wrong About The Economy

Barack Obama's State of the Union address sure sounded good, didn't it? There were lots of solemn promises, lots of stuff about America's "bright future" and a line about how we are now facing this generation's "Sputnik moment" that will surely make headlines all over the globe. But we all knew that Barack Obama could give a good speech. That has never been the issue. What the American people really need are some very real answers to some very real problems. So were there any real answers in Barack Obama's State of the Union address? Well, Barack Obama promised that America will "out-innovate, out-educate and out-build" the rest of the world. He also pledged that America will become "the best place in the world to do business" and that the government must "take responsibility" for our deficit spending. But does all of this rhetoric mean anything or is all this just another batch of empty promises to add to the long list of empty promises that Barack Obama has already made and broken?

The American people certainly don't need any more empty promises. Millions of American families have been pushed to the edge of desperation by this economy.

There has been a lot of talk that the economy is "turning around", but in many areas of the country the employment situation continues to get even worse. Payrolls decreased in 35 U.S. states during the month of December.

The truth is that the number of "good jobs" produced by the U.S. economy continues to shrink. In fact, only 47 percent of working-age Americans have a full-time job at this point.

The American people are not going to buy this "economic recovery" as long as unemployment remains at epidemic levels in so many areas. Just consider some of the stunningly high unemployment rates in some of our most important states....

Nevada - 14.5%

California - 12.5%

Florida - 12.0%

So did Barack Obama propose anything substantial that will actually create real jobs?


Instead, all he had to offer was just a bunch of empty promises. It is almost as if Obama believes that a really good inspirational speech will somehow make things better. The following are just a few of the empty promises Obama made during his address to the nation....

Empty Promise #1: America Will "Out-Innovate" The Rest Of The World And This Will Create More Jobs

During the State of the Union address, Barack Obama promised that the United States will "out-innovate" the rest of the world and that this will create more jobs.

Oh really?

Perhaps we could create some more cutting edge products like the Apple iPhone, right?

After all, Apple iPhones were one of the most wildly successful American technological innovations of the past decade. Surely this is the kind of innovation that Obama would like to see more of.

Well, do you know where Apple iPhones are made?

Apple iPhones are manufactured in China by workers making about 293 dollars a month (and that was after a big raise).

But it isn't just the Apple iPhone that is made overseas. The truth is that almost all high technology products are made outside of the United States.

In 2008, 1.2 billion cellphones were sold worldwide. So how many of them were manufactured inside the United States? Zero.


Not only that, another fact to note is that manufacturing employment in the U.S. computer industry was actually lower in 2010 than it was in 1975.

So exactly how is more "innovation" going to produce millions of U.S. jobs if all of the high tech manufacturing continues to be shipped out of the United States?

Empty Promise #2: America Will "Out-Educate" The Rest Of The World And This Will Create More Jobs

For decades, U.S. presidents have promised that "education" is the key to competing with the rest of the world.

Okay, if suddenly every single person in the United States had an extra college degree, would that mean that more jobs would suddenly start popping into existence?

Of course not.

Right now, we can't produce enough nearly enough jobs for all of the college graduates that we already have.

Sadly, the truth is that we are already experiencing an epidemic of unemployment among our college graduates. According to the Project on Student Debt, unemployment for new college graduates stood at 8.7 percent in 2009, which was way up from 5.8 percent in 2008.

But that is not the whole story.

Millions of college graduates that have been able to find jobs have ended up taking jobs that they didn't even need a college education for. The "underemployment rate" among college graduates is absolutely exploding.

In 1992, there were just 5.1 million "underemployed" college graduates in the United States, but by 2008 there were 17 million "underemployed" college graduates in the United States.

Many of our brightest young minds are now flipping burgers, waiting tables and welcoming people to Wal-Mart.

In fact, in the United States today 317,000 waiters and waitresses have college degrees.

Oh, but certainly the answer is to get more Americans to go to college, right?

It certainly sounds good in a speech for a politician to say that "more education" is the answer, but in the end all it amounts to is a hollow promise.

Getting more Americans to go to college will not create any more jobs, but it will create more debt. Americans now owe more than $884 billion on student loans, which is more than the total amount that Americans owe on their credit cards.

Empty Promise #3: America Will "Out-Build" The Rest Of The World And This Will Create More Jobs

So Barack Obama says that we are going to "out-build" the rest of the world?

Well, that certainly sounds good.

But what exactly does that mean?

Does it mean that we are going to quit shutting down our factories and tearing down our economic infrastructure?

After all, over 42,000 U.S. factories have closed down for good since 2001.

So is Obama going to do something to stop the flood of jobs and factories that are leaving the United States?

No, in fact he intends to "increase" trade with countries such as China and India. That is going to mean that thousands more factories and millions more jobs are going to be "outsourced".

Well, what about building up infrastructure such as roads, bridges, power grids, dams and ports?

That is certainly a very good idea.

According to the American Society of Civil Engineers, we need to spend approximately $2.2 trillion on infrastructure repairs and upgrades just to bring our existing infrastructure up to "good condition".

So we desperately need some investment in that area.

But there is a big problem.

We are flat broke.

As will be discussed below, the U.S. government is flat broke. Not only that, our state governments are flat broke and our local governments are flat broke.

So where will the trillions of dollars that we need for infrastructure come from?

Obama did not even come close to answering that question.

Empty Promise #4: America Will Become "The Best Place In The World To Do Business" And This Will Create More Jobs

It was incredible that Barack Obama could suggest that America is "the best place in the world to do business" with a straight face.

First of all, when you consider all forms of taxation, U.S. businesses face one of the most oppressive taxation regimes in the entire world.

But not only that, U.S. businesses also have to deal with one of the most horrific regulatory environments in the history of mankind.

As I have written about previously, the mountains of red tape that U.S. businesses have to wade through just continues to grow every single year.

The Federal Register is the main source of regulations for U.S. government agencies. In 1936, the number of pages in the Federal Register was about 2,600. Today, the Federal Register is over 80,000 pages long.

So is Barack Obama going to do anything about that?

Of course not.

In fact, Barack Obama and the Democrats have been really busy passing even more ridiculous regulations.

For example, the U.S. Food and Drug Administration is projecting that the food service industry will have to spend an additional 14 million hours every single year just to comply with new federal regulations that mandate that all vending machine operators and chain restaurants must label all products that they sell with a calorie count in a location visible to the consumer.

Empty Promise #5: Barack Obama Pledges To "Take Responsibility" For Our Deficit Spending

During Barack Obama's first two years in office, the U.S. government added more to the U.S. national debt than the first 100 U.S. Congresses combined.

In fact, since Barack Obama took office, the U.S. government has gotten us into so much new debt that it breaks down to $10,429.64 for each of the 308,745,538 people counted by the 2010 U.S. census.

So is that "taking responsibility" for our deficit spending?

When Barack Obama took office, the U.S. national debt was 10.6 trillion dollars.

Today it is over 14 trillion dollars.

Government debt is absolutely out of control. At this point, the U.S. national debt is increasing by roughly 4 billion dollars every single day.

If all of this debt is not brought under control, it will bring down the entire U.S. financial system. According to a recent U.S. Treasury report to Congress, the U.S. national debt will reach 19.6 trillion dollars in 2015.

Can you imagine being 20 trillion dollars in debt?

That is 20,000,000,000,000 dollars.

So it would be really great if Barack Obama could do something about all of this debt, but based on his track record perhaps we should not be holding our breath.

Not that Obama is to blame for all of this.

The sad reality is that both parties have been involved in a massive debt orgy for decades and decades. Now the day of reckoning is almost here and it is going to be incredibly painful.

We are in so much trouble that it is hard to even try to put it into words. None of our politicians are telling us the whole truth. We are headed for a complete and total disaster.

Guess I Was Too Optimistic About Jail For Wall Street Bankers

Gretchen Morgenson provides a capsule review of Phil Angelide's effort to produce a coherent summary of what happened to all of the money you lost in the last two plus years.

A Bank Crisis Whodunit, With Laughs and Tears

TRULY startling revelations were few in the voluminous report, published last Thursday by the Financial Crisis Inquiry Commission on the origins of the financial panic. This is hardly a shock, given the flood-the-zone coverage and analysis of the crisis since it erupted four years ago.

Yet the report still makes for compelling reading because so little has changed as a result of the debacle, in both banking and in its regulation. Providing chapter and verse, for example, on the bumbling and siloed management at the nation’s largest banks is enlightening, in that many of these institutions are even bigger than they were before. With too-big-to-fail institutions now larger than ever, we are almost certain to go through another episode like 2008 in the not-too-distant future.

For those who might find the report’s 633 pages a bit daunting for a weekend read, we offer a Cliffs Notes version.

