Life in a liquidity trap: Bank pays negative interest rate

As saltwater Keynesians have been saying since forever (or for a while anyway), you can't have inflation in a liquidity trap, a situation where short-term rates are near or at zero:

Here’s one way to think about the liquidity trap — a situation in which conventional monetary policy loses all traction. When short-term interest rates are close to zero, open-market operations in which the central bank prints money and buys government debt don’t do anything, because you’re just swapping one more or less zero-interest rate asset for another. Alternatively, you can say that there’s no incentive to lend out any increase in the monetary base, because the interest rate you get isn’t enough to make it worth bothering.

At zero percent interest, money just sits in big stagnant pools.

How do you get to zero percent interest? One way is by trying to stimulate (with lower and lower interest rates) an unstimulatable economy — one riddled with personal debt, joblessness, and inefficient demand — one like ours. Rates go to zero, the economy still lays flat as a pancake, and nothing moves. Everyone's trapped.

Well, in 2008, when the above was written, there were lots of bright little freshwater Friedman-esque minds arguing that liquidity traps don't matter (despite the evidence of Japan) and that increasing the monetary base (i.e., "printing money") is always inflationary, even hyper-inflationary.

Welcome to the real world (h/t Krugman):

Bank of New York’s move to charge a fee on large deposits is emblematic of much broader strains that plague the U.S. economy and the global financial system.

In response to the recession and anemic recovery, the Federal Reserve has pushed interest rates to zero and purchased $2.6 trillion worth of mortgage and Treasury securities. In the process, it has flooded the financial system with cash. But banks and investors are reluctant to put that cash to work because they are worried about the economic outlook. With no other place to put it, they’re parking it in banks.

Put simply, if you have a lot of money, BNY will charge you to take your deposit. Why? Your money is useless to them. What will they do with it, invest? In what? The next big bubble isn't on the horizon yet. And interest rates, even for banks, are (ahem) at all time lows.

In essence, they're charging you a storage fee. And with Barack Obama's eager hand at the wheel, government spending is going into reverse, fast, which will almost guarantee low demand and low employment for (my best guess) five to ten years.

I've had Rubicon dreams for the last few days. On this Super Congress with its hair-trigger triggers, all we need is one bad Dem and the Republicans have a majority for anything they want to do. Do you think Pelosi and Reid will limit the damage to just one bad Dem? (Do you think Team Bipartisan will have some input on that as well?)

As I look back, it seems we've been heading up this destructive hill since Reagan (some argue since Carter). It's been work, wrecking the country, fighting progressive and populist gravity for every mile gained.

This week, they may have finally crossed the peak. Gravity now works on their side, and the awesome slide downhill now has its own pre-triggered inevitability.

God I hope that's just a very bad dream, and we all wake up.

GP Read the rest of this post...

Will Pelosi support the Obama/McConnell/Reid debt deal?

Just a reminder — Nancy Pelosi has recently supported the Reid bill in its last configuration. Here's her statement from a few days ago (my emphasis):

"It is clear we must enter an era of austerity; to reduce the deficit through shared sacrifice.

"The President has called for a ‘grand bargain,’ which provides long-term deficit reduction based on shared values and sends a message of confidence to the markets."

Which means that (1) most House Democrats will likely support the next bill; and (2) we may find out who the real progressives are.

(I say "may" because it's not uncommon on bills that are done-deals, for the leadership to give permission for certain members to vote "off the reservation" for cosmetic purposes. Those votes are ineffective, confusing to constituents, and negotiated — traded for something down the line.)

Joe has the full story on the Pelosi statement here.

UPDATE: Just out on Reuters:

Democrats in the House of Representatives might decide not to support a last-minute deal to raise the debt ceiling when they meet on Monday, House Democratic Leader Nancy Pelosi said on Sunday.

"We all may not be able to support it, or none us may be able to support it," Pelosi told reporters.

All of the statements in this post are still true. Pelosi supported the Reid bill, and made serious and full-throated "age of austerity" noises.

This wrinkle may represent a change in her position, or a bow to the reality of not holding her caucus together (please, god, please), or a bow to the need to stay on the right side of appearances as the Democratic base slits its wrist (or looks for better targets). We'll see.

GP Read the rest of this post...

Reid supports GOP/Obama debt deal

We got word this afternoon that Harry Reid supports the GOP/Obama deal:

"Senator Reid has signed off on the debt-ceiling agreement pending caucus approval. "

TPM's Brian Beutler has a detailed rundown of what the latest deal entails. There are lots of cuts, a Super Congress committee and "enforcement mechanisms." This paragraph cracks me up:

Democrats say they're confident that the enforcement mechanism is robust enough to convince Democrats and Republicans to deal fairly on the committee -- to come up with a somewhat balanced package of entitlement reforms and tax increases. However, the White House assures them that if the committee fails to produce "tax reform" he will veto any attempt to extend the Bush tax cuts, which expire at the end of next year.

Seriously? Democrats expect GOPers to come up with a "balanced package." What planet do they live on? And, I have the sense that a veto threat from Obama doesn't exactly scare Republicans. They've already rolled him repeatedly.

No doubt, the Democratic Senate caucus will go along. That's what they do. Senator Sanders isn't on board. Via press release:

“The Republicans have been absolutely determined to make certain that the rich and large corporations not contribute one penny for deficit reduction, and that all of the sacrifice comes from the middle class and working families in terms of cuts in Social Security, Medicare, Medicaid, LIHEAP, community health centers, education, Head Start, nutrition, MILC, affordable housing and many other vitally important programs.

