Earlier this year, a reporter informed me of what is apparently a common belief in the business press, namely that "the Labor Department considers the (seasonally adjusted, or SA) numbers to be much more reflective of what’s actually going on in the economy" than the raw (i.e., not seasonally adjusted, or NSA) economic data. That's interesting, given that you can't even do seasonal adjustments without the raw data, but I digress. That expressed and almost blind belief in SA numbers explains why virtually no one in the press bothers to look at, let alone report, the NSA numbers.

But given this "seasoned" faith, why didn't the business press tell readers that today's revisions to SA figures for initial unemployment claims going back to 2007 released today by the Department of Labor increased the originally reported amounts for the past four weeks by an average of almost 4%? That's indeed what happened, and it hardly seems minor. Instead, Bloomberg, Reuters, and the Associated Press all celebrated today's number (359,000) as the lowest in four years — which it will no longer be if it gets revised upward next week by 2,000 or more next week (the average seen during the past year has been a bit below 4,000). The specific changes are after the jump, followed by a rundown of the three wire services' coverage.

Here are the changes:

Claims increased by an average of 3.8% during the past four weeks as a result of the revisions.

At Bloomberg, Lorraine Woellert ("Jobless Claims in U.S. Decline to Lowest Since April 2008"), mentioned the revision's existence, but not its effect:

The number of Americans seeking unemployment benefits dropped last week to the lowest level in almost four years, adding to evidence of an improving U.S. labor market.

Initial jobless claims fell 5,000 in the week ended March 24 to 359,000, the lowest since April 2008, the Labor Department reported today in Washington. The median forecast of economists in a Bloomberg News survey called for 350,000 claims. With the report, the government data also contain revisions dating back to 2007.

… "The labor market is still improving at a modest pace," said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. "Across almost all sectors, companies have shed as many workers as they possibly can. Now, they're responding to the modest improvements in demand."

At Reuters, Jason Lange ("Jobless claims fall to 4-year low in latest week") at least noted that last week went up by 16,000 because of the revision:

New claims for unemployment benefits fell to a fresh four-year low last week, according to a government report that showed ongoing healing in the labor market.

Initial claims for state unemployment benefits fell 5,000 to a seasonally adjusted 359,000, the lowest level since April 2008, the Labor Department said on Thursday.

The report included revisions for claims data from 2007 based on updated seasonal adjustment calculations. New seasonal adjustment factors were also introduced for 2012.

The prior week's figure was revised up to 364,000 from the previously reported 348,000. Economists polled by Reuters had forecast a claims reading of 350,000 for last week.

At the Associated Press, Christopher Rugaber ("US jobless claims fall to lowest level in 4 years") went into the wire service's "everything's coming up rosy" routine:

The number of people seeking U.S. unemployment benefits dropped last week to the lowest level in four years, adding to evidence that the job market is strengthening.

Applications for weekly unemployment benefits fell by 5,000 to a seasonally adjusted 359,000, the Labor Department said Thursday. That's the fewest applicants since April 2008. The four-week average, a less volatile measure, declined to 365,000 – the fewest for that measure since May 2008.

When unemployment benefit applications drop consistently below 375,000, it usually signals that hiring is strong enough to lower the unemployment rate. The decline has coincided with the best three months of hiring in two years.

The department made annual revisions to the past five years of data, which increased the number of applications in recent months and showed a slower decline. Still, even after the revisions, applications have fallen roughly 12 percent over the past six months.

… "The trend remains unambiguously downwards," said Ian Shepherdson, an economist at High Frequency Economics. "We think the rate of decline … is slowing … but they are still consistent with robust, sustained payroll gains."

Well Chris, we thought until last week that claims had fallen by almost 18% in the past six months (the difference between last week's original 348K and the 423K reported in the week ended September 17). So the drop you cite is about one-third less, and, to needle Mr. Shepherdson, quite a bit less "unambiguously downwards."

So the press really believes that the SA are the gospel, yet it totally ignored how they went up by almost 4% in revisions during the past month. Their preference for SA numbers would thus seem to have very little to do with faith. I suspect it instead involves a high component of laziness — and in the case of today's DOL revisions, the need to ignore news that makes the economy look a bit worse than it has appeared during the past month trumped the need to report bad-news changes in the numbers they claims they trust.

Cross-posted at BizzyBlog.com.

See-no-evil economic reporting during the Obama years has "somehow" missed a number of developments in the makeup of the American workforce which I believe would not have been missed (or deliberately overlooked, take your pick) if a Republican or conservative were in the White House. One of them relates to full-time employment.

Did you know that seasonally adjusted full-time employment in September 2011 was lower than it was when the recession officially ended in June 2009, and that this was the case for 26 of the first 27 post-recession months? What's more, the economy had over 8.7 million fewer full-time workers in November 2011 than it did when full-time employment peaked four years earlier in November 2007. Proof from the Bureau of Labor Statistics follows the jump.

Here it is:

Full-time employment finally surpassed the June 2009 level for two consecutive months in October and November. Hopefully it will keep going up, but the economic policy barriers to continued improvement are quite substantial, as has been noted elsewhere by yours truly and so many others. For those who are wondering, during the first 29 months after November 1982, the official end of the Reagan-era recession according to the National Bureau of Economic Research, full-time employment increased by almost 8 million:

Currently, the economy has 417,000 more full-time workers than it did when the recession officially ended in June 2009. Readers will also see that the increases in the number of full-timers continued to climb after that. By the end of 1986, over 11 million more Americans (almost 14%) were working full-time than were doing so at the end of that era's recession.

President Obama said in Kansas on December 6 that what Reagan did, followed by similar but less aggressive moves under President Clinton (with prodding from a GOP-controlled Congress) and Bush 43 "doesn’t work. It has never worked."

Really? Then what would you expect a nonpartisan observer to say about the policy prescriptions employed during the past three years?

If the economy under a Republican or conservative president had utterly failed to create full-time employment for so long, we'd be hearing about it constantly. But we've heard something between absolutely nothing and barely anything from the lapdog establishment press.

Cross-posted at BizzyBlog.com.

Late Friday afternoon, Todd Shields at Bloomberg News broke a story about some guy, who happens to be an Obama and Democratic Party donor (but not disclosed), against whom the Securities and Exchange Commission is formally considering an enforcement action (also not disclosed, though it was noted at the New York Times's Dealbook Blog five hours before Shields's report), whose "wireless service caused interference to 75 percent of global-positioning system receivers examined in a U.S. government test." Though it generated a fair amount of center-right blog discussion over the weekend, the establishment press largely ignored the stunning result.

Earlier this evening, Shields and Alan Levin reported even more troubling info (as carried at the San Francisco Chronicle; bolds are mine throughout this post):

---

Falcone's LightSquared Disrupts Plane Safety Gear in Testing

Philip Falcone's LightSquared service disrupted airplane safety equipment in U.S. tests of the proposed wireless network, government officials said.

Signals from LightSquared equipment caused "interference with a flight safety system designed to warn pilots of approaching terrain," according a statement from the Defense and Transportation departments distributed today by e-mail.

The safety gear relies on the global-positioning system. U.S. officials are testing for interference with GPS devices as they consider whether to let LightSquared operate its network. The service would let clients such as Best Buy Co. offer cheaper wireless services and products, LightSquared Chief Executive Officer Sanjiv Ahuja said in a Dec. 9 interview.

… LightSquared's effect on the air-safety system was the subject of a separate analysis by the Federal Aviation Administration, according to today's statement.

… The safety system displays any terrain or man-made obstruction in the path of an aircraft. If a plane flies too close to danger, the system sounds increasingly dire warnings urging a pilot to "Pull up!"

These devices have been required on turbine-powered aircraft since 2005 and are credited with nearly eliminating crashes in which pilots hit the ground in darkness or bad weather, according to the FAA. The system uses GPS to determine a plane's position, which it matches against a worldwide database of terrain, radio towers, buildings and airports.

Once again, Shields failed to report that Falcone is a heavy Obama and Democratic Party donor, or the existence of the SEC's consideration of enforcement action against Falcone, described thusly by the Times:

The Securities and Exchange Commission is putting Philip A. Falcone on alert.

Mr. Falcone, a hedge fund manager, received a Wells Notice from the commission on Thursday, according to a filing made by his firm, Harbinger Capital Partners. The agency typically sends those notices when it is considering an enforcement action against someone. Omar Asali and Robin Roger, two Harbinger board members, also received the notices.

The notices stem from possible "violations of the federal securities laws' anti-fraud provisions in connection with matters previously disclosed and an additional matter regarding the circumstances and disclosure related to agreements with certain fund investors," according to the filing.