Let’s begin with the Federal Reserve, the most powerful of financial regulators. The report’s most important public service comes in its recitation of how top Fed officials, both in Washington and in New York, fiddled while the financial system smoldered and then burned. It is disturbing indeed that this institution, defiantly inert and uninterested in reining in the mortgage mania, received even greater regulatory powers under the Dodd-Frank law that was supposed to reform our system.

The report shows how the Fed refused to exert its authority on predatory lending. On Page 94, we learn that from 2000 to 2006, it referred a grand total of three institutions to prosecutors for possible fair-lending violations in mortgages.

The Fed “succumbed to the climate of the times,” its general counsel, Scott G. Alvarez, told commission investigators. It is hard for a supervisor to challenge banks when they are highly profitable, other officials said. Richard Spillenkothen, head of supervision at the Fed until 2006, attributed its reluctance to “a desire not to inject an element of contentiousness into what was felt to be a constructive or equable relationship with management.”

Is it any shock, then, that neither the Federal Reserve Bank of New York nor the Office of the Comptroller of the Currency, a partner in regulatory inadequacy, saw that the S.S. Citigroup was headed for the shoals? This depressing case is chronicled in depth in the report.

In testimony last September, Ben S. Bernanke, the chairman of the Federal Reserve Board, said that his organization “has moved vigorously to address identified problems.”

BUT back a few years, as regulators were coddling bank managers, some executives were busily telling their investors that everything was just dandy. On Page 248, we learn about dire events at Countrywide Financial, the subprime lender.

On Aug. 2, 2007, Countrywide’s access to crucial market financing dried up; commercial paper investors would not buy its obligations, the report quoted Angelo R. Mozilo, the company chief executive, as saying. But Eric P. Sieracki, the company’s chief financial officer, said in a statement that day that Countrywide had plenty of liquidity and had experienced “no disruption in financing its ongoing daily operations, including placement of commercial paper.”

This rather interesting take on reality prompted Moody’s to reaffirm the company’s A3 debt rating. Two weeks later, Countrywide drew down all of its $11.5 billion in credit lines, signaling extreme distress to the markets. The stock plunged; a few months later the lender was taken over in distress by Bank of America.

Mr. Sieracki declined to comment, but his lawyer said on Friday that the Aug. 2 statement was accurate at the time Mr. Sieracki made it.

On Page 264, the report lays out Citigroup’s silence about the ticking time bombs it had shoved off its balance sheet but that would soon have to be repatriated, generating enormous losses. A spokeswoman for Citigroup said that it was a different company today, and that it had overhauled its risk management and bolstered its financial strength.

We already know, of course, that our government moved mountains to help the banks during the crisis. But the report adds to our understanding of events by describing how the Treasury Department changed the tax code to benefit banks acquiring weaker institutions. Never mind that the Constitution allows only Congress to write tax rules.

I.R.S. Notice 2008-83 came out of nowhere on Sept. 30, 2008, the report noted on Page 371. It removed existing limits on the use of tax losses that could be taken by a bank when it acquired a troubled institution. The change appeared just as Citigroup was mounting its $1-a-share bid for Wachovia. (The beleaguered bank was headed by Robert K. Steel, a former under secretary of domestic finance at Treasury who had left his post two months earlier. “Secretary Paulson had recused himself from the decision because of his ties to Steel,” the report said, “but other members of Treasury had ‘vigorously advocated’ saving Wachovia.”)

Two days after the tax change, Wells Fargo topped Citi’s proposal by offering $7 a share. The change in the code had made such a deal more economical for Wells because it could reduce its taxable income by $3 billion in the first year after acquiring Wachovia. Previously, Wells could have reduced its income by just $1 billion in Year 1.

“They were changing the rules on the fly to the apparent advantage of banks who wanted to get something for nothing out of this crisis,” said Janet Tavakoli, president of Tavakoli Structured Finance in Chicago. “Why aren’t people being questioned and held accountable for that?”

As it turned out, Wells did not benefit from the code change because it had no taxable income to offset, the report said. I.R.S. Notice 2008-83 was repealed in 2009.

For those of you who’ve wondered why there have been so few prosecutions of mortgage fraud during this epidemic, your answer is on Page 164. “The terrible thing that happened,” said William K. Black, a former fraud investigator in the savings-and-loan crisis who is a professor at the University of Missouri-Kansas City School of Law, “was that the F.B.I. got virtually no assistance from the regulators, the banking regulators and the thrift regulators.”

Finally, if it’s comic relief you’re after, turn to Page 105 for an interview with Angelo R. Mozilo, former chief executive of Countrywide Financial, a lender that profited by roping unsuspecting borrowers into poisonous loans.

Mr. Mozilo, the commission said, described his company as having “prevented social unrest” by providing loans to 25 million borrowers, many of them members of minority groups. Never mind that throngs of these loans have resulted in foreclosures and evictions. “Countrywide was one of the greatest companies in the history of this country,” Mr. Mozilo maintained, “and probably made more difference to society, to the integrity of our society, than any company in the history of America.”

You cannot make this stuff up.

Do further bailouts lie ahead? Neil Barofsky, special inspector general for the Troubled Asset Relief Program, seems to think so. When the government stepped in to save Citigroup in 2008, “it did more than reassure troubled markets — it encouraged high-risk behavior by insulating risk-takers from the consequences of failure,” he said in his report to Congress last week.

“Unless and until an institution such as Citigroup is either broken up, so that it is no longer a threat to the financial system, or a structure is put in place to assure that it will be left to suffer the full consequences of its own folly,” he said, “the prospect of more bailouts will potentially fuel more bad behavior with potentially disastrous results.”

Friday, January 28, 2011

Aw jeeeeezzzzzzz.............!

Remember that just two years ago, Hank Paulson put together $800 million of your dollars to keep Goldman Sachs from bankruptcy. It sure paid off. Just not for you.

January 28, 2011, 5:33 pm

Blankfein Gets $13.2 Million for 2010

Mark Wilson/Getty Images Goldman Sachs C.E.O. Lloyd Blankfein.

Lloyd C. Blankfein, the chief executive of Goldman Sachs, had a rough 2010. But at least he got a raise: His bonus increased by $3.6 million, according to a regulatory filing.

The firm’s board of directors recently granted restricted stock valued at $12.6 million to Mr. Blankfein and a number of other senior executives including Gary D. Cohn, the firm’s president. The board also approved a new annual base salary of $2 million for its chief executive, who had previously made a base salary of $600,000. Mr. Cohn and others will see their base salaries increase to $1.85 million, the firm said.

Goldman executives aren’t the only ones to see a jump in their base salaries. After the financial crisis, most financial firms increased the base salaries, a move regulators felt would cut down on excessive risk taking.

At Goldman, base salaries increased outside the executive suite as well. The base salary for Goldman managing directors was recently increased to $500,000 from $300,000.

With a salary of $600,000, Mr. Blankfein’s 2010 compensation comes to $13.2 million. Senior executives often receive part of their compensation in cash but Goldman did not release details on this component of Mr. Blankfein’s compensation.

In 2009, amidst widespread public outcry over sky-high compensation on Wall Street, Mr. Blankfein and other senior Goldman executives received compensation packages valued at $9 million each. In 2007, the year before the financial crisis Mr. Blankfein made $68.5 million.

Goldman posted earnings of $8.35 billion in 2010, down 37 percent from 2009. The firm also found itself in the center of controversy over allegations that it puts its own interests ahead of clients, something it denies.

In July 2010 it paid $550 million to settle civil charges that it duped clients by selling mortgage securities that were secretly designed by a hedge-fund firm to cash in on the housing market’s collapse. It did not admit nor deny wrongdoing.

Earlier this month Morgan Stanley’s board awarded James Gorman stock and options valued at $7.4 million. But this represents only the equity portion of Mr. Gorman’s pay package; the cash component will be announced later this year. Mr. Gorman, in his first year as chief executive of Morgan Stanley, will earn less than the $15 million he took home in 2009 when he was the firm’s co-president, according to a person familiar with his compensation but not authorized to speak publicly about it.

JPMorgan Chase has not announced the pay of its C.E.O. but Jamie Dimon is expected to earn as much, if not more, than the $17.5 million he took home in 2009.

Citigroup’s chief executive, Vikram S. Pandit, after nearly two years of earning a mere $1 in salary while he tried put the bank back on track, was recently awarded a $1.75 million salary.

Here Is Something Really Worth Thinking About

Business Week had this small piece this week. Study it and decide how well we are rewarding the people who really make a contribution to the economy.

10 years experience
$80,000 to $100,00

Aerospace engineers
5 to 10 years experience

Cancer researchers
10 years experience
$110,000 to $160,000

Four Star General
34+ years experience

Law firm partner
10 years experience

8 to 17 years experience

Corporate bond trader
10 years experience

Bank oil trader
10 years experience

M&A banker
10 years experience

The financial sector now accounts for 41%!!! of all corporate profits even though they account for less than 10% of employment.

