Tag Archives: Alan Greenspan

Obama’s Cat Food Commission, Alan Greenspan, and the Dancing Grannies for Medicare

President Obama’s Deficit Commission is all smoke and mirrors. Its members are making a big show of laboring over “painful” choices and considering all options in their quest to bring down the deficit. But  inside the Beltway everyone knows what’s going to happen: The commission will reduce the deficit on the backs of the old and the poor, through cuts to Social Security, Medicare, and Medicaid. Some opponents have taken to calling it the Cat Food Commission, since that’s what it’s victims will be forced to eat once the commission gets done slashing away at their modest entitlements.

In fact, the true intent of the Deficit Commission was evident before it was even formed. That intent was only driven home when Obama appointed as its co-chair Alan Simpson, who is well known for voicing, in the most colorful terms, what Paul Krugman calls the “zombie lie” that old-age entitlements will soon bankrupt the country.

So why the big show? Because neither Obama nor the Congress wants to get caught cutting Social Security and Medicare in public, certainly not before the November elections. (Medicaid will be cut as well, but politicians tend not to worry so much about poor people, since they don’t go to the polls in the numbers we geezers do.) So instead, they are foisting off this unpleasant task onto the Deficit Commission, showing what the lawyers call “due diligence,” sucking their thumbs and pretending to study how to cut the deficit. They’ve got $1 billion in walk-around money to pay for propaganda so the PR industry ought to be plenty happy. So too, should billionaire Pete Peterson, as he and his foundation lackeys push forward towards a victory in their longstanding attack on entitlements.

Quite frankly, if the Republican Right could get itself together and shove the Tea Party nuts back into their cave–as Reagan did with the crackpots hanging around him–they too could reap the benefits of the Cat Food Commission’s work. Ever since the New Deal, the Right has been kicking and screaming about Social Security. Things just got worse in the 1960s with Medicare and Medicaid. And now, thanks to our supposedly “socialist” president, they are within a few inches of cutting a nice hefty hunk out of the largest social programs this nation has ever known.

As one Capital Hill player recently wrote me: “Unfortunately, everyone in a position of power up here knows full-well the connection between Peterson, the commission and Simpson.  They either don’t care or are too afraid to say anything because they’ll appear ‘soft on deficits.’  It’s no different than their Iraq war votes…they believe they’ll appear ‘weak’ if they don’t jump on the bandwagon. The Democrats, (with the exception of Nancy Pelosi and only a handful of others–including commission member Jan Schakowsky), have no intention of taking on Peterson’s crew.  Congress may be  a lost cause on this issue, if the voters don’t get pissed off about the Commission fast.” 

Will enough voters get pissed off enough, soon enough to slow down the anti-entitlement juggernaut? It’s a long shot, at this point. There are signs of something like a small movement growing around the Cat Food Commission idea, and scattered protests (among them a demonstration dubbed the “Dancing Grannies for Medicare.”)

But it’s going to take a lot to waylay the likely course of future events:  The Cat Food Commission will undoubtedly recommend, and a lame duck Congress will pass, legislation that looks fairly innocuous: trimming Social Security a bit, maybe by upping the age by a few years, and cutting a little from Medicare–none of it affecting anyone who is over 65 right now. That will enable the politicians now in office to look like they are protecting seniors and fending off any drastic cuts, while at the same time appearing “tough” on the deficit. But the legislation, in the usual Washington mode, will gradually widen as the years go by, so that by the time this bunch of pols are retired (on their fat pensions) and out of the fray, the new rules will be eating  into entitlements in a big way.

The other side of this Faustian bargain would appear to be Congress passing some tax increases. “In setting up his National Commission on Fiscal Responsibility and Reform,” William Greider recently wrote in The Nation, “Barack Obama is again playing coy in public, but his intentions are widely understood among Washington insiders.” As Greider puts it, “The president intends to offer Social Security as a sacrificial lamb to entice conservative deficit hawks into a grand bipartisan compromise in which Democrats agree to cut Social Security benefits for future retirees while Republicans accede to significant tax increases to reduce government red ink.”

