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Kevin Phillips on the U.S. shark tank and other ills

Wednesday, May 07, 2008

Kevin Phillips, author of "Bad Money - Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism" was interviewed by Amy Goodman at Democracy Now (hat tip DK). A few of the highlights appear below.
First, on the types of sharks that the United States is currently swimming with inside a "shark tank" as it heads into a recession (this would be in contrast to the much preferred "shark cage", where metal bars separate the swimmers from the sharks):

  • Finance dominates the US economy
  • Massive debt, both public and private
  • The collapse of home prices
  • Global commodity inflation
  • Lousy economic statistics
  • The price of oil
He also noted that every time the government says things are getting better or that the worst is behind us, then things get worse. As if on cue, Hank Paulson just happened to be in the news again today: Worst of financial crisis is past: Paulson - AFP

On the government's economic statistics:
I think the government has cooked the books, and as a result, we get this unrealistic view of where the economy is. For example, they pretend that inflation is in the two- to three-percent range. Barron’s magazine did a survey of money managers, and their average estimate of what the CPI would be later this year was 2.7, and for 2009, at the end of the year, 2.8. Now, that’s ridiculous.
Now, the real meaning here is that when you look at the growth statistics for the economy, the GDP figures, you have to take—to get the real figures, you have to take nominal gross domestic product growth, and then you subtract for inflation. So if you’ve got nominal growth of four percent and you subtract for inflation, you still would get a positive number if you use the number of, you know, 2.6 or three percent inflation. But if you’ve got nominal growth at four percent and inflation is really six to nine percent, then you’ve got big-time negative growth, and the economy is contracting.

The government talks, you know, like they used to say in the Western movies, with a forked tongue, but so does the financial sector. All the questions about whether the ratings were really AAA or they were really something lower than BB on the securities that were imploding, no honesty in economic data or ratings or descriptions of what really goes into a financial instrument, and this has the American people at some degree of peril, because foreigners don’t really believe what we say anymore.
By the way, the popular Mortgage Lender Implode-O-Meter is mentioned in the new book.

On speculation in commodities markets:
Well, there’s a degree of commodity speculation going on, because a lot of the hedge funds in the United States have a major allocation to commodities, and they see commodities as a particularly attractive play with some of the major currencies losing their respect. And that’s particularly true of the dollar. American hedge funds think it may make more sense to be in commodities than to be in dollars or in American stocks.

But I would not say that the principal driver of global food prices is speculation.
On Peak Oil:
The peak oil question has to do with whether or not global production isn’t either about to peak within the next five, ten, fifteen years—some people believe that it’s peaked already. And if that’s the case, you can expect that, given the demand for oil that can’t be replaced by other things too quickly, certainly not in five to ten years, you’re going to see oil prices just keep climbing. And if people can assume they keep climbing, then they become a speculative vehicle, if you want to get your money out of dollars, which then makes oil prices rising a huge negative for the dollar, which means that we have this currency which is weakening in ways that raise all kinds of other questions.

So peak oil is one of those things you just won’t see on the front pages of the newspapers, but I wish they would deal with it, because there are lots of things going wrong with the economy that the media, as well as the politicians, really don’t want to put on page one, and page one is where they ought to be. This is serious stuff.
The new book is awaiting idle time later this week en route to the East Coast - highlights will be provided later this month. If it's anything like "American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21stCentury" (now in paperback), it should be good.

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dmsteidl said...

Thanks for posting this Tim. Looking forward to reading his new book. I enjoyed American Theocracy (mainly the finance/economics part and the history lesson of oil, the middle east and how it all relates to the US government).

little larry sellers said...

Here's a link to Phillips' May 1 article in Harper's. Interesting read.

Nick said...

Personally, I'm not surprised experts expect the CPI to be under 3% for this year and next (I assume they mean the core CPI, wouldn't want to confuse things with costs of essential items). I expect the core CPI to be around 3% also. I expect the government to do everything in the power, including outright lying, to keep the CPI under control so they can claim inflation is contained.

I just wish the rational talking heads would be more clear that the CPI doesn't reflect inflation any more, at all. If people could pound that message home, maybe we could get past the whole BS-fest, scrap the whole thing, and create a measure for inflation not maintained by the government. Until then, all we'll get is lies.

staghounds said...

We want Brittany Hilton on the front page!

Hardwinterwheat said...

Florida election results
"Bin Laden determined to strike inside the US"
Stuff Happens !
Heck of a job, Brownie
Abu Ghraib
Valerie Plame
Walter Reed
Worst of financial crisis is over

The government talks ... with a forked tongue? you don't say !

Anonymous said...

Explains the US finacial condition and rational prognosis in words that most can understand. I learned a lot.

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