The role that banks are supposed to play is to take excess income (savings) in the economy and redeploy it for useful projects to build the economy.

But what banks actually do now is take your almost free money from the Fed and gamble with it. If they win, they keep the profits. If they lose, you lose.

So what do you think it is likely that The Cowardly Lion will about that gross mis-allocation of resources?

Thursday, January 27, 2011

You Need To Read This

We have lived in France, the UK, Spain and Portugal for extended periods of time. The shining intellectual light of the Republican Party doesn't know a damn thing about Europe.

Their Own Private Europe

President Obama’s State of the Union address was a ho-hum affair. But the official Republican response, from Representative Paul Ryan, was really interesting. And I don’t mean that in a good way.

Mr. Ryan made highly dubious assertions about employment, health care and more. But what caught my eye, when I read the transcript, was what he said about other countries: “Just take a look at what’s happening to Greece, Ireland, the United Kingdom and other nations in Europe. They didn’t act soon enough; and now their governments have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody.”

It’s a good story: Europeans dithered on deficits, and that led to crisis. Unfortunately, while that’s more or less true for Greece, it isn’t at all what happened either in Ireland or in Britain, whose experience actually refutes the current Republican narrative.

But then, American conservatives have long had their own private Europe of the imagination — a place of economic stagnation and terrible health care, a collapsing society groaning under the weight of Big Government. The fact that Europe isn’t actually like that — did you know that adults in their prime working years are more likely to be employed in Europe than they are in the United States? — hasn’t deterred them. So we shouldn’t be surprised by similar tall tales about European debt problems.

Let’s talk about what really happened in Ireland and Britain.

On the eve of the financial crisis, conservatives had nothing but praise for Ireland, a low-tax, low-spending country by European standards. The Heritage Foundation’s Index of Economic Freedom ranked it above every other Western nation. In 2006, George Osborne, now Britain’s chancellor of the Exchequer, declared Ireland “a shining example of the art of the possible in long-term economic policy making.” And the truth was that in 2006-2007 Ireland was running a budget surplus, and had one of the lowest debt levels in the advanced world.

So what went wrong? The answer is: out-of-control banks; Irish banks ran wild during the good years, creating a huge property bubble. When the bubble burst, revenue collapsed, causing the deficit to surge, while public debt exploded because the government ended up taking over bank debts. And harsh spending cuts, while they have led to huge job losses, have failed to restore confidence.

The lesson of the Irish debacle, then, is very nearly the opposite of what Mr. Ryan would have us believe. It doesn’t say “cut spending now, or bad things will happen”; it says that balanced budgets won’t protect you from crisis if you don’t effectively regulate your banks — a point made in the newly released report of the Financial Crisis Inquiry Commission, which concludes that “30 years of deregulation and reliance on self-regulation” helped create our own catastrophe. Have I mentioned that Republicans are doing everything they can to undermine financial reform?

What about Britain? Well, contrary to what Mr. Ryan seemed to imply, Britain has not, in fact, suffered a debt crisis. True, David Cameron, who became prime minister last May, has made a sharp turn toward fiscal austerity. But that was a choice, not a response to market pressure.

And underlying that choice was the new British government’s adherence to the same theory offered by Republicans to justify their demand for immediate spending cuts here — the claim that slashing government spending in the face of a depressed economy will actually help growth rather than hurt it.

So how’s that theory looking? Not good. The British economy, which seemed to be recovering earlier in 2010, turned down again in the fourth quarter. Yes, weather was a factor, and, no, you shouldn’t read too much into one quarter’s numbers. But there’s certainly no sign of the surging private-sector confidence that was supposed to offset the direct effects of eliminating half-a-million government jobs. And, as a result, there’s no comfort in the British experience for Republican claims that the United States needs spending cuts in the face of mass unemployment.

Which brings me back to Paul Ryan and his response to President Obama. Again, American conservatives have long used the myth of a failing Europe to argue against progressive policies in America. More recently, they have tried to appropriate Europe’s debt problems on behalf of their own agenda, never mind the fact that events in Europe actually point the other way.

But Mr. Ryan is widely portrayed as an intellectual leader within the G.O.P., with special expertise on matters of debt and deficits. So the revelation that he literally doesn’t know the first thing about the debt crises currently in progress is, as I said, interesting — and not in a good way.

Simon Johnson can't figure it out either!

President Obama and Big Business Get On Well – But When Will That Produce Jobs?

By Simon Johnson

President Obama is embarked on a major charm offensive with regard to the business sector, as seen for example in the appointments of Bill Daley (ex-JP Morgan; now White House chief of staff) and Jeff Immelt (still head of GE, now also the president’s top outside economic adviser). This should not be an uphill struggle – much of the corporate sector, particularly bigger and more global businesses, is doing well in terms of profits and presumably C-suite remuneration.

But when exactly will this approach deliver jobs and reduce unemployment? And it store up risks for the future?

Republican rhetoric over the past two years was relentless on one point – that the Obama administration was anti-business. Supposedly this White House attitude undermined private sector confidence and limited investment.

In reality, the opposite was the case.

Relative to any post-war recession, the rebound in profits during the Obama administration has been dramatic. To be sure, the end of 2008 was shocking to many entrepreneurs and executives – as credit was disrupted in much more dramatic fashion than they thought imaginable. Large and immediate cuts in employment followed.

But then the government saved the failing financial sector. The means were controversial but the end was essential – without private credit, the US economy would have fallen far and for a long time.

And profits rebounded almost at once. The financial sector recovered quickly on the back of implicit guarantees provided to our largest banks – really the only bad quarter was at the end of 2008 (hence the angst about bankers’ bonuses in 2009). But the nonfinancial sector has done even better. Profits for those private businesses fell by no more than 20 percent from top-to-bottom in the cycle and in 2010 through the third quarter (the latest available data in the BEA series) profits were back at the level of 2006. After the deep recessions of the early 1980s, for example, it took at least three times as long for profits to come back to the same extent. (I went through this comparison in more detail last week for the NYT’s Room for Debate).

And investment in plant and equipment has also recovered fast – this was the one bright part of the domestic economy in the past two years (with the other good relatively source of news being exports). Look around at the places you work and where you do business (or shop). Is there any indication they have cut back on information technology spending recently?

Overall, the policies of late 2008 and early 2009, including the much-debated fiscal stimulus, protected corporate sector profits to an impressive degree — despite the fact that this was the steepest recession of the past 70 years, profits fell only briefly and seem likely to be just as strong going forward as they were pre-crisis. Large global American-based companies, in particular, are well positioned to take advantage of growth in emerging markets such as India, China, and Brazil.

But the link between corporate performance — measured in terms of profit or executive pay for U.S. companies — and domestic employment has fundamentally changed in recent decades. At the very least, employment responds slower now than in previous cycles when output and sales recover. You should look immediately and regularly at this chart from the Calculated Risk blog. As the picture shows so vividly, we are still waiting for employment to turn back up decisively; compared with previous recessions, the delay is simply stunning.

Ideally, in a situation like this, we’d provide more stimulus to the economy in some form. But our monetary policy is already close to exerting its maximum efforts, and the scope for using fiscal policy was undermined by high deficits during the “boom” years of the 2000s – so there is no safe fiscal space for action (even if the politicians could agree on what to do.)

We are reduced to waiting for the private sector to recover enough to want to take on new employees. No one has a good answer for why this is so slow – perhaps because it is so easy and so cheap to hire workers in those very emerging markets that are now booming, or perhaps because the skill mix available at prevailing wages in some parts of the US is not exactly what employers want.

Or perhaps there are artificial barriers to entry at work, meaning that companies can effectively keep out new entrants – thus keeping profits artificially high and, at the sectoral level, limiting employment. The constraints on entrepreneurship in our post-credit crisis economy need careful scrutiny. Hopefully, the administration’s charm offensive will not prevent it from enforcing our anti-trust laws, which were more than slightly neglected in the Bush years.

Listening attentively to the nonfinancial sector makes sense in this situation; in return, corporate leaders need to focus on creating jobs in the United States.

But bending over backwards to accommodate the wishes of the financial sector is exactly what got us into this mess to start with. Allowing our largest banks to become even bigger and more dangerous would be a very bad mistake.

Written by Simon Johnson

January 27, 2011 at 7:00 pm

This is just bizarre!!!

In the State of the Union speech, Obama highlighted a young guy who invented the drill bit that saved the lives of the miners in Chile. He rightly noted that innovations come from small businesses. He also mentioned the drill bit guy hired sixteen (I think) new people to work on the drill bit business.

There it is! Right in front of him! Small businesses create most new jobs and are an enormous source of innovation.

Obama says he wants both of those things for the country, and right he is about that.

But what does he do in real life? He plays kissy face with Wall Street bankers who wouldn't let the drill bit guy in the door, let alone lend him some money.