Although the filing does not specify charges or allegations, the notice is likely related to a disclosure Harbinger made to investors. In April, the firm said it was being investigated for possible market manipulation in the trading of undisclosed debt securities from 2006 to 2008. Mr. Falcone has also been investigated over whether a $113 million personal loan he made to himself, using his firm’s funds, was disclosed to investors in a timely manner.

Such trivial matters are not news at all at most establishment press outlets, including the Essential Global News Network known as the Associated Press. A search on Falcone's last name at the AP's main national site comes up empty, and Lightsquared's name is mentioned only in passing in an unrelated AP article about Clearwire.

Hot Air's Ed Morrissey provided background the press has totally ignored on Saturday (links were in original):

If that was all there was to this story, then this would just be another commercial venture that struck out, with little interest outside the tech fields involved.  However, the overwhelming failure of LightSquared’s test puts allegations from last summer in a new light.  In September, four-star Air Force General William Shelton accused the White House of pressuring him in August to change his Congressional testimony to make his assessment of LightSquared more favorable.  Another Congressional witness told Eli Lake that the White House had “offered guidance” on how to testify favorably towards LightSquared.

Why is this important?  Philip Falcone is a big donor to the Democratic Party, and he has billions of dollars at stake in LightSquared’s approval.  Also, Obama himself was an investor in LightSquared at one point, as were or are a number of his associates.  The resounding failure in this test makes it look like the White House pressured witnesses to back off of exposing LightSquared’s product as exactly the kind of dangerous problem that critics had maintained all along — with the intent to mislead Congress into moving forward with LightSquared’s government contracts.

Is this administration really going to ultimately green-light LightSquared, thereby disrupting the GPS system, and even risking the safety of air travel, in the name of granting favors to a corrupt crony? We may be witnessing a high-tech "All My Sons" scenario conducted in broad daylight.

Is the press, including Bloomberg, which is negligently sticking to the technical details without addressing the corruption — something which certainly would not be happening if a Republican or conservative were in the White House — really going to look the other way while all of this happens? If so, why do they bother coming to work every day?

Cross-posted at BizzyBlog.com.

For conservatives, one of the bright spots of the Occupy Wall Street protests was when millionaire investor Peter Schiff went down to Zuccotti Park with video camera and a sign reading "I Am The 1% – Let's Talk."

On Tuesday, I had the pleasure of speaking with Schiff by telephone in a sweeping interview about his experience at OWS, how the financial media are doing, and ending with his rather frightening view of the economy and the future of our nation (video follows with transcript):

NEWSBUSTERS: Peter Schiff is the CEO of Euro Pacific Capital and the author of the book “How an Economy Grows and Why it Crashes.” He is well-known for correctly predicting the housing and financial collapse in the last decade as well as his run for Senate in Connecticut in 2010. He’s a frequent guest on CNBC and the Fox Business Channel, and now has his own radio show. NewsBusters readers are likely most familiar with Peter for having gone down to Occupy Wall Street last month holding a sign reading “I Am The 1 Percent” engaging many of the protesters in serious discussion in videos that went viral on the internet including at MRC TV. Welcome to NewsBusters, Peter.

PETER SCHIFF: Thanks for having me on your program.

NEWSBUSTERS: My pleasure. It turns out we have a lot in common. We both went to UC Berkeley. Were you like me a liberal when you first went there and eventually grew up, or were you always a conservative?

SCHIFF: No I pretty much always been conservative. You know I had my dad to thank for that. He was able to teach me a little about economics and the U.S. government when I was in grade school. So I didn’t have to overcome those barriers. My road to the truth was a lot easier than yours.

NEWSBUSTERS: I guess so. So let’s move a little forward. As you know, NewsBusters is a media bias website. It’s part of the Media Research Center. What I wanted to discuss most with you is how the media reports economic matters. I’ve written for years that there are very few people in the press that have a clue about how the markets work or even the slightest understanding of basic economics or civics. Aside from the business specific outlets like the Wall Street Journal, CNBC, Bloomberg, Fox Business Network, how do you rate the rest of the media’s reporting of business, finance, the economy, and the federal budget?

SCHIFF: Well I don’t think it’s that particularly good when it comes to real deep understanding of the economic issues. If you want to know what the price of a particular stock is, get some of the latest headlines, the financial stations do a pretty good job of that. But I think there are some real serious structural economic problems underlying the United States. I still think we are on the verge of a major economic catastrophe, and you really wouldn’t know it by watching the major financial shows. It’s not just television coverage. In the press, in the written newspapers you’re really not seeing the kind of warnings that we should be given how dire the situation is.

NEWSBUSTERS: Interesting. For example, we had a massive stock market bubble in the ’90s that eventually led to a serious collapse. How much do you think the media helped to pump up that bubble at the time?

SCHIFF: Well they definitely helped. I think the financial coverage of the stock market mania probably fed into the bubble. I mean there were a few people who would come on and say it was a bubble. Their voices were in a distinct minority. Normally they were laughed out or shouted down. So, if anything maybe the few naysayers that were out there just the way they were treated merely reinforced the idea that this would go on forever.

So as in the case, the media got sucked into it and became a big cheerleader for it. I think they did the same thing with the housing market. I think that the media was less responsible or less involved in the housing bubble than it was in the stock market because I think a lot of stock investors were watching CNBC every day and things like that. I don’t necessarily think that real estate investors or speculators were necessarily tuning into the television or reading in the papers. They just knew anecdotally just from talking to their friends how much money everybody was making in real estate. And so I think the media was less involved in hyping that up. That was maybe more the realtors themselves who were hyping it up then just individuals as they were telling their friends, and as individuals saw their friends, there was a lot of peer pressure.

When your neighbor's got a brand new Mercedes because he refinanced his condo, you feel the pressure to do the same thing. Or if a couple of kids graduate from college, and one happened to buy a house and now he’s got a new car, he's taking European vacations. You rented an apartment and you don’t have any of these things, you want those things too, and your friend says, “It’s easy. Just buy a condo and it will jsut magically go up and you too will be rich.” So I think that was a lot more than necessarily the financial coverage.

NEWSBUSTERS: Do you think that in the ’90s, sticking with that bubble, that a lot of the reporting, the bullish reporting was political because you had a Democrat that the media loved in the White House, or was it just because they were uninformed?

SCHIFF: I don’t think it was political. I don't know that you can argue that a lot fo the traders and the talking heads on let's say CNBC were necessarily Democrats who supported President Clinton. A lot of them are Republicans. I think that there it was a function of knowing where your bread is buttered. A lot of the advertisers are stock market, brokerage firms, mutual fund companies. A lot of the guests that are coming on these shows are coming on to promote their firm or their products. So I think a lot of that bias had to do with their own self-interest. People have a vested interest in keeping people interested in buying stocks, and so guests would come on and try to rationalize why these prices were good, that it wasn't a bubble, it was legitimate growth and prosperity and there was nothing to worry about. I think that happened despite the fact that they might not have been particular fans of the occupant of the White House.

NEWSBUSTERS: I think you're thinking mostly in terms of let's say CNBC or the Wall Street Journal and stock specific type of media outlets. But we had done, the Media Research Center had done a lot of studies comparing how the economy was covered under Clinton versus Bush. When we're talking a media study, we're talking about all of the various outlets – ABC News, CBS News, etc, New York Times, other things like that. So what was considered good news, good economic news under Clinton, when the same news would come out under Bush that be reported as bad.

SCHIFF: I certainly think that the false prosperity that resulted from the stock market mania, as a lot of jobs were created that were related to the bubble, as people were able to spend the windfalls that resulted from cashing in stocks or stock options, as a lot of that money was spent, that was confused with prosperity. And so, yeah, the media didn’t pick up on it.

Also, one of the reasons that the government was able to reduce the deficits during the Clinton years was because they were able to refinance a lot of the debt from long term to short term, and since rates were lower, they were getting a double benefit of moving from the equivalent of a fixed-rate mortgage to an adjustable rate mortgage. They were able to temporarily decrease the cost of funding that debt, but at the expense of ultimately, when interest rates rise, it’s going to really come back to bite us, the fact that we relied so heavily on short-term debt. That whole trend which continued under Bush, continues now under Obama, that entire trend began with Bill Clinton.

NEWSBUSTERS: Well, something else we noticed in the previous decade was that the media began predicting a housing bubble at least five years before it burst. Believe it or not, the first significantly bearish articles about real estate and about housing were in September 2001 prior to the attacks. So we touched upon this a little bit earlier, but I wanted to talk more about it. How do you feel in general the press covered the housing and the credit bubbles?