It remains to be seen how “significant” those tax increases actually turn out to be. But even former Federal Reserve Chair Alan Greenspan seems to be on board with this general plan. Greenspan’s credentials include chairing the first major entitlement-cutting commission back in the 1980s, as well as promoting the Bush-era tax cuts that helped the deficit grow to its current proportions. He still says that reductions to Medicare benefits are necessary–but in a recent interview in the New York Times, Greenspan also says that he now wants to remove all the Bush tax cuts. Seeing as it comes from the champion of “let them eat cake” economics, this pronouncement must be seen as predictor of how conservatives could end up voting. In short, the old and the poor will have to eat cat food, but the rich might kick in a few crumbs as well.

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The Federal Reserve Passes the Buck—and Prints a Trillion More

Financial crises have a way of exposing the real structures of economic and political power. The current “big mess”—as the White House has taken to calling the worst economic disaster since the Great Depression—has revealed, among other things, the monstrous power of the Federal Reserve.

I’ve never put much stock in conspiracy theories that posited “secret   images-fedteams” or “shadow governments” pulling the strings behind the scenes. But the Fed comes as close as it gets. While we focus all our attention on our elected government—the Democrats and Republicans who fight it out over how much to spend on the stimulus package—the Federal Reserve goes on operating behind closed doors, making financial decisions that could make the stimulus look like chump change.

The Fed’s power was abundantly clear on Wednesday: While the politicians, the press, and the public remained riveted on the battle over a few hundred million in AIG bonuses (which the Fed, it turns out, knew all about months ago, and didn’t bother telling the president), the Federal Reserve decided on its own to pump $1 trillion into the economy—nearly doubling all its previous cash injections. This is accomplished, as the New York Times points out, by “creating vast sums of money out of thin air.” And that’s not a metaphor: The banks that more or less run the Fed are helping themselves to $1 trillion plus by printing new money.

It works like this: The Fed creates the money. It then buys long term Treasury bonds to jump start credit flowing through the economy. The Treasury issues these bonds secured, in effect, by the combined assets of the American people. This injection of cash may help out banks–although past injections, since the recession began, have been largely ineffective—but it will surely end up causing inflation and ballooning the already swollen federal debt.

All this is done in the name of supporting the economy, but it’s the American public that serves as the banking industry’s cash machine. And we have virtually nothing to say about it, even through the remote apparatus of electoral politics. The basic economic policy of our supposedly democratic nation is effectively being run by and for private industry.

Members of the Fed’s board of governors may be nominated by the president and rubber stamped by the Senate. But as I’ve written before, it’s the member banks who call the shots. This so-called public-private entity was long ago given authority to control the money supply in the United States, and it does so with little transparency, oversight, or accountability. Politicians of both parties bowed to the deregulatory will of Alan Greenspan for decades. Now we have a Treasury secretary who comes from the New York Fed, and we wonder why the banks seem to be getting everything they want. Since the recession began,  the Federal Reserve system has only grown still more powerful, and no one seems to mind it a bit.

In The Nation this week, William Greider, who has written extensively on the Fed, argues that “to restore the broken financial system, Washington has to fix the Federal Reserve” and outlines why the Fed “has lost its ability to govern the credit system….In its present condition, the Fed may even make things worse.”  Yet the Federal Reserve seems to be catching remarkably little blame for the current economic crisis.

In a sharp piece on Huffington Post, economist Ann Pettifor expresses her astonishment at the fact that Fed chair Ben Bernacke has “dodged the bullet” when it comes to public rage and disgust, despite the fact that as a longtime Federal Reserve governor, he was supposed to be minding the store while companies like AIG built their hollow mountains of debt. (The Fed even has a seat on AIG’s board.) Pettifor parses Bernecke’s rare interview with CBS news on Sunday, in which he attacked AIG:

The interview was just an opportunity, I would argue, to deflect attention from the Fed’s negligence and whip up popular opinion against Liddy and the other buckin’ broncos of AIG. In the macho style of Rodeo, the Fed Chairman was angrily slamming the barn door shut—long after the bucking broncos had charged out of the barn, clutching bonuses.

But while Bernecke may be using one hand to slap the wrist of everyone’s favorite corporate villain, he’s using the other to hand out fistfuls of cash to institutions that behaved just as badly as AIG. It all gives a whole new meaning to passing the buck.