Is there something here that I am missing? Not understanding?

Tuesday, January 25, 2011

More on GE and Jeff Immelt

Between 2005 and 2009, General Electric paid an average of 11.5% of its income in corporate taxes. That is much less than I paid and I bet it is less than you paid!

Maybe Jeff can help small businesses by showing them how to avoid paying taxes.

A Really Interesting Development

Given how smart the people running Amazon have proven themselves, this is a development that could make major changes in how we live in the U.S. What do you think?

Amazon steps up groceries push

By Jonathan Birchall in New York

Published: January 23 2011 17:59 | Last updated: January 23 2011 17:59

Amazon, the online retailer, is developing a free weekly home delivery service in the US that could support its drive to increase online sales of low-priced goods, such as health and beauty, babycare and groceries.

The retailer has been testing the service, AmazonTote, in Seattle, its home city, since last summer, and is now recruiting staff for what it describes as a “company wide” programme.

The Seattle service offers customers free weekly home delivery regardless of order value on a specified day. The goods are delivered in reusable, weatherproof tote bags to the customer’s address.

By offering free delivery with no minimum purchase price, the service is designed to encourage customers to use Amazon as their main retail destination for regular household purchases.

Amazon is using the small truck fleet that operates its pilot AmazonFresh grocery delivery service. It declined to give details of any expansion plans, but its website says the service “will be expanding soon”.

Rich Tarrant, chief executive of MyWebGrocer, which provides online services to more than 100 regional supermarket businesses, argues that Amazon’s delivery service could strengthen its potential long-term challenge to Walmart, the largest retailer in the US.

“Because of the frequency of grocery purchases . . . you have an opportunity to be in front of the customer at least once a week.

“By tying in that frequency with the ability to get everything else you want, you literally have created the virtual Walmart,” he says.

Walmart rose to supremacy in the US in the 1990s with its successful Supercenter stores, using low-price groceries to increase customer visits and thus support sales of higher margin general merchandise.

Walmart is also developing an online strategy for groceries and low-cost household goods.

It is focusing on using its extensive network of stores to provide collection locations for online orders, arguing that the stores give it a strategic advantage over “pure” internet rivals such as Amazon.

Walmart is expanding a same day, in-store collection service for some online items. It has also started to sell low-cost household goods such as detergent, toothpaste and some packaged foods online, and has said it will test more online grocery sales this year.

Amazon launched nationwide grocery online sales last year in the UK and Germany, using its regular package shipping service.

Copyright The Financial Times Limited 2011. You may share using our article tools.

WOW!! Do you suppose...............

Do you suppose that some of the Wall Street SOBs who brought the world banking system to the edge of collapse while making themselves filthy rich will actually be brought to trial over their behavior?? Maybe, just maybe..............................

The bipartisan panel appointed by Congress to investigate the financial crisis has concluded that several financial industry figures appear to have broken the law and has referred multiple cases to state or federal authorities for potential prosecution, according to two sources directly involved in the deliberations.

The sources, who spoke on condition they not be named, declined to identify the people implicated or the names of their institutions. But they characterized the panel's decision to make referrals to prosecutors as a significant escalation in the government's response to the financial crisis. The panel plans to release its final report in Washington on Thursday morning.

In the three years since major lenders teetered on the brink of collapse, prompting huge taxpayer rescues and amplifying an already painful recession into the most punishing downturn since the Depression, public indignation has swelled while few people who played prominent roles in the crisis have faced legal consequences.

That may be about to change. According to the law that created the Financial Crisis Inquiry Commission, the panel has a responsibility to refer for prosecution any evidence of lawbreaking. The offices that have received the referrals -- the Justice Department, state attorneys general, and perhaps both -- must now determine whether to prosecute cases and, if so, whether to pursue criminal or civil charges.

Though civil charges appear a more likely outcome should prosecution result, one source familiar with the panel's deliberations said criminal charges should not be ruled out.

The commission's decision to refer conduct for prosecution underscores the severity of the activities it has uncovered and plans to detail in its widely anticipated final report, the sources said.

A spokesman for the commission declined to comment. "I cannot comment on the commission's report or its activities until January 27th," said the spokesman, Tucker Warren.


When the 10-member panel was first convened in late 2009, participants emphasized that they did not intend to focus on prosecution, but were rather intent on illuminating the root causes of the crisis.

Indeed, the fact that the body has opted to make referrals adds an unexpected coda to a proceeding that some observers have written off as just another bit of Washington stagecraft aimed at generating headlines.

"Few will notice its absence," said Michael Perino, a law professor at St. John's University School of Law in New York and an expert in financial history, in an opinion piece published in the New York Times last October. It "had no discernible influence over the financial reforms." He added: "How did this commission fail so badly?"

But the decision to refer cases for potential prosecution could provoke a different conclusion: It may yet satisfy public craving for what Treasury Secretary Timothy Geithner once referred to as the "very deep public desire for Old Testament justice."

The commission's report is supposed to detail the definitive causes of the crisis. Over the course of the past year, the panel has interviewed more than 700 witnesses, reviewed millions of pages of documents, and held 19 days of public hearings across the country.

Among those who testified were the heads of the nation's largest financial institutions -- all of them recipients of multi-billion dollar public bailouts. Among those who testified were Lloyd Blankfein, chief executive of Goldman Sachs Group Inc.; Jamie Dimon, chief of JPMorgan Chase & Co.; and Robert Rubin, a former Goldman chief and Clinton administration Treasury Secretary, who later held a prime executive chair at Citigroup. The panel also questioned Federal Reserve Chairman Ben Bernanke and his predecessor, Alan Greenspan.

The commission drew on testimony from less prominent senior executives with intimate knowledge of how Wall Street engaged in modern-day financial alchemy, turning mountains of dubious mortgages into seemingly rock-solid investments rated as safe as American Treasury bonds.

Richard Bowen, former chief underwriter for Citigroup's consumer-lending unit, testified that, in the middle of 2006, he discovered more than 60 percent of the mortgages the bank had purchased from other firms and then sold to investors were "defective," meaning they did not satisfy the bank's own lending criteria.

Keith Johnson, former president of Clayton Holdings, one of the top mortgage research companies, testified that some 28 percent of the loans given to homeowners with poor credit examined by his firm for Wall Street banks failed to meet basic standards. Yet nearly half appear to have been sold to investors regardless, he added.

The commission has been dogged by partisan sniping within its ranks and high staff turnover. But the referrals may mollify criticism that the panel was more about conveying the illusion of an investigation than conducting the real thing.


Shahien Nasiripour is a business reporter for The Huffington Post. You can send him an e-mail; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

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The bipartisan panel appointed by Congress to investigate the financial crisis has concluded that several financial industry figures appear to have broken the law and has referred multiple cases to st...
The bipartisan panel appointed by Congress to investigate the financial crisis has concluded that several financial industry figures appear to have broken the law and has referred multiple cases to st...
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Saturday, January 22, 2011

I truly do not want to be an alarmist, but.............

This appeared at It is worth thinking about even if you dismiss the whole thing out of hand. When you have read the column, go the website and see the video, The Day After The Dollar Crashes. At least you can go through a mental exercise about what you would do personally if it actually came to pass.

Huge Numbers Of Dead Animals, Dead Birds And Dead Fish – What In The World Is Happening Out There?

Just what in the world is going on out there? Large groups of animals are keeling over dead, thousands of birds are falling out of the sky dead and millions of dead fish are washing ashore all over the globe. Something is happening. Do any of you know what is causing all this, because I sure don't. This all seemed to start around the end of December when mass bird deaths and mass fish deaths began to be reported all around the world. Normally "weird" news stories like this kind of fade away after a time, but reports of bird deaths and fish deaths continue to come in and now there are even reports of large groups of land animals suddenly dropping dead. As these reports from all over the globe continue to pile up, it doesn't take a "conspiracy theorist" to figure out that something very much out of the ordinary is going on. Unfortunately, at this point we have a whole lot more questions than we do answers.

A couple good summaries of the mass bird and fish deaths that we witnessed during the first few weeks of this crisis can be found here and here. Unfortunately, large groups of animals, birds and fish continue to keep dying. The following is just a handful of the reports that have poured in from all over the globe during the past week or so....

-"10,000 Cattle Dead In Vietnam: Cows, Buffalo Part Of Mass Die-Off"

-"Beijing reports mass bird deaths"

-"Hundreds of dead seals in Labrador"

-"55 buffalo die mysteriously on southern Cayuga County farm"

-"Two Million Dead Fish Appear in Chesapeake Bay"

-"Another Massive Bird Kill in the Tennessee Valley"

-"Trapped in ice, 'thousands' of fish die in Detroit River"

-"Dead birds from north Ala. being sent to Auburn for testing"

-"40,000 Dead Crabs Wash Ashore in U.K."