SCHIFF: I think pretty poorly. Certainly there was plenty of evidence out there supplied by me and other people that there was a huge bubble that was going to collapse, and that the reasons for the bubble was government support of the housing market either directly through Fannie, Freddie, and the FHA, Community Reinvestment Act or through the Federal Reserve’s actions to keep interest rates artificially low. Through the tax code with the deduction of mortgage interest with the $500,000 exclusion for the profits on the sale of a house. There were all sorts of things that government was doing to artificially inflate the real estate market. And since these real estate values were the assets underlying our banking system, it was obvious to me that when the bubble burst, the real problem was going to be in the banks because that’s where the lending was coming from.

And so I saw a tremendous catastrophe coming, and it should have been obvious, and there should have been a lot more coverage of it. Instead the media got captivated by it. And I think a large portion of that is probably that most of the people in the media were homeowners. Most of the people that were doing these reports, the anchors, the cameramen, the production people, they all owned homes. They all wanted to believe, and they were all caught up in this idea that their homes would always just go up in value. And even if they didn’t own a home, they wanted to buy one so that they could get rich without working.

So I think this whole idea captivated everybody. And so everybody was kind of drinking the Kool-Aid, and so they weren’t thinking straight, you know?

NEWSBUSTERS: Was it also possible the intricacies of things like credit default swaps and collateralized debt obligations, these were way beyond the economic acumen of most reporters? They therefore really couldn’t tell the whole story.

SCHIFF: These securities really weren’t that complicated in their structure. I just don’t think anyone took time to really look at it, and look at what made the whole thing possible was there were people buying up these risky tranches that were assigned all the risk. And so one of the reasons that 60 percent of the subprime mortgages that were originated were able to be rated AAA was because Wall Street created these tranches that took all the risks.

To me, as soon as I found out about that I realized that as soon as there’s a few losses, these tranches are going to collapse, and the whole market is going to implode because nobody will be willing to assume the risk once it’s obvious how risky it is. To me it didn’t make any sense that people were taking those securities in the first place, that they couldn’t figure out that even though they had a AAA rating, that they were junk, that they had no chance, these things were going to collapse. In the short run, they had higher yields, and I think a lot of people managing money were just very short-term focused because it was other people’s money, and so they weren’t really thinking it through. And of course, a lot of these people were also caught up in this idea that real estate prices would never fall.

Part of understanding risk in the mortgage market was understanding that real estate prices were going to fall. Since most people dismissed that out of hand there even being a possibility, it prevented a lot of people from understanding the problems in the market.

NEWSBUSTERS: One of the things that concerned me as I watched everything pump up, and more so as I watched it all collapse because I guess like most people irrespective of my background – maybe it’s because I owned real estate, maybe it’s because I really didn’t believe that everything was going to fall apart the way that it did – but after the fact, it seems to me that so many people, and we’re talking CEOs and CFOs of major corporations, major financial institutions all around the world with MBAs and Ph.Ds from the top universities in the world all bought into the same idea that the Ponzi scheme of credit default swaps and collateralized debt obligations would actually protect their portfolios from a decline in real estate. Does it scare you that so many people bought into the same Ponzi scheme?

SCHIFF: It doesn’t scare me. It maybe amazes me that people can be so foolish, but at this point, people’s stupidity doesn’t amaze me at all anymore. I’ve just grown to accept it. And that’s why this next crisis that’s coming is going to be so much worse than the last one. And of course, all the people who didn’t see the real estate bubble or the real estate crisis coming are the same people that are blind to this bigger crisis that’s coming much for the same reasons.

If you look at the run up in debt at the government level, the U.S. government is making the exact same mistake that homeowners made, and the consequences are going to be the same except on a bigger scale because it’s now the government that is going to have a credit crisis not just some subprime borrower.

NEWSBUSTERS: That is scary. So by September 2008 as everything began to collapse, in my view as someone who had been in the markets and analyzing the markets since 1980 when I started, the media became more bearish than I’ve ever seen them in my life. Do you think all of the bearishness at that time was warranted, or do you think that that pessimism acted to make matters much worse than they should have been?

SCHIFF: I think they should have been a lot more bearish than they were on the overall economy, but clearly as far as the stock market was concerned, no. The bearishness was not relevant or justified. We had a rally, and I was actually pretty bullish on stocks myself back in early 2009 because I had recognized that we had had a very substantial decline in stock prices, and the Fed was going to print a lot of money, and that would mean that the value of money would go down and therefore prices would rise to reflect the loss of value. And that didn’t mean real prices would rise. I was more bullish on gold than I was on stocks, but I recognized the market was going to rally.

But I also recognized that the problems were far deeper than what the media was suggesting, and I still don’t think we’ve had any kind of economic recovery at all. I think we have managed some GDP numbers that are bigger, but I don’t think that evidences a stronger economy. I think that just evidences bigger problems because all we’re doing to get that higher GDP is spending more borrowed money. And so the debt is growing much faster than the GDP. And so the debt to GDP ratio keeps getting higher and higher in favor of debt, and that means the country is getting closer and closer to bankruptcy. I would say we’re already bankrupt, we’re just getting deeper and deeper in the red. And of course all of this borrowed money has to be repaid with interest. Whatever growth we’ve been able to borrow from the future will more than be offset by what we have to give up when we have to pay the money back.

Part of the problem is that people believe we never have to pay it back. And of course, in a way they’re right because we’re just going to default on it. But the fact that people think that we can borrow without ever having to pay it back makes no sense because if you accept that, you also have to accept that there are people willing to lend us money and they never want the money back. I don’t think people are that stupid. I think the lenders want their money back.

NEWSBUSTERS: Did you see at the time – and I’m still at the fall of 2008 as everything’s collapsing – did you see the media bearishness as having any political component whatsoever? Many conservatives believed at the time and still do that the pessimism was hyped to allow Obama and the Democrats to blame everything on Bush and the Republicans. Did you see it that way, or do you see it that way now that they were playing on fears?

SCHIFF: I certainly think the Republicans were very much complicit in what happened. So the media was right to blame the Republicans, but they were wrong if they didn’t blame the Democrats, too. It wasn’t just the Republicans. The problem was the government, both Democrats and Republicans. I think where the media failed is trying to blame the problem on capitalism, on the free market, on a lack of regulation, on deregulation. That had nothing to do with it. The problems were caused by too much government, by too much government involvement in the economy, in specifically the housing market and through the Federal Reserve and the cost of money. Because the housing bubble was a credit bubble. It was because credit was too cheap and too plentiful. And why was that? Because the Federal Reserve made credit too cheap.

And of course one of the reasons the market was so willing to loan to real estate versus other asset classes was because of the government guarantees. You know, anywhere there’s a government guarantee, whether it’s housing or student loans, the market is going to be willing to lend to people who absent those guarantees wouldn’t have been able to borrow. And certainly many of the people, in fact most of the people who borrowed money to buy houses in 2002, 3, 4, 5, 6 never could have borrowed that money were it not for government guarantees. So how you can then blame the private sector for a problem created by government is beyond me. But the media managed to do it. And why the politicians would want to do it, I mean, the last thing they want to do is accept responsibility for the problem. But if the media is supposed to be a watchdog, they should have shined a light of truth on this situation. Instead, they helped spread the propaganda.

NEWSBUSTERS: Exactly, and actually one of the ways that I wrote about at the time that they were spreading the propaganda, Peter, was they completely ignored in my view what the real culprits of the bubble were, which was the Financial Services Modernization Act of 1999, the Commodity Futures Modernization Act of 2000, and the tremendous amount of pressure that Clinton put on Fannie Mae and Freddie Mac to lower their lending requirements. When everything collapses in the fall of 2008, we heard nothing about these key pieces of legislation. What we heard about instead is that it was about deregulation, but it was supposedly about deregulation under the Bush administration. But nobody wanted to talk about the two pivotal pieces of legislation that occurred under Clinton which were completely responsible or at least precipitants.

SCHIFF: Oh yeah. Bush didn’t come up with this. Obviously, it started under Clinton as far as this bigger push to housing, although a lot of it predates Clinton. I mean, Clinton didn’t come up with the home mortgage interest deduction. That was there long before Clinton came around. So government involvement in housing has been there. As a result, housing prices have always been inflated to levels that were higher than existed in a free market.