-"371 Dead Birds Fall from Sky on LA's Sunset Blvd; Similar to California, Arkansas, Louisiana Bird Drops"

-"First Birds & Fish, Now Hundreds of Cows are Dying"

It was easy enough to brush off one or two "mass death" news stories, but when they start coming in day after day after day it really starts to get your attention.

So does anyone know why all of this is happening all of a sudden?

Well, there certainly are a lot of theories being floated around out there. When things like this start happening people start coming up with all sorts of really wild ideas. Posted below is a list of some of the most common theories about these mass death. Some of the theories seem to have some substance to them, while others seem just downright bizarre.

Theories That Have Been Put Forward To Explain The Huge Numbers Of Dead Animals, Dead Birds And Dead Fish Around The Globe

*Changes In The Magnetic Field Of The Earth

*Extreme Weather

*A Pole Shift



*Other Secret Government Programs

*Cold Weather

*"Global Warming"

*The Approach Of 2012

*Methane Gas

*Loud Noises


*UFOs Are Responsible

*Effects Of The BP Oil Spill

*The Second Coming Of Jesus

*Birds Are Dying Because Of Indigestion

*Increased Radiation From The Sun

*Large Groups Of Animals Always Die And This Is All Normal

Now, it must be noted that a couple of the recent "mass death episodes" can actually be explained. For example, the U.S. government has admitted being responsible for the deaths of several hundred birds in South Dakota.

But what about the dozens of other "mass death" reports that have been pouring in from all around the earth? How do we explain all of those?

That is something to think about.

Hopefully all this will end up being nothing.

Hopefully it will turn out that all of this can be easily explained.

We certainly don't need any more problems right now.

As I wrote about the other day, the entire world financial system is on the verge of collapse. At this point any kind of major event could be the "tipping point" that pushes the global economy into chaos.

The world as we know it can literally change overnight. Today a reader emailed me the following video. It is entitled "The Day After The Dollar Crashes", and it takes the viewer through what a potential unraveling of the global financial system might look like. As you watch this, keep in mind that any type of "big event" could set off a panic like this....

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Friday, January 21, 2011

Obama's Lack of Understanding is Stunning

Obama yesterday added Jeff Immelt, the Chairman of GE, to his advisory group. Now I think GE is a great company and I have a lot of respect for Jeff Immelt. But Obama says he wants Jeff to focus on creating new jobs so let's look at his record.

In 2000, when he was appointed the new Chairman, GE had 223,000 employees. 131,000 in the U.S. and 92,000 overseas.

In 2010, GE had 300,000 employees with 150,000 in the U.S. and 150,000 overseas.

Jeff is great at creating new jobs. The problem is that they are all overseas.

Having said that, it is still absolutely true that 70% of all new jobs are created by small businesses, and GE sure ain't no small business. I am not sure just what Jeff knows about how small businesses work.

Thursday, January 20, 2011

An Update

As you know if have been reading my rant, the documentary, Inside Job, is a brilliant recounting of how this financial crisis came about. If you have read The Great Recession Conspiracy, Inside Job takes Section Two of our book and expands it, deepens it and gives it great life by showing politicians stuffing their pockest with our money.

The Institute of New Economic Thinking has produced a twenty-two minute interview with the maker of Inside Job, Charles Ferguson, that is fascinating because he talks about what did not get into the film. The link I originally identified for you to see the interview appears to be broken.

However, you can go to, and find the interview. You can choose any of the eight parts they offer, or go to box nine and select the whole twenty-two minutes. I promise you will come away with somethings to give very serious thought.

Obama's Economic Mess

Peter Baker has written a brilliant summary of Obama's economic policies (or lack of them) over the past two years. It will be well worth your time to read it and remember that roughly 30 million Americans have been unemployed or under-employed during the entire period.

But here is the key point. For the last fifty years, small businesses have created about 70% of all new jobs. Try and find that fact in operation any where in this story. The best I can find is that some one proposed spending stimulus money on small businesses, but that Larry Summers dismissed the idea out of hand. Which, by the way, is why I called Larry Summers the most dangerous man on the planet.

And here is a question worth your considering. The entire piece is filled to the brim with huge egos quarreling with other huge egos. So here is the question; Is it possible to have a working government in the White House that is NOT filled with huge egos?

January 19, 2011

The White House Looks for Work

Three days before Christmas, President Obama gathered his economic team in the West Wing’s Roosevelt Room to review themes for his State of the Union address. The edge-of-the-cliff crisis he inherited had passed, but with more than 14 million Americans still out of work, he was looking for bold ways to bring down unemployment. The ideas presented to him, though, seemed familiar and uninspired. “You know, guys,” he said, according to someone in the room, “I’ve told you before, I want you to come to me with ideas that excite me.” Nothing he was hearing excited him.

Obama’s frustration could set the tone for the remainder of his term. For all the trials of war and terrorism, the economy has come to define his presidency. During the first half of his term, he used the tools of government to shape the nation’s economy more aggressively than any president in 75 years. As the national debt rises and Republicans assume more power on Capitol Hill, it won’t be easy finding ways to juice the economy that are exciting, effective and politically viable. Every day, in briefings, in trips around the country, in letters from the public, Obama is reminded of the many people who are still hurting. And he surely knows that if he cannot figure out in the next two years how to create jobs, he may lose his own.

Obama is fighting to keep Republicans, fresh from their fall electoral triumph, from reversing what he has started while prodding his own team to come up with something, anything, to put people back to work. “The president wanted to lower unemployment but didn’t see a way to get more money out of Congress,” one adviser who sat in on many such meetings told me. “He grew frustrated because the economic team didn’t have that magic combination.” Or as another adviser put it, “He was really frustrated that there weren’t solutions on the cheap.”

Obama has been casting about for ideas. He held two unpublicized meetings last month with outside economists, a group of liberals one day and a group of conservatives the next, soliciting suggestions while deflecting criticism. (He was “a bit defensive,” one participant told me.) He likewise met with labor leaders and convened a four-hour meeting with chief executives from Google, General Electric, Honeywell, Boeing and other corporations. Obama was so intent on the conversation that he canceled a lunch break and asked the executives to bring their chicken, fish and pasta back from a buffet so they could keep talking.

Some of those who met with him repeated the common complaint that he has yet to articulate a coherent strategy. While the policies have been “quite good,” the “public relations and related politics have not been,” Alan Blinder, the Princeton University economist and former Federal Reserve vice chairman, told me. “One damaging result of that is the American public has little to no understanding why various things were done, why they made sense, what effect they were expected to have and did have, and instead they feel ripped off.”

Douglas Holtz-Eakin, a former Congressional Budget Office director who advised John McCain during the 2008 campaign and attended another meeting with Obama last month, said the problem goes beyond public relations. “I honestly do not know where his policy rudder resides,” he told me. “I really can’t tell. What are the principles on which he operates? He’s very smart; he knows all the policy options. I just don’t know what are the criteria by which he’s picking between them.”

Obama would say his main criterion is finding what works. His approach to economic policy has been as much improvisational as ideological, a blend of Keynesian spending, business tax breaks, bank and auto bailouts, tax cuts for workers — really almost anything he thought could fix the problems. “For all the people who want to say he’s a starry-eyed radical, in fact he’s a moderate, middle-of-the-road guy,” Christina Romer, who recently left as chairwoman of the President’s Council of Economic Advisers, told me. “He worked to fix what we have, not throw it all out and start over. To the extent that he had to take emergency action, it was born of circumstances.”

There is a compelling case that Obamanomics has produced results. An economy that was shrinking in size and bleeding more than 700,000 jobs a month is now growing at 2.6 percent and added 1.1 million jobs last year. The American Recovery and Reinvestment Act, known as the stimulus, produced or saved at least 1.9 million jobs and as many as 4.7 million last year, according to the Congressional Budget Office. The much-derided Troubled Asset Relief Program, or TARP, started by George W. Bush and continued by Obama, stabilized the financial sector, and the big banks have repaid the money with interest. According to a Treasury Department report sent to Congress this month, TARP will cost taxpayers $28 billion instead of the $700 billion originally set aside. The nearly $80 billion bailout of the auto industry may cost taxpayers only $15 billion, as the restructured General Motors and Chrysler come back to life with strong sales. The stock market has surged; corporate profits are setting records.

All of which seems offset by one simple figure: 9.4 percent. Or perhaps two, if you add $1.3 trillion. The first, of course, is the unemployment rate, which has remained stubbornly above 9 percent for 20 straight months, the longest since the Great Depression. Counting those who are seeking full-time jobs while working part time and those who have stopped looking altogether, it’s closer to 17 percent. At the current rate, it could be 2017 before the country replaces the more than eight million jobs lost since December 2007. The second figure is this year’s federal budget deficit, which has touched off a prairie fire of public protest and emerged as the central issue of the newly installed Republican House. In a recent poll by The Times and CBS News, 82 percent of Americans rated the economy bad, and just 43 percent approved of the way Obama was handling it. “People look at the economy today, and they’re disappointed by what we’ve achieved,” Treasury Secretary Timothy Geithner told me last month. “But that just misses the fundamental reality — it could have been so much worse.” The program Obama managed to enact represented an “unbelievably heroic, implausible accomplishment,” Geithner argued, yet one that requires patience. “Even if we had a magic wand,” he said, “it was going to take a long time to dig out.”

The path from crisis to anemic recovery was marked by turmoil inside the White House. The economic team fractured repeatedly over philosophy (should jobs or deficits take priority?) and personality (who got to attend which meetings?), resulting in feuds that ultimately helped break it apart. The process felt like a treadmill, as one former official put it, with proposals sometimes debated for months before decisions were reached. The word commonly used by those involved is “dysfunctional,” and in recent months, most of the initial team has left or made plans to leave, including Larry Summers, Christina Romer, Peter Orszag, Rahm Emanuel and Paul Volcker.

With Geithner as its anchor, a new economic team is being built around Bill Clinton-era figures like William Daley, Gene Sperling and Jack Lew, a group assembled to joust with Republicans instead of one another. Rather than responding to crises or putting into motion grand macroeconomic theories, they will focus on pushing the recovery into higher gear while at the same time figuring out how to reduce the deficit — two goals that some see as incompatible in the short term. And along the way, they need to convince Americans that the president is focused on jobs, jobs, jobs.

In his State of the Union address last year, Obama declared that “jobs must be our No. 1 focus in 2010,” then spent much of the year on other issues, some of his choosing, like health care, and others forced upon him, like the Gulf of Mexico spill. “The public didn’t sense that everyone in the White House was waking up thinking about how to create jobs,” said John Podesta, the former Clinton White House chief of staff and president of the Center for American Progress who directed Obama’s transition. “It seemed like they were waking up every day thinking about how to pass more bills. It was like, do something. And if that doesn’t work, do something else.”

Podesta said that Obama has a chance to explain his new approach when he walks into the House for this year’s State of the Union on Jan. 25. Members of the president’s staff say he will do just that. Days after being appointed director of the National Economic Council, Sperling told me that Obama will be intensifying his focus. “His message to me when offering this job could not have been clearer,” Sperling said. “He wants us working to ensure that his entire administration is waking up every day asking what can we do for jobs and competitiveness. . . . He wants all hands on deck.”

It may take all hands. While Obama and his team were hardly the only ones to underestimate the depth of the problem they inherited in early 2009, their failure to define it from those early days has undermined a bedrock idea of American liberalism, the faith in the capacity of government to play a constructive role in the markets and make up for the limits of individuals to cope with them. Since unemployment has remained so high for so long while deficits have soared, it must mean the stimulus did not work and the money was wasted. Smaller government, less regulation and lower taxes, therefore, would be the only answer. And so, Obama’s challenge may be more fundamental even than reducing unemployment and winning re-election; he wants to prove that liberal economic theory can be adapted to the 21st century.

THE PRE-CHRISTMAS WHITE HOUSE MEETING with unexciting ideas came almost two years to the day after a far different session in Chicago, as the newly elected president set up his administration. In any White House, certain moments become etched into the creation myth, part of the narrative told again and again to explain a presidency. For Obama, the meeting on Dec. 16, 2008, was one such moment.

Aides tell the story to underscore the gravity of the situation Obama faced. “That was a formative event,” recalled David Axelrod, the president’s senior adviser. “The briefing was brutal,” said Austan Goolsbee, one of Obama’s economic advisers. Obama was warned the country was in far worse shape than anyone realized. “This was not your father’s or my father’s recession,” Rahm Emanuel, the former White House chief of staff, told me this month from Chicago, where he is running for mayor. “This was our grandfather’s Depression.”

This was all new to Obama, who, unlike Bush or Clinton, had never managed even a state economy. Now he was responsible for a nation in which everyone from homeowners to Wall Street tycoons had so overextended themselves that the system was coming apart. Obama’s theory of the case was that the country was trapped in a bubble-and-bust cycle, cascading from one artificial, unsustainable boom to the next. He wanted to not just apply a short-term patch but also to erect a more durable system with a stronger set of rules.

Obama’s instinct was to take on everything at once. “I want to pull the band-aid off quickly, not delay the pain,” a senior Obama official remembers him saying. “He didn’t want to muddle through it, Japan-style,” recalled Larry Summers, tapped to be director of Obama’s National Economic Council. Romer calculated how much government spending would be needed to fill the gaping hole of consumer demand and came up with $1.2 trillion, the highest of three options. Summers told her to leave that number out of the memorandum to Obama. Emanuel argued that such an astronomical figure would be politically explosive. Romer left it out but mentioned it to Obama during a briefing. “That’s what you’d need to do to definitively heal the economy,” she said, according to someone in the room. Still, she and Summers agreed on recommending close to $900 billion.

Liberals like the Nobel Prize-winning economists Joseph Stiglitz and Paul Krugman argue that the $800 billion package of infrastructure projects, aid to states and tax breaks that Congress eventually passed was inadequate and poorly targeted. “The stimulus was too small and not well-enough designed,” Stiglitz told me. “Most of my concerns have turned out to be valid.” Romer, who has returned to teach at Berkeley, told me she now agrees about the size. In Washington, she said, “you’re not supposed to say the obvious thing, which is that in retrospect of course it should have been bigger. With unemployment at 10 percent, I don’t know how you could say you wouldn’t have done anything different. Of course you would have made it bigger.”

Given what was known then, however, she said the $800 billion was reasonable and the most that Congress would approve. “In my mind,” she said, “the problem was not in the original package; it was in not adjusting to changed circumstances.” Once it was clear that the situation was deteriorating, she said, the White House should have gone back to Congress for more stimulus money. “That was where we could have been bolder,” she said.

The crisis forced Obama to confront the larger question of government’s role in the economy. Should taxpayers save large enterprises from failure? When is the risk of not intervening too great? How much should politicians dictate to business? His team engaged in a fierce debate about whether to nationalize the biggest banks, as Stiglitz and Krugman advocated. Summers entertained the idea, at least for purposes of discussion, for banks that could not pass a “stress test” examining their solvency. Geithner and Ben Bernanke, the Federal Reserve chairman, argued against it. Ultimately the tests found the banks were in better shape than feared, a critical moment in shoring up confidence. “The cheapest form of stimulus is confidence,” Summers likes to say.

With the auto industry, the team was even more divided, and Obama adopted a more intrusive approach than with the banks. The government took over General Motors and pushed Chrysler into a merger with Fiat, forcing both firms into bankruptcy to restructure, reduce debt and lower labor costs. Then the government backed out; in G.M.’s initial public offering last November, the government cut its share of stock from 61 percent to 33 percent and recouped $13.5 billion. “In both cases,” Emanuel said, referring to banks and automakers, “the extremes were rejected. In both cases, he forced management to do things they would not or could not do for themselves. And in both cases, they’ve emerged stronger.”

But not Obama. The flurry of actions proved deeply unpopular and stoked a Tea Party reaction. He was blamed for helping rich bankers and throwing taxpayer money away, even if the stimulus cut taxes for 95 percent of working Americans (a break many never realized they got). Critics branded his health care, climate-change and financial-regulation proposals “job killers.” Worse, perhaps, were the administration’s own rosy forecasts. A January 2009 study by Romer and Jared Bernstein, the economic adviser to Vice President Joseph Biden, predicted that if the stimulus passed, unemployment would be at 7 percent at the end of 2010.

“I truly believed that forecast,” Romer told me. “I consulted with every good forecaster who would talk with me, including the Federal Reserve.” The problem was that the baseline economy was in worse shape than even the grim assessment of that Chicago meeting in late 2008. Without the actions taken by Bush, Obama and the Federal Reserve, the economy was headed to what Bernanke called “Depression 2.0,” in which unemployment potentially would peak at 16.5 percent, according to a later study by Blinder and Mark Zandi, chief economist at Moody’s Analytics. But the Romer-Bernstein forecast set expectations that Obama could not meet. “I just think that killed them in terms of the perceptions,” Zandi told me. “I would have made the same mistake. That was an economist’s mistake, a technocratic mistake. But that really hurt them.”