What happened in the 1990s is that the government basically threw a match on a powder keg when Alan Greenspan slashed interest rates down to one percent, and at the same time you had this big push on the part of the government with Community Reinvestment Act and the FHA to really get more people into housing. Because it almost became a political and a social issue, because let’s say minorities who disproportionately happen to be, or poor people are disproportionately minorities, didn’t own homes in the same percentages as let’s say the majority. And since real estate was now seen as your ticket to easy wealth, because real estate prices were rising, it was seen as, “Why should we deny all these easy riches to poor people? Why should it just be the middle class and the rich who can make money doing nothing? That should be the American right. Everybody should be able to make something for nothing. We should all be able to get rich just living in houses even if we can’t afford to buy them.”

So the whole idea was we need to get everybody into a house and we’ll all be rich. So in order to enable that, the government was putting pressure on the lenders to allow people to buy houses even if they didn’t have a down payment. And even if they really couldn’t afford to make the payments. The idea was that just by putting them into a house, they’ll be rich, that we’re going to end poverty by putting the poor in houses. Because once you put a poor person in a house, then the house goes up, and they’re no longer poor.

So all of this had to do with this crazy idea that real estate just goes up, which of course it doesn’t.

NEWSBUSTERS: Well, the point that I was trying to make is everything falls apart in the fall of 2008 and the media were tremendously quick at pointing their fingers at George W. Bush while in reality the pieces of legislation that really pumped everything occurred before he was even elected president. But let’s move on.

SCHIFF: But George Bush, see I don’t want to let Bush off the hook. See, George Bush had a real opportunity. When he was elected in 2001, and the NASDAQ bubble burst, and it burst early in his presidency. He could have said, “Look, we were living in a bubble in the 1990s. Now we have to pay the price. We’re going to have a severe recession, we’re just going to have to live through it.”

Instead of being honest with the American public, he tried to ease the pain with a bigger round of stimulus that was worse than the one that created the stock market bubble. Even after, you can say, 9/11 happened, and so we were attacked. Yes, but instead of urging Americans to go out to the mall and buy more stuff or buy more cars, he could have called for sacrifice. He could have said, “Look, we’ve been attacked. We need to hunker down. We need to save our money so that we can afford to increase our military spending in reaction to this crisis.”

Instead of doing that, he just urged on more debt. You can’t just say, “Hey, the problems were created under Clinton.” Yeah, they started under Clinton, but he expanded them just the way Obama is expanding the mistakes that Bush made. We have this baton of bad policies, and we just pass it from one leader to the next. Nobody says, “I don’t want that baton. I don’t want to carry this anymore.” Nobody actually wants to change the policy even if they run based on a promise of change, they change nothing.

NEWSBUSTERS: Well, we’ve actually moved forward in my questions here, but you’ve set me up for a question that I wasn’t going to ask until later, but we’re here. Isn’t it the reality, don’t you believe that really probably since the ’80s the American economy has been dependent upon asset bubbles?

SCHIFF: Oh yeah. We’ve had a phony economy engineered by the Fed where we’ve just been serial bubble blowing, and we haven’t been creating real wealth. In fact, the opposite. We’ve been allowing the industrial capacity of our country to disintegrate as we depend on the productive capacity of the rest of the world.

We run these huge trade deficits that are on the order of magnitude of 40 to $50 billion a month. We are borrowing to buy things that we didn’t produce in our own economy because our economy lacked the productive capacity to make all those things. Instead, we’re relying on this phony service sector that’s built on a mountain of debt where we all borrow money to buy stuff that the rest of the world produced. And we’re not producing here because we’re not efficient enough.

We have too much government. We have too much taxes. Too much regulation. Not enough savings and investment. We’ve got this phony economy that is dependent on these bubbles and cheap money, and that’s why Ben Bernanke has got interest rates at zero, and that’s why he’s keeping them there because he knows that our phony economy will collapse the minute rates go up. Letting the phony economy collapse is the best thing we can do, because until we let that economy collapse, we’re never going to rebuild a viable one to take its place.

NEWSBUSTERS: So your view here is there isn’t necessarily a legislative or fiscal or monetary approach now that can fix the economy, that basically we’ve got to let all of the excesses that we’ve built up over the decades unwind themselves no matter how ugly that might be before we’re really going to have a strong foundation for a real economy again.

SCHIFF: Oh yeah, yeah. There’s no gain without a lot of pain. The longer we delay the pain, the more painful it’s going to be.

NEWSBUSTERS: But Peter, what president is going to allow that to happen? Nobody will.

SCHIFF: Well, maybe Ron Paul. It’s worth a shot.

NEWSBUSTERS: I had a feeling we were going to get to Ron. For those that don’t know, in his 2008 run for president, Ron Paul’s, Mr. Schiff was the, you were one of his economic advisers.

SCHIFF: Yes, not that he needs any economic advice. He should be giving it, particularly to the other presidential candidates or the president himself.

NEWSBUSTERS: Well, we’re going to move away from that only because I can see a lot of our readers clicking off at this point. I would like to discuss that with you at some point, although I think…

SCHIFF: Who do your readers support?

NEWSBUSTERS: Well, that’s an interesting question, but I think at this point what we’re seeing in the debates and the public’s response to the various candidates is Paul gets a lot of support for his economic views which I largely agree with, but it’s his foreign policy views that have a tendency to make people a little bit queasy.

SCHIFF: Yeah, I think if they took a little bit more time to understand them, they might not be as worried. But the real problem is if we don’t deal with this economic threat, then our ability to defend ourselves goes out the window. If we destroy the value of our currency, if we collapse our economy, we have no national defense. So I would say the biggest foreign policy threat facing the United States is coming from Washington, D.C. And if we don’t defuse that threat soon, nothing else we do is going to matter.

NEWSBUSTERS: I agree. I agree. Alright, let’s move on to you had a lot of fun last month, you went down to the Occupy Wall Street movement – took a lot of guts. Actually, there’s another word I would use, but we’re a family program – with a sign saying, “I am the 1%.” And you engaged a lot of these protesters. Tell us about that experience, Peter.

SCHIFF: Well, I’ve argued with liberals my whole life. So it wasn’t that different. You know, you mentioned you went to Berkeley. I spent four years there, so it wasn’t much different than being at Sproul Plaza or whatever on a typical day.

NEWSBUSTERS: You know it’s really funny that you say that because when the movement first came out I wrote about this and said, “You folks don’t realize that Occupy Wall Street’s been happening in Berkeley since the ’60s.

SCHIFF: Yeah, so I think I was pretty well versed to these arguments, because they’re no different than the ones they were making back then. It was pretty much what I expected. There were some people out there, though, that kind of supported me. There were maybe 20 percent of the people. Of course, I might have had a skewed sampling based upon the people that tended to gravitate in my direction. But there were people there that were protesting the crony capitalism, the relationship between the Fed and the banks, that corp relationship. They actually wanted capitalism. They wanted the government out. So there is a percentage there that are protesting for the right reasons among the Occupy Wall Streeters.

But the vast majority of them are your typical leftist, Marxist, statist type people who just want more government, who think that the rich have too much money, and too much power, and the government needs to take the money from the rich and give it to everybody else, and that’s how you create prosperity by redistributing the wealth. And they just don’t trust capitalism. They never have. And they’re using the situation today as an excuse to advance their socialist agenda even though the reason the economy is suffering the way that it is is because of the very types of policies that they are prescribing as the solution.

One woman said that I’m part of the one percent and she’s part of the 99 percent. I said to her, “Well, if I were willing to put you in the one percent, if I was willing to give you enough money so that you could be part of the one percent, would you take it?” And she said, “No.” She doesn’t want to be in the one percent. She’d rather be in the 99 percent. And I said, “You’re just not telling the truth.”

Just like there was one of the groups, one guy was complaining to me that companies like Walmart are exploiting their workers and paying them low wages. I of course made the point that it’s not exploitation. They can quit if there’s a better job. If they’re not quitting, it means there is no better jobs, so they’re not exploiting them. They’re giving them the best job they can find.

But I tried to make the point that the reason companies want to pay low wages is because their customers want low prices. And then he got back to me and said, no, he doesn’t want low prices, that he wants high prices. Which is ridiculous. And even if you follow that to its logical conclusion, well who would be hurt the most by higher prices? The poor. Higher prices aren’t going to hurt the rich. They have the money to pay for it. The people who benefit the most from low prices are the poor.

NEWSBUSTERS: The Left’s hatred of Walmart, Peter, has never made any sense to me. This is a company the Left should revere for exactly the reason you’re saying.

SCHIFF: There’s not that many rich people shopping at Walmarts. In fact, most rich people couldn’t even find a Walmart. They’ve never even been inside of a Walmart.