It was hardly the only moment of mistaken optimism. Soon after taking office, Obama’s team began spotting “glimmers of hope” or, as Bernanke put it, “green shoots” indicating fresh growth. By the end of 2009, White House officials thought they were reaching escape velocity, breaking away from the gravitational pull of the Great Recession. “There was the sense that the economy was moving again,” Emanuel said. Then came a string of episodes that he and others believe sidetracked the economy: the European financial crisis triggered by Greece, the gulf oil spill, conflict over Gaza and the concurrent gyrations in the stock market. “We got hit by the G-force,” Emanuel said. Much of the late 2009 growth spurt owed to a temporary restocking of inventories, and the slowdown undercut the talk of green shoots. “It was too premature to say that, and so it built up expectations,” Emanuel said. Instead of a “recovery summer,” fears of a double-dip recession returned while the president was busy with other issues. “It was costly to the president because it looked like Washington was fiddling while unemployment was stubbornly high,” a senior Obama official said.

Other advisers said the administration should have moved more aggressively a year ago to bolster the nascent recovery. There was discussion then about a series of measures, like a payroll tax holiday, business tax breaks and infrastructure spending, that would have amounted to a second stimulus. But it lingered. “Where we didn’t do enough was in the fall of ’09,” Romer told me. “We never coalesced and never made as strong a push as we should have for some of the things that finally got done last month, like a payroll tax cut.”

I went to see Geithner one evening in late December in his high-ceilinged office at the end of the third floor in the Treasury Building. At 49, Geithner is relaxed and confident, prone to using words like “cool” to describe esoteric economic ideas, and is so well liked within the administration that he is universally known simply as Tim. He is a surprising survivor, given the lacerating criticism of his early days in office, but he bonded with Obama, who was born just two weeks earlier, and emerged as the strongest figure on the economic team, even if not its most effective public spokesman.

When we talked, he had just helped negotiate the deal with Republicans to extend Bush-era tax cuts for two years while also temporarily trimming payroll taxes and providing more unemployment benefits. He sank into a chair, a young man in an old man’s job, and began ruminating about how the team had handled the economy.

All the second-guessing, he said, missed the point. “Everybody now has these cool ideas — why didn’t we do it in this way, why didn’t we do it bigger, why didn’t we have a different mix,” he said, thinking about the stimulus. “All of that is marginal.” What was important, he said, were speed and force. As for nationalizing or liquidating the banks, he said, “They both would have been catastrophic.”

Still, any way you look at it, he said, “it was a brutal two years.”

EARLIER THIS MONTH I met with Summers at a restaurant in suburban Boston three days after his last day at the White House. Tan from a holiday in Jamaica and trying to get his bearings again at Harvard, where he plans to teach a course on Obama’s economic policy and write a book, Summers sat at a corner table and ordered bisque and — from the lighter-fare menu —a steak “as rare as your chef will make it.”

A former treasury secretary and Harvard president, Summers, 56, was the most prominent member of Obama’s economic team. It has become a clich√© to describe him as brilliant and brash, but as we talked for three hours that night, he struck me as thoughtful and analytical about what went right and what didn’t. He didn’t want to be quoted from that conversation, though, preferring to polish his thoughts with academic precision and e-mail them to me later. “We always believed that the greatest risk was doing too little, not to do too much,” he wrote. “We fought for the largest fiscal program we could get.” More infrastructure money might not have made a difference given that much of what was included in the package has yet to be spent. As for the banks, Summers said their revival and payback of TARP money make it hard to argue that “the economy would somehow be in better shape today if the government had nationalized the banking system.”

At the National Economic Council, Summers was charged with running the process for developing policy. But the team never embraced the no-drama-Obama ethos. Over the last two months, I interviewed nearly all of the team’s main figures, past and present, and when we talked about their relations with one another, it was like picking through the wreckage of a messy divorce.

At the center was Summers, a larger-than-life figure who by many accounts was ill suited to run a bureaucratic process. To some of his colleagues, Summers was an eye-rolling intellectual bully. “He’s much better at telling you why you’re stupid than creating a system that can produce usable policy solutions,” said one Obama adviser, who, like others, did not want to be named criticizing Summers. At meetings, colleagues with differing viewpoints felt the full force of his capacity for finding flaws in their reasoning.

It was a measure of Summers’s stature that everyone around him paid attention to signs of his status. Rahm Emanuel promised him a White House car, befitting a former cabinet secretary, but discovered that he could not deliver because the number of vehicles had been capped. Likewise, after Summers was not invited to march onto the floor of the House with the cabinet for Obama’s first State of the Union address, Emanuel made sure he was included for the second. “Larry was invaluable to the president,” Emanuel told me. “It was not unreasonable to ask for a car. It was not unreasonable to ask to walk in there.” (A White House spokeswoman said Summers was promised a car but did not request it.)

Summers skirmished with colleagues over protocol. Austan Goolsbee, who opposed rescuing Chrysler, once cautioned Obama during a meeting that rescuing auto suppliers would signal that they would also save the automakers; Summers cornered him afterward and “exploded,” according to a memoir by Steven Rattner, the auto-task-force leader. “You do not relitigate in front of the president,” Summers scolded. Goolsbee retorted, “I was not litigating in front of the president.” The moment to decide whether to rescue Chrysler came during the president’s morning economic briefing. And while Goolsbee and others of his rank did not typically attend that meeting, his absence was seen as depriving the president of the strongest opposition voice. Obama noticed, and summoned Goolsbee.

Summers skirmished with Romer over a meeting at which she was not included. “I didn’t come here to waste my time,” Romer angrily told him, according to someone informed about the conversation. “I’m perfectly happy to go home.” While Summers was often blamed, the White House spokeswoman said that Emanuel’s office determined meetings and tried to keep them small. Summers and Emanuel also clashed over incentives for small business — the chief of staff kept demanding a proposal, but Summers opposed the idea of using TARP money for the initiative, arguing it would not be effective. It took months to develop a policy.

Obama knew what he was getting with Summers. And Summers’s defenders, while calling him abrasive, said he was on the right side of nearly every issue and called the complaints exaggerated. “Larry is a brilliant guy with a forceful personality and strong opinions,” Sperling said. “He was also very dedicated to ensuring the full range of opinions were fairly presented to the president.” Summers understands where his strengths lie and where they don’t. “I told the president when he offered me the job that what I would be able to bring him was access to all views, and hopefully ensure that the thinking was rigorous,” he told me. “But probably making everyone feel validated was not going to be my best thing.”

The dysfunction extended beyond Summers. Paul Volcker, the former central banker tapped to lead a new Presidential Economic Recovery Advisory Board, apparently felt ignored, at least until the president embraced his suggestion, dubbed “the Volcker rule,” to bar big banks from risking their own capital in speculative trades. Valerie Jarrett, Obama’s senior adviser in charge of relations with the business community, was derided by fellow administration officials who deemed her outreach to corporate executives empty engagement, because meetings had no tangible outcome, though, of course, her office did not set the policies that angered business in the first place. Romer was seen as insecure in Summers’s shadow, frustrating some colleagues who called her difficult, a presumption her defenders considered sexist.

“There’s no question there were strong personalities all around, and at times we were not as united as the president would have liked,” Romer told me. “I think overall we did pretty well, and we got to some good decisions and got many things done.” Whatever their differences, she noted that she shared a lot of views with Summers. “We were probably the two people in closest alignment philosophically and economically on the team,” she said.

And then there was Orszag, who turned 40 just after he was chosen as director of the Office of Management and Budget and was celebrated for his brainy dynamism. By last summer, he had left after falling out with colleagues, who considered him arrogant. When Transportation Secretary Ray LaHood mentioned to a reporter that he had settled a dispute with Orszag by going around him to Emanuel, a peeved Orszag would not take his apology calls; LaHood ultimately sent a case of wine to make amends. Orszag also exchanged testy e-mails with Emanuel over the health care effort. When colleagues suspected him of leaking information to the media, Orszag denied it. But he eventually concluded that he had allowed himself to become overexposed and recognized his relationships were poisoned.

At the heart of the friction was the deficit, which Orszag saw as a priority. Other officials tired of Orzsag’s refrain. “Yes, the deficit’s important, but not this year,” said one official. “I think the deficit for him was always most important. He was not winning the argument.” Orszag agreed that cutting spending too soon would hurt the economy, but he wanted to begin planning ahead. One reason he left, eventually winding up at Citigroup, was the sense that the administration was trapped in a dynamic that would make it hard to reduce the deficit adequately.

Reflecting on it now, Orszag looked back on the tensions with regret. “Unfortunately,” he told me, “I think the environment often brought out the worst in people instead of the best in people. And I’d include myself in that.”

ACROSS LAFAYETTE SQUARE from the White House is the headquarters of the United States Chamber of Commerce. Last spring, four massive banners were hung on its building spelling out “J-O-B-S,” a message presumably visible from the third floor of the White House, where the president wakes up. By fall, the chamber and Obama were at war during a midterm campaign that ended with repudiation of the president’s party.

“The basic issue here,” Thomas Donohue, the chamber president, told me last month, “is uncertainty — uncertainty on what health care is actually going to cost, uncertainty on hundreds of rule-makings in the Dodd-Frank bill, uncertainty about what’s going to come out of the E.P.A. putting through what they couldn’t get legislatively, uncertainty about taxes.”

The health care program and the financial-regulation law sponsored by Senator Chris Dodd and Representative Barney Frank were bad enough, as far as the chamber was concerned. But Obama’s periodic forays into populism made it personal. He couldn’t seem to decide whether he was going to take Wall Street to task for its irresponsible behavior or cajole it into freeing up money to get the economy moving. One day he derided “fat-cat bankers” who caused the recession; another day, he soothed them by saying that he and the American people “don’t begrudge” multimillion-dollar bonuses.

In the aggregate, at least, balance sheets haven’t suffered. Given the profits washing through America’s corporations now, some scoff at the depiction of Obama as antibusiness. “That’s the most ridiculous assertion I’ve ever heard,” Richard Trumka, president of the A.F.L.-C.I.O., told me. “This president has been more pro-business than any before him, including Bush.”

Obama’s experiments with antibusiness rhetoric fueled tensions between his political and economic advisers. The political team wanted Obama to connect with the widespread resentment Americans felt toward Wall Street and what Geithner called “the very deep public desire for Old Testament justice.” Geithner and the economic team warned that the White House rhetoric was too sweeping, since most American businesses had little to do with the financial crisis. David Axelrod, the political adviser, said critics used the rhetoric “to make the case that he was somehow inhospitable to business, and nothing could be further from the truth.”

Obama has powerful incentives to make up with business. Still nervous after the crash, and uncertain about government policies, American corporations are sitting on $2 trillion in cash, and the president wants them to use it to hire people. “How do I get companies sitting around the table to start investing in job-creating enterprises?” Obama asked executives at last month’s lunch, according to a person in the room. Obama next month plans to cross Lafayette Square to address the chamber at its headquarters. And it did not go unnoticed that in hiring former Commerce Secretary William Daley as chief of staff, Obama turned his White House over to an executive from JPMorgan Chase.

Another initiative that is playing well with the chamber is expanded trade. Three years ago, during the Ohio Democratic primary, Obama appealed to labor by vowing to renegotiate the North American Free Trade Agreement, or Nafta, but never followed through. Today he presents himself as a free-trader, vowing to double exports and last month sealing a revised version of Bush’s free-trade pact with South Korea. Then he enlisted Daley, the man who pushed Nafta through Congress.

By itself, trade is no short-term balm, but it represents one of the “solutions on the cheap” the president wanted, a way of promoting growth without deficit spending. In our conversation, Donohue, of the chamber, played down past conflicts, noting that his group supported the original stimulus bill as well as the South Korea agreement. “I want to be very clear — we’re not having any fight with the president,” he told me. “We have fights over issues, but not with him.” Given Obama’s actions lately, Donohue said “he’s moving in a direction that shows that he’s figured it out.”

ALMOST NO ONE NOTICED, but Obama laid out his new economic direction during a speech in Winston-Salem, N.C., last month, just hours before striking a tax-cut deal with Republicans. In the speech, he declared “the threat of a depression has passed” and offered a vision for rebuilding by improving American competitiveness in a global economy, calling it “our generation’s Sputnik moment.”

The competitiveness theme, which will be prominent in the State of the Union address, is a convenient rubric that encompasses trade as well as other presidential priorities like more education-accountability reforms, more federal support for research and innovation, more green technology industry like the advanced battery plants Obama likes to visit and more infrastructure like high-speed trains. Obama has tried before to link these disparate priorities into a coherent theme, calling such ideas, along with health care and financial regulation, the pillars of a New Foundation for a postcrisis economy, √† la the New Deal. But he never made it stick. “Messaging when we have 9.8 percent unemployment is difficult,” Axelrod said. Now Obama is reframing these ideas as a response to China and other economic rivals that, he tells audiences, are moving forward while America risks lagging behind. In that way, he has turned his message into a made-in-America appeal to patriotism, and potentially grounds for consensus with Republicans. “This is a theme people can rally around,” Goolsbee told me. “We’ve shifted out of the rescue mode. We’ve got to move into full-fledged growth mode.”

Goolsbee will be operating in that mode as part of the new team. He replaced Romer as head of the Council of Economic Advisers, just as Sperling replaced Summers as head of the National Economic Council, Jack Lew replaced Orszag at the Office of Management and Budget and Daley replaced Emanuel as chief of staff. The selection of Sperling, who held the same job under Clinton, was telling. A onetime boy wonder who, despite his graying hair, still has the same whirling-dervish, work-till-midnight energy, Sperling was passed over for other prominent jobs. He bided his time as a counselor to Geithner, and eventually won over Obama with his doggedness. As a champion of the payroll tax holiday, he proved critical to shaping Obama’s tax deal with Republicans and so many other issues that White House officials refer to him as B.O.G., the Bureau of Gene. Where Summers was a master macroeconomic thinker, Sperling is known for his mastery of getting things done, or at least waging the fight, in the place where policy, politics and media meet. Lew is also returning to the same job he had under Clinton, when he balanced the budget alongside Congressional Republicans.

The renewed focus on the economy goes back to last August, when after months of grappling with health care, the oil spill and the financial-regulation bill, Obama resolved to redouble efforts to create jobs. While he was on vacation in Martha’s Vineyard, Obama called his economic advisers and told them to develop a new agenda for the fall, which led to a September proposal to invest more money in infrastructure, make the research-and-development tax credit for businesses permanent and allow companies to deduct more expenses right away. His advisers also began discussing ideas for his next State of the Union, like a payroll tax holiday, ideas that ultimately were worked into last month’s tax deal with Republicans instead.

The president’s search for an agenda that will excite him, and the rest of America, has taken him to the far corners of the economic conversation. He recently asked advisers to present arguments about whether the slow recovery is part of an economic cycle that will ultimately turn around or something different, a “new normal” signaling stagnation as in Japan in the 1990s. “He’s trying to gather different ideas and different perspectives both on where we are and where we’re going,” Goolsbee said.

In the end, Obama concluded that the economic moment is part of a cycle. He has to hope so. The unemployment rate drifted down to 9.4 percent in December from a high of 9.8 percent, but largely because many people gave up looking for work; the economy added just 100,000 jobs last month, not enough to keep up with population growth. Economists say the economy needs to grow 2.5 percent a year just to absorb newcomers to the labor force. It takes roughly 2 percentage points of growth over that to cut unemployment by 1 percentage point. “That’s a very different kind of challenge than putting out a financial fire,” Geithner told me.

The tax deal between Obama and Republicans amounted to a second stimulus package, and economists responded by upgrading growth projections for 2011 to around 3.5 percent. But even if that optimism is borne out, and the pace is maintained, unemployment would still be about 8 percent when voters pass judgment on Obama’s presidency in 2012. His political advisers hope that the direction of the economy will be clear enough to satisfy voters, as it was in 1984 when Ronald Reagan was re-elected despite more than 7 percent unemployment.

The slow recovery is typical of recessions that follow a financial crisis, as outlined in “This Time Is Different,” a book by the economists Kenneth Rogoff and Carmen Reinhart. “They’re deeper, they last longer and it takes years for unemployment to come back,” Rogoff told me last month, shortly after a meeting with Obama. While crediting the president for averting a catastrophe, Rogoff said Obama erred by not preparing the country for a drawn-out and painful recovery. “The biggest tactical mistake he made and the administration made,” he said, “was they wanted to be reassuring to everyone, so they painted this rosy picture, saying we’re going to bounce back.” After two years, he said, the president has essentially done everything he can and must wait to see if it works. “What’s going to happen with unemployment and the economy is largely set at this point,” he said. “He’s taken his decisions, and now it will unfold and things will begin to improve.”

Instead, the debate will shift to curbing deficits and redesigning the tax code. Republicans have made shrinking government the core of their economic message, appealing to many Americans who think Obama (and before him, Bush) let spending get out of hand. “We’re at that transition moment,” Lew told me. “We’ve got to look ahead at the very serious fiscal challenges we have.” Obama plans to use the State of the Union to present himself as a fiscal conservative. But it will be a delicate balance for someone who believes government spending helped turn the economy around; he hopes to make the case that he can rein in the deficit but that the deepest cuts should wait until after the recovery gathers momentum. “We have to be able to walk and chew gum at the same time,” Lew said. “I deeply believe that this would be the wrong time to hit the brakes.”

The burden clearly weighs on Obama as he searches for that magic combination. He has made a point of talking more lately about jobs and associating himself with the burdens of employers and employees alike. He announced Sperling’s appointment this month not at the White House but at a factory in Maryland, where he expressed sympathy for the stresses of running a business in hard times. The factory owner’s family once lived above the store, and Obama joked that some days it probably feels as if they still do. “You know,” added the man living over the most stressful store in America, “that’s what happens when you’re in charge.”

Peter Baker is a White House correspondent for The Times and a contributing writer for the magazine.