NEWSBUSTERS: Yeah, but they might own Walmart stock, and that’s what really makes these folks mad. How do you feel about the reporting of this movement at this point? For instance, why do you think the media and the protesters revere the top one percent of the nation’s actors, entertainers, musicians, and athletes, but they hate the top one percent of people in the financial services industry? Why do you think that is?

SCHIFF: I don’t know. Maybe because if you’re making your money in a certain way. I guess people like movie stars because I guess people don’t mind paying to go to the movies. They don’t mind, they like watching sports. They don’t like the fact that they have to pay $4.50 for a gallon of gas. Nobody wants gas. You want to get some place, so you need gas. You don’t want it, so you regret having to buy it. So maybe you vilify the people that are charging you so much money for your gas, but you don’t understand – if it weren’t for those people, there would be no gas. And then you couldn’t get to the ballgame to watch your favorite baseball player.

I think that is part of the problem, the perception of what you’re getting for your money. I mean, nobody was upset with Steve Jobs over all his millions because everybody likes the iPad and the iPod even though they’re expensive, they’re glad to have them.

NEWSBUSTERS: Well, and they also weren’t upset about the fact that most of his manufacturing facilities were in China, he didn’t employ a heck of a lot of people in America.

SCHIFF: Well, if he did, then he would have been too expensive. No one would have been able to buy the products.

NEWSBUSTERS: The point that I was trying to make is, though, the people that are our entertainers, or the people that are in sports, these represent not just part of the one percent of wage earners. They’re also potentially part of the .1 or .01 or .001 percent of people that strive to be in those industries. These are the most successful people in the industries that they’re in. The same is true of the folks that are the most successful let’s say in the financial services industry. Out of the hundred thousand let’s say people who graduate with an MBA each year, maybe one tenth of one percent or less are going to get a good job on Wall Street, and significantly less of them are going to end up with the high paying position on Wall Street.

SCHIFF: Oh yeah, but the big difference is though you’re getting these government subsidies for Wall Street in the form of government bailouts. If somebody is trying to be an entertainer or an actor or a sports star, they’re not getting any government backing. The government’s not there to bail them out if they fail.

NEWSBUSTERS: Well, PBS.

SCHIFF: So I think the part that people resent about the Wall Street fat cat is the perception that he got fat feeding off the public trough and that is a problem. When you get all this money being funneled to Wall Street from the Federal Reserve, and then you get the government backstopping their mistakes, they can gamble with other people’s money, with taxpayer money, and if the gamble’s a win, they keep all the profits, and if they go sour, they stick the taxpayer with the loss.

See, that is a problem, and that’s where I stand shoulder-to-shoulder with the Occupy Wall Street protesters. I want to protest that. Only I think it’s better to protest Washington for making the bailouts available than to protest for accepting them because I’m not going to blame an individual company for taking a bailout. After all, if the government offered to bail me out, I’d take it. The problem is the government shouldn’t have the power to do that.

So we’ve got to protest government, and we’ve got to protest the Fed. They’ve got to turn off the money spigots. They’ve got to let interest rates go up so that we don’t have all this reckless speculation. The only reason it’s possible is because the Fed made it cheap.

NEWSBUSTERS: But isn’t one of the other media problems here in inflaming this movement is that they like to cast or to depict people on Wall Street as just pushing money around, paper around, and they’re not creating any services or functions that benefit the society? Don’t you as somebody on Wall Street disagree with that depiction?

SCHIFF: Well, I disagree with part of it. There is some viable services being performed on Wall Street. There is legitimate investment banking going on. There is legitimate asset management, M&A stuff going on that does add value. But a lot of what happens on Wall Street now is simply proprietary trading. And that’s not adding any value at all. That’s just a transfer. And a lot of that is being financed by the cheap money.

So I want to get rid of that. I want Wall Street to add value to the U.S. economy. I don’t want to turn it into a casino. And that is what the Federal Reserve has done, and that is what the government has done. It’s a gigantic casino. And a lot of money is being won, but a lot of other money is being lost. And part of the problem is a lot of the money that’s being lost is being sucked out of the rest of the economy and funneled through the few people that have these jobs on Wall Street. And that is one of the reasons you’ve got this big problem, and we’re giving capitalism a bad name. We’re giving it a black eye because this ain’t capitalism. You know, we preach capitalism, but we practice socialism, and in doing that, we give capitalism a bad name.

NEWSBUSTERS: But doesn’t the proprietary trading, and at this point I’m speaking from my experience as someone who did arbitrage for Merrill Lynch, and that was proprietary trading. Doesn’t that give the firm more money for its mortgage banking operation to fund new companies?

SCHIFF: Essentially, but if somebody is betting, somebody’s going to lose if somebody’s winning. If you’re just gambling in the stock or bond market, somebody’s gains have to equal somebody’s losses. And if you look at the percentage of Wall Street profits that now come from proprietary trading versus what it was in the past, it’s enormous. And this is what takes on all the risk. If you’re making money through proprietary trading, and you’re leveraging yourself up. You see, if they were trading without leverage it would be a different situation. It’s still might be a zero sum game, but they’re leveraging up to incredible extents, and the only reason they’re able to get so leveraged is because of all the backstops from the Fed and all that cheap money. If you took all that away, you wouldn’t have all this risk because the risk, the systemic risk they’re all afraid about is a result of the leverage. And what’s financing all the leverage? That’s the Fed, and to a lesser extent the implied put of the government and the too big to fail.

NEWSBUSTERS: Well, and it goes back to what we were saying before – we can’t grow our economy without a bubble, so all of that leverage is a big part of the bubble.

SCHIFF: Well, and that’s not really growing our economy. The bubbles don’t represent economic growth. In fact, I would say they stand in the way of true economic growth. It’s the illusion of prosperity, and that’s what government is all about – trying to maintain this illusion at all cost. But eventually, you can’t maintain it anymore. Eventually we have to come off of this high and we’ll realize just how poor we really are.

NEWSBUSTERS: So what’s your vision of the economy at this point, in the future, in particular let’s say with what’s going on in Europe? Is the EU going to stick together, or is the Euro about to really fall apart, and what’s that going to do to us?

SCHIFF: I don’t know. I don’t think the Euro’s going to fall apart. I think eventually it might, but my guess would be it’s either going to hold together for a while longer or it will dwindle in its size meaning that some of the countries might choose to drop out of the Eurozone, and so the Eurozone will be smaller. But I don’t think that it’s going to be dismantled completely. I don’t think that Austria, for example, is going to go back to the schilling. I don’t even think Germany will go back to the mark. I think countries like Germany, Austria, the Netherlands, there are some countries that will stay together with a single currency, and you’d could call that the Euro.But is it possible that we could see the resurrection of the Italian lira? Yeah, it’s possible.

But I still say that the odds right now at least in the short run favor a move in Europe to try to keep all of the pieces together, but I think ultimately Europe is going to be better off, and the Euro is going to be better off if they don’t try to bend to accommodate the weakest link. I think that they need to force these weaker economies, mostly in the south, to cut government spending dramatically in order to stay in the Euro. If they’re not willing to do that, kick them out or let them leave, but don’t make holding the Euro community together to be your number one goal. The number one goal should be a sound Euro, and if the sound Euro means that Greece isn’t a part of it, then Greece isn’t a part of it. If they’re not willing to do what it takes to restore some fiscal discipline to their economy, then you don’t want them in the Euro. That’s what they have to decide.

But I think what we really have to learn from this situation in Europe is that’s a glimpse into our future. Europe is having problems because of too much debt, too much government debt. We’ve got more debt than Europe. Maybe our debt to GDP isn’t as big as Greece is, but it’s bigger than the Eurozone in total. And in fact if you throw in all of our unfunded liabilities, it could be bigger than Greece.

So we have got an enormous problem on our hands, and the only reason why it hasn’t blown up in our faces yet is because interest rates are still very low. But at some point in time, rates are going to go up, and when they do, we’re Greece, except we’re Greece with a printing press, which is worse.

NEWSBUSTERS: And isn’t it in reality pretty absurd of us to be considering our debt at roughly let’s say 15 trillion while completely ignoring the somewhere around $120 trillion worth of unfunded that we know are liabilities that exist in our future? Shouldn’t we be looking at that rather than what’s just currently on the books?

SCHIFF: I know, you’re talking about the tip of an iceberg when you talk about 15 trillion. The fact of the matter is that’s still a big number in and of itself. But of course, it’s way beyond that. I mean, just look at the Fannie and Freddie debt. That should be part of the national debt too because the government stands behind all that debt. What about all the student loans? That needs to be thrown on there.

So, there’s a lot of debt where the government has said, “We guarantee to pay it back” even if they didn’t borrow the money themselves, they guaranteed somebody else’s debt. That needs to be a part of the national debt. And of course, if you have huge accounting shortfalls in government programs like Social Security where the government has promised to make all these payments to people, yet they don’t have any money set aside to fund it, that gap, that unfunded liability, that has to be part of the national debt unless you’re going to acknowledge that the Social Security recipients have no legitimate claims to their money, which no politician is going to do. In fact, every politician says, “No one on Social Security needs to worry. We're not going to ever cut any benefits. Everyone’s going to get all their benefits.” Well where’s the money going to come from? It’s going to have to be borrowed. It’s debt.

NEWSBUSTERS: Looking at your crystal ball, what do you see for the American economy, and then I’ll let you go. What do you see for the American economy twelve months, 48 months, moving forward?

SCHIFF: I see a crisis. I think that’s about the time zone where it should hit, a sovereign debt and a currency crisis where the dollar plunges putting a lot of upward pressure on consumer prices in America and interest rates, and forcing the Fed to make a very difficult decision: either raise interest rates, short-term rates aggressively to stop the dollar from freefalling and to put a lid on consumer prices, and plunge the economy into a worse financial crisis and economic crisis than 2008, or; because the pain of doing the right thing is so difficult that we don’t do that, then we keep on inflating despite what’s happening, and we destroy the dollar, we have runaway inflation, hyperinflation, and then we have something even worse.

And beyond that I really can’t see because then we have two choices: either we completely abandon socialism and go back to a gold standard and go back to the Constitution and work our way out of this gigantic hole that we will be in, or; we abandon what’s left of capitalism and fully embrace socialism, become a complete totalitarian state, in which case we’re finished, at least for several generations until maybe violent revolution is able to restore freedom. But in the meantime, the key might be just to leave the country if you can.

NEWSBUSTERS: Is there any note of optimism you can give my readers before we go?

SCHIFF: Well, the optimism is that after we’re broke we’ll see the light, the error of our ways, and we won’t go down that road – we won’t complete the journey down to serfdom. We’ll actually become a free-market, capitalistic country again. Yes, we’re going to have a lower standard of living, but we’ll have a lot less government, and we’ll be able to rebuild. And in a generation or two, America could be on top of the world again.

So, there is a reason to be optimistic. Capitalism is a wonderful, powerful force if we can ever embrace it again. If we could have another American Revolution like the first American Revolution, then it’s great. But I said, I don’t know. I don’t know what is going to happen. I don’t know which path we’re going to choose.

But I’m still here. I haven’t left the country, so obviously I’m somewhat optimistic or I already would have been gone. There are plenty of people who have checked out and have already left. Look at Jimmy Rogers, he went over to, he lives in Singapore now. He wanted to get out of Dodge.

NEWSBUSTERS: Well, you talk about a revolution, and I realize I said that was the last question, but last one: is this revolution going to be between the Tea Party and the Occupy Wall Street folks?

SCHIFF: That’s how I kind of see it. Those are the two factions. I’d rather have it be a Tea Party revolution because that’s more of a true American capitalist Constitutional revolution versus the Marxist type revolution the Occupiers would rather have. They already had that revolution, it happened in Russia in 1917, and look at the disaster that created.

NEWSBUSTERS: Well, Peter, for everybody at NewsBusters, we appreciate your time and wish you Happy Holidays.

SCHIFF: You too. And don't forget, I do my own radio show. People can listen five days a week, Monday through Friday on SchiffRadio.com, and I do it from 10AM to noon. And of course, go to my website, EuroPac.net. In fact, my book “Crash Proof 2.0” just came out in paperback. So people can buy it. In fact, they make pretty good gifts for Christmas if you’re looking to give the gift of knowledge, get people a copy of “Crash Proof 2.0.”

NEWSBUSTERS: Sounds good, Peter. Thank you very much for your time, sir.

It's truly delicious when the outfit which calls itself the Essential Global News Network essentially admits that a certain economic theory which begins with a "K" has become such an undesirable word — almost an epithet — that it avoids its mention.

That was the case with a pathetic critique of GOP candidates' economic plans written up by the wire service's Charles Babington on Sunday. When I saw its headline ("Studies challenge wisdom of GOP candidates' plans"), I blew past the story because I expected the same-old, same-old. Then an emailer with a journalistic background informed me that it was even worse than usual. He's so right that I can't possibly pick it apart without writing a book; so I'll just concentrate on the paragraph containing the theory with no name and the one which immediately follows it:

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Mainstream economic theory says governments can spur demand, at least somewhat, through stimulus spending. The Republican candidates, however, have labeled President Barack Obama's 2009 stimulus efforts a failure. Instead, most are calling for tax cuts that would primarily benefit high-income people, who are seen as the likeliest job creators.

"I don't care about that," Texas Gov. Rick Perry told The New York Times and CNBC, referring to tax breaks for the rich. "What I care about is them having the dollars to invest in their companies."

Geez Charles, doesn't this "mainstream economic theory" have a name? Why, it does: K-K-K-K … Keynesianism. Accurately considering the last three fiscal years, the $4 trillion in nominal deficits created, the nearly $5 trillion increase in the national debt, the Troubled Asset Relief Program, and whatever additional shenanigans in which Federal Reserve Chairman Bernanke and Treasury Secretary Tim Geithner have engaged as one giant stimulus, there's a word to describe Keynesianism as it has been applied in the real world: discredited. It isn't that GOP candidates have "labeled" the past three years of Keynesianism a failure; it has actually been a failure by any objective standard, as illustrated visually in the following late-August graphic at Investor's Business Daily editorial:

If reported third-quarter growth holds up after all routine revisions and future comprehensive revisions, which is by no means certain, the current economy finally got back to where it was before the recession began nine quarters after it ended — a time period which, as seen above, is three times longer than the recovery from any other post-World War II downturn. If that's not a failure of Keynesianism, I don't know what is.

Babington's second excerpted paragraph tries to make a lazy shopworn point which doesn't hold up, for two reasons. Most obviously, his reference to "the rich" is not interchangeable with the "high-income people" referenced in the previous paragraph.

But even more significant is the failure of analysts cited by Babington and others elsewhere to pick up on something Boston University economist Laurence Kotlikoff mentioned in two separate October columns at Bloomberg (here and here; Note: I have collaborated intermittently with Mr. Kotlikoff on financial projects during the past year).

Kotlikoff's insight: Herman Cain's 9-9-9 plan, by taxing consumption instead of income, will cause wealthy people with relatively low reportable incomes or who receive a large portion of their incomes in the form of tax-advantaged capital gains and dividends to in many cases pay far more in sales tax than they have been paying in income tax, and will in effect cause them to pay taxes out of their wealth.

It's debatable as to whether this would be a good thing; but we're never going to have that debate if the so-called experts who are dismissing Cain's plan as a giant sop to the rich fail to recognize Kotlikoff's huge point. Any media report which fails to mention that Cain's plan would in effect tax consumption out of wealth in certain cases should by definition be seen as suspect.

Cross-posted at BizzyBlog.com.

The easy catch in former Obama administration economic adviser Austan Goolsbee's Thursday interview on MSNBC's "Morning Joe," as reported by the Politico's Tim Mak, is that he believes that "if given a second chance he would not have backed the Cash for Clunkers program or the home buyer tax credit." Goolsbee's excuse for his changed position — that the administration didn't think the recovery would take so long, when the administration's policies have primarily explain why the recovery has taken so long — is characteristically lame.

Something else Goolsbee said is far more surprising — so surprising that one wonders if famed supply-side economist Arthur Laffer somehow temporarily took over the former Obama adviser's mind and body. One also wonders why Mak saved what Goolsbee said for his report's final two paragraphs instead of headlining and leading with it.

Here they are:

Goolsbee also disagreed with Democratic Senate Majority Leader Harry Reid, who said Wednesday that “private-sector jobs have been doing just fine” and that the focus should be on saving public sector jobs.

“I guess I would disagree a little. I think at this moment, the government still has an important role to play, it’s to get the private sector going, and we can do that with tax cuts and incentives,” he said.

"Tax cuts and incentives"? Holy Reaganomics, Batman! The only wiggle room Goolsbee may have is that he doesn't mean "across the board" tax cuts. But given the administration's current dogged insistence on tax increases and silence on tax cuts, that's hardly relevant.

If only Goolsbee, Obama's economic team, and the President himself had channeled their inner Laffer during the administration's first few months, Investor's Business Daily would never have created the following grim graphic:

Of all the recoveries since World War II, only one has taken longer than three quarters to get back to where it was when the downturn began — the not-quite-there after eight quarters recovery which we currently inhabit.

Goolsbee's time with Obama goes all the way back to his 2004 senatorial campaign, and he was Obama's senior economic adviser during the 2008 presidential campaign. Where was your inner Laffer when we needed it, Austan?

If this were a current or former Bush adviser openly disagreeing on a fundamental economic policy (e.g., David Stockman with Reagan in the early 1980s), I don't Tim Mak would have distracted readers with the Cash for Clunkers eye candy in hopes that readers wouldn't get to the really big item at the end.

Cross-posted at BizzyBlog.com.

In a report filed at the Los Angeles Times's Politics Now blog earlier today, Washington Bureau reporter James Oliphant relayed a number of whoppers delivered by Vice President Joe Biden without anything resembling a challenge. In Part 1, I noted how Biden, who in August described Tea Party sympathizers as "terrorists" and in September as "barbarians," today spoke in complimentary terms of how much the Occupy Wall Street crowd has in common with them. In Part 2, I dealt with the Veep's hit at financially struggling Bank of America for having the nerve to try to recover some of what the Dodd-Frank "financial reform" legislation took away by charging some customers a $5 monthly fee for debit-card use.

This final part will deal with Biden's rendition of how the "bank bailout" portion of TARP operated, which is quite different from the reality. The relevant excerpt from Oliphant, which necessarily overlaps the first two parts, follows (bolds are mine throughout):

---

… “There’s a lot in common with the tea party,” Biden said. “The tea party started why? TARP. They thought it was unfair we were bailing out the big guys.”

… “Banks are part of the problem in the economy,” he said. “The American people know — they don’t guess, they know — the reason the CEO of the Bank of America, or anybody in that business, is in the business is because they, that guy making 50,000 bucks bailed him out, bailed him out. Put his financial security on the line when his government said we’re gonna come up with a trillion-plus dollars to bail him out.”

Of Bank of America, Biden said, “At a minimum, they are incredibly tone deaf. At a minimum. At a maximum, they are not paying their fair share of the bargain here. And middle-class people are getting killed.”

The fact is that the TARP was twisted by Treasury Secretary Hank Paulson into something completely different than what was intended (or at least as advertised), and that the banks were forced to do his bidding whether they wanted to or not.

Here, from the TARP roll call vote — which both President Obama and Biden supported — is the description of what the law was supposed to encompass:

(A bill to provide authority for the Federal Government to purchase and insure certain types of troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, to amend the Internal Revenue Code of 1986 to provide incentives for energy production and conservation, to extend certain expiring provisions, to provide individual income tax relief, and for other purposes.)

The introductory section of the bill (full text here) makes it clear that congresspersons and senators believed they were voting for a measure involving purchases of "troubled assets," principally delinquent and defaulted-upon mortgages:

The Secretary is authorized to establish the Troubled Asset Relief Program (or ‘‘TARP’’) to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary, and in accordance with this Act and the policies and procedures developed and published by the Secretary.

The bill's specific definition of "troubled assets" was:

(A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary determines promotes financial market stability; and (B) any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress.

But Hank Paulson didn't do anything even resembling what the TARP law envisioned. Instead, less than two weeks later, as reported virtually uniquely on Tuesday, October 14 by CNBC's Dylan Ratigan and Charles Gasparino (video here), he (figuratively, we assume) "put a gun to their (big bankers') heads" and forced them to accept partial government ownership of their institutions:

Host Dylan Ratigan: Well we all know that obscene amounts of risk (were) taken inside of the banking system, leaving some banks crippled, some banks frozen, and other banks with huge opportunities.

Uh, many of the banks didn’t want to be tainted with the government bailout funds because they didn’t want to be mistaken for a fool when they actually felt that they were the smart one that didn’t do it.

Well Hank Paulson said “The heck with that.” He stuck all of them with some of the bailout money. And he said “Listen, we’re going to reset the clock here and move forward.” Charlie, how are the banks that felt they basically didn’t commit the crime, as it were, of excess or reckless risk, uh, respond to the fact that even they will be stuck with this capital?

Charlie Gasparino: Well y’know they were all kind of stupid to some extent …..

….. the Treasury Secretary Hank Paulson put all these egos in the room, and basically put guns to their heads, forcing them to take the money to bolster the banking system.

Some of the firms say they didn’t want the cash, but it’s pretty clear that all of them did need to take the cash, given the continued upheaval in the banking system that crushed shares last week of Morgan as well as Goldman Sachs and just about everybody else.

So this is essentially, uh, Dylan, a case where, y’know, you can deny you have any problems. Even the best-capitalized banks have problems. They own this stuff. And Paulson at one point said, “Listen, if you don’t want it, it doesn’t matter, gun to your head, you gotta take it.”

Ratigan: Yeah, whether you think you’re sick or not, you’re taking the medicine.

Gasparino: Because you’re sick anyway.

Ratigan: Exactly.

Though there is no good reason to doubt what Ratigan and Gasparino reported — no one to my knowledge has ever challenged them — there was virtually no media coverage of this monumental and possibly illegal shift by Paulson, as well as almost no mention of its coercive nature. In terms of coercion, I was only able to find a single Associated Press item, which noted it quite cryptically:

Executives of the country’s biggest banks were summoned to a remarkable meeting at the Treasury Department on Monday to be briefed on the plan. Paulson basically told the bank CEOs that they had to accept the government stock purchases for the good of the U.S. economy.

Apparently, "or else." It's not difficult to imagine the tremendous pressure Paulson, his lieutenant at the Federal Reserve in New York Tim Geithner, and any number of other regulators could have brought onto any bank refusing government "investment."

This is all relevant to Biden's bailout-related comments because:

• He contends that "anybody in that (banking) business, is in the business" only because they were bailed out. As Ratigan and Gasparino made crystal clear, some of the banks involved didn't believe they needed the money. Assuming they're correct, they weren't "bailed out." They were "forced in." Bank of America was likely one of the institutions which needed the bailout money, but that's beside the point in the context of Biden's comment, which smears the entire banking industry.
• He accuses B of A of "not paying their fair share of the bargain here." Well Joe, you seem to have forgotten that the bank paid all of their bailout money back, with interest (actually preferred dividends) almost two years ago, and that whatever "bargain" was formally struck is long since over — or should be. But of course, it's never over when government authoritarians and their supportive mobs are involved.

The LAT's Oliphant is by no means the only person who is ignoring these pertinent facts, of course. But it's long past time that someone besides the talking heads in an obscure CNBC video and yours truly note what really happened in October 2008. Like so many others before him, Oliphant whiffed.

Cross-posted at BizzyBlog.com.

If you only read Thursday's coverage of Bank of America's decision to impose a $5 monthly debit card fee by Associated Press Personal Finance Writer Candice Choi, you would have no idea that last year's "Dodd–Frank Wall Street Reform and Consumer Protection Act" triggered BofA's decision. The legislation gave the Federal Reserve the power to limit debit card interchange fees. The Fed's limit — 21 cents plus 0.5% of each purchase transaction — basically cut the banks' fees by about half from their pre-Dodd-Frank level. CardHub.com estimates that the cap will reduce banks' fee income by $9.4 billion annually.

Ms. Choi only cited the existence of "a new rule" in her opening paragraph. She then waited until the ninth paragraph to vaguely cite the existence of "a regulation." It hardly seems accidental that most news consumers who didn't follow the fee fight a year ago will probably have the impression that banks are driving the fee increases, as the following excerpt will demonstrate (bolds are mine):

---

More bad news for bank customers: Debit card fees

Bank of America will start charging debit-card users $5 a month to pay for purchases. The move comes as the cards increasingly replace cash and as banks look for ways to offset the loss of revenue from a new rule that will limit how much they can collect from merchants.

Paying to use a debit card was unheard of before this year and is still a novel concept for many consumers. But several banks have recently introduced or started testing debit card fees. That's in addition to the spate of other unwelcome changes checking account customers have seen in the past year. Bank of America will begin charging the fee early next year.

… Customers will only be charged the fee if they use their debit cards for purchases in any given month, said Anne Pace, a Bank of America spokeswoman. Those who only use their cards at ATMs won't have to pay.

The debit card fee is just the latest twist in the rapidly evolving market for checking accounts.

A study by Bankrate.com this week found that just 45 percent of checking accounts are now free with no strings attached, down from 65 percent last year and 76 percent in 2009.

… The changes come ahead of a regulation that goes into effect next month.

Starting Oct. 1, the regulation will cap the fees that banks can collect from merchants whenever customers swipe their debit cards.

… There is no similar cap on the merchant fees that banks can collect when customers use their credit cards, however. That means many banks are increasingly encouraging customers to reach for their credit cards, in hopes of reversing a trend toward debit card usage in the past several years.

Ms. Choi never identified what law drove the need for the fee (Dodd-Frank), who championed it (President Barack Obama), who passed the law (the Democratic Congress led by House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid), which Senator pushed for the fee cap (Illinois Democrat Dick Durbin, who of course is claiming the new fees aren't his fault), or who issued the rule (the Fed).

There's room for discussion as to whether capping merchant fees for debit-card transactions has merit. But there's no good excuse for Ms. Choi's failure to report how the cap came about and who's responsible. I suppose she may claim that she's "only" a personal finance writer and not a political reporter, but that doesn't cut it. As written, it could have been the American Bankers Association and not the federal government which imposed the rule. Choi's writeup enables those who passed the legislation and issued the rule to partially avoid accountability for what they've done, and would seem to betray a belief on her part that readers would not be pleased with them if they knew.

Free checking is starting to disappear, and fee fever is growing. Why it's happening — because of so-called "consumer" legislation — is news, Candice.

Cross-posted at BizzyBlog.com.

Good luck finding any skepticism in the press over OMB's numbers. What follows is the numerical runthrough, followed by two media coverage examples.

Running through why OMB's calendar 2011 growth estimate is doubtful is pretty easy:

• First-quarter growth was an annualized 0.4%.
• Second-quarter growth, pending any September revision, was an annualized 1.0%.
• To achieve 1.7% growth for the calendar year, second-half growth will have to come in at an annualized 2.7%.
• If, as many expect, the final revision to second-quarter GDP is adjusted down to 0.7%, second-half growth will have to be another tenth of a point or so higher.

Earlier today, the Associated Press's Christopher Rugaber, in his report on unemployment claims, wrote: "Economists expect growth will only improve to about a 2 percent (annualized) pace in the second half of this year."

We're already two months into the third quarter, and the economic reports we've seen during that time hardly support a belief in Rugaber's reported estimate, let alone the White House's (and that's being extremely kind in both instances).

Yet Rugaber's AP colleague Andrew Taylor, in covering the OMB release, while at least framing the White House's in gloom, exhibited no skepticism, and made no reference to the lower figure Rugaber named, let alone some of the much lower ones which have been cited by others:

The bleak figures from the Office of Management and Budget, which also projected overall growth this year at just 1.7 percent, serve as further confirmation of a sputtering economy while dramatizing the challenge Obama will face in making his case for re-election. The 1.7 percent growth rate is a full percentage point less than the administration predicted at the beginning of the year.

Do these guys ever communicate with each other, or read each others' work? At CNNMoney.com, Jeanne Sahadi also didn't question the White House's word:

The Office of Management and Budget also lowered its estimates for annual GDP growth by roughly a percentage point for this year, next year and 2013. Its forecasts for 2015 and 2016 are somewhat higher than they were.

OMB said in its "mid-session review" that it now expects the economy to grow at a 1.7% rate this year, down from its 2.7% forecast in February.

Growth is expected to be 2.6% next year and 3.5% in 2013.

We should be so lucky.

Recall that the first eight quarters after the 1980s recession ended growth averaged well over 6% while Ronald Reagan was President. After the most recent recession officially ended in June 2009, the eight-quarter growth average has been 2.5%. During quarters 5 through 8, the average under Reagan was 6.9%; under Obama, 1.6%.

The AP and CNN would have been better off using the approach of Jackie Calmes at the New York Times. Given two chances to note the hard-to-handle White House growth figure (here and here), Ms. Calmes "solved" the problem by not mentioning it either time.

Cross-posted at BizzyBlog.com.

This is the utter garbage in a Tuesday morning report ("Obama faces tight restraints in crafting jobs plan") the Associated Press's Jim Kuhnhenn expects his wire service's readers, listeners, and viewers to swallow, and its subscribing media outlets to non-skeptically publish and broadcast.

If I were to use my annotated style of taking apart a story, I'd have at least 30 items. Other than his very late segment addressing the worthy recommendations of economist Kevin Hassett, virtually every sentence is a teeth-grinder, and almost every statement by anyone other than Hassett is a forehead-slapper.

Here are my nominees for the top three ridiculous passages in Kuhnhenn's calamity:

(opening sentence)

Hamstrung by budget cuts and a tight debt ceiling, President Barack Obama is preparing a September jobs package with limited tools at his disposal to prime the economy and crank up employment.

Jim, there are no cuts. Spending continues to increase. Any items advertised as "cuts" are only reductions in projected spending per the Congressional Budget Office assuming Congress just sits there and doesn't try to do its job. If you can point to a major budget where actual spending in fiscal 2012 is projected to be less than fiscal 2011 spending — let alone fiscal 2007, before Nancy Pelosi and Harry Reid followed by President Obama tore the roof off of anything resembling spending control — I'd like to know what it is. The federal government is on track to spend well over 35% more in fiscal 2011 (about $3.7 trillion) than it did in 2007 (about $2.7 trillion). "Budget cuts"?

(Paragraph 9)

He also has lent support to a proposal to create an "infrastructure bank," a fund that would be seeded by the government but fed by private investment to pay for major road, bridge and other public construction. Even advocates of the plan, however, say that proposal probably would not be in place to generate jobs for about two years.

Then why is he bothering?

(Final paragraph)

"The debt deal doesn't allow any sizable amount of deficit spending or increased spending," he (Lawrence Mishel, president of the liberal Economic Policy Institute) said. "If you 're going to pay for it later, how do you do that when you have a tight amount of debt that you can take on over the next year and a half?"

This is downright pathological. "The debt deal" allowed the national debt to increase by $2.4 trillion over roughly 18 months. That's a $133 billion per month average. That's a "tight amount"? Someone should ask Mishel what he thinks would be "loose."

As for "any sizable amount of deficit spending or increased spending" — Lord, we've run almost $4 trillion in official deficits during the last three fiscal years (fiscal 2009 and 2010 actuals per the Treasury Department, $1.42 trillion and $1.29 trillion; projected fiscal 2011, $1.28 trillion; projected three-year total, $3.99 trillion), while the national debt ballooned by $4.6 trillion from September 30, 2008 through yesterday ($14.625 trillion minus $10.025 trillion. How high would these numbers have to get before they become "sizable"?

Rush's reaction to Kuhnhenn's report during the opening segment of his show today was similar to your truly's, and his ending echoes the point I made in the second paragraph of this post's introduction (bolds are mine):

AP is very concerned here, folks. They're making excuses for Obama, even before he delivers the big jobs speech that's coming up sometime next week. And remember how they used to do that for Bush? Make excuses? Yeah, guess not. In any case, what this AP story boils down to is that the first round of stimulus is drying up, and according to AP, that's why the GDP, economic growth, is down to 1%. Isn't that cool? Economic growth is down, not because of unemployment, not because Obama has targeted the private sector, not because he has shrunk the private sector while growing the government. No, no, no, no. Our economic slowdown is due to the fact that the first stimulus is now drying up.

So consequently Obama is now desperate for another round of stimulus in order to keep the GDP in positive territory and out of an official recession in an election year. The trouble is that Obama can't spend much without raising the debt ceiling yet again, as AP points out. Hey, it's real problem. We just went through a debt ceiling fight, raising it another two point whatever trillion dollars and we can't go back to it too soon. People didn't want the debt ceiling raised this time. So the AP is wringing its hands and they're all concerned over the restraints poor Obama faces in announcing his jobs program.

… In the middle of three years of failure, you have a major news organization that's making the case for Obama in advance for more of the same, which is going to get us more of the same: smaller private sector, fewer jobs, no salary or wage increases. Utter failure. And yet they are promoting it. They are making the case for it. Well, both. Making the case for it and for him.

But the point is they're saying Obama must up spending to get reelected. How many more votes can he buy? How many more votes can he buy? If this was the way to reelection, he ought to be at 70, 80% in the polls. So I look at this and I chuckle, I laugh, and then I sorta scratch my head because this is a major problem. This story is gonna run in newspapers and on websites all across the country, and a bunch of people (are) gonna read it and think that it's the way it is. I mean it's the height of ignorance, of being uninformed, and journalistic malpractice at the same time.

It isn't journalistic malpractice only if you're in Jim Kuhnhenn's Cave on Planet AP.

Cross-posted at BizzyBlog.com.