“I cannot support legislation like the Reid proposal which balances the budget on the backs of struggling Americans while not requiring one penny of sacrifice from the wealthiest people in our country. That is not only grotesquely immoral, it is bad economic policy.”

It is grotesquely immoral. It is bad economic policy.

So, will Sanders back up these words with action? Every Senator has great power. Remember what Bunning did last year on unemployment.

Suffice it to say, the GOPers won. Big. Expect to hear some crowing from Dems. about minor little victories. We'll hear lots of spin and boasting. Overall, we're seeing a GOP package. Have to hand it to them, they know how to use their power. Too bad Democrats only control the White House and the Senate. Read the rest of this post...

Harry Reid: I will not support any change to Social Security for the next 20 years'

Thanks goodness someone has political instincts they haven't been finessed out of. Harry Reid could not be more definite in this interview with the "let's tweak Social Security" maven Lawrence O'Donnell.

There's a nuclear power discussion starting at 0:35 (remember that Reid is from Nevada, a state that's been targeted as a recipient of nuclear waste). Following that, a lip-lock love song to Henry Clay and Compromise at 1:40. If you like, skip right to the Social Security discussion at 5:10.



O'Donnell is pretty ... disgusting? unsurprisingly obvious? ... in his desire to keep beating the "fix it now" drum (8:35). This may be one of the reasons he's not holding Olbermann's audience.

Reid, on the other hand, is persistently clear in the other direction: "Two decades from now, I'm willing to take a look at it. I'm not willing to take a look at it now." Easy to grasp — in 30 years we get a shortfall; in 20 years we figure out what to do. Next question.

Now this is the No Compromise we've been waiting for. (Psst: Next step, follow through.)

By the way, some Democratic genius must have whispered into Reid's shell-like ear — the first Dem who messes with Social Security takes the party down with him.

That genius would be right. Team Twelfth-Dimensional Chess, take note.

GP Read the rest of this post...

The effort to make Sharron Angle appear normal

The GOP is dealing with the fact that a lot of its Teabagger supported candidates are certifiably crazy. Las Vegas Sun:

In the span of a year, Nevada voters have encountered three different Sharron Angles.

First came Primary Campaign Angle, who, trying to distinguish herself from a crowded Republican U.S. Senate field, talked to anyone, anywhere and was unafraid to declare her deeply conservative philosophy.

Then she won the primary and voters met Down-in-the-Bunker Angle, who fled reporters and hunkered down to raise money.

Now emerges Prime Time Angle. Bolstered by a professional communications staff, she is once again sparring with groups of reporters and granting lengthy sit-down interviews to “mainstream” news outlets such as The New York Times. But the latest edition, while more polished, appears to be missing some of her previous fire, if her speech Wednesday before the Washoe County Republican Women’s Club is any indication.

Read the rest of this post...

It's not a mosque, it's a Prayer Room

And so it explodes into dust. Gene Robinson on Countdown, saying in effect: "It's not a mosque, it's a community center with Prayer Room" (about 1:30 into the clip below).



A Prayer Room. If Park51 is a Mosque, then the Intel office in Cairo is a Mosque, and the Motorola office, and the Audi office. They all have "prayer rooms" so that devout Muslims can . . . pray. It's what Muslims do, several times a day. They usually look like offices. They're usually labeled "Prayer Room."

Every Western company in a Muslim country has a Prayer Room. Are all of these offices really Mosques?

And that's the central lie, both obvious and invisible.

There's an Action Opportunity in here. We could push to get corporate offices with prayer rooms labeled "Mosque". I'm serious; the campaign could start now.

Rule 14: Use their lizard brains against them. It's money in the bank.

Someday I'll give the whole list. This one is powerful though, and one that can be applied now.

(Hint: When there are many, start with one and stick with it. That's Rule 17. I stole it from Walter Reuther. So who — Intel? Moto? Nike? Pick one and just do it.)

GP

(Yes, I named "Harry Reid" in the tags. Fourth-and-goal and you threw an interception, sir.)

UPDATE: And as Briann points out in the comments, the Pentagon may be a Mosque as well. (Gasp!) Read the rest of this post...

Harry & the Mosque

"Harry" is Harry Reid. The "Mosque" is a community center. The problem in a nutshell:

Senate Majority Leader Harry Reid [D-2500 miles from New York] was prompted today to state that he thinks the so-called "ground zero mosque" should be built somewhere else.

Republicans have threatened to make the mosque debate a 2010 campaign issue, and a few candidates -- including Reid's challenger Sharron Angle -- are beginning to do so.

Way to throw an interception with first-and-goal, sir.

We are so screwed (and not in a nice way).

GP Read the rest of this post...

Sharron Angle: Press should 'ask the questions we want to answer'

Read the rest of this post...

How to lose an 11 point lead in seven weeks?

We love Sharron Angle:

Throughout Angle's primary campaign, the conservative candidate touted a wide range of controversial views as she took to the campaign trail to sell her candidacy.

From expressing her desire to "phase out" social security to appearing to advocate for an armed insurrection if "Congress keeps going the way it is," Angle didn't fail to raise eyebrows in communicating her positions.

The Tea Party-backed hopeful has made visible efforts to soften the language she uses to communicate her views since securing the Republican nomination; however, her statements have nevertheless been well-documented.

Here are a few examples of stances Angle has taken that have led her to face criticism and scrutiny:

- Calling the BP oil spill an "accident" and suggesting to "deregulate" the oil industry

- Offering advice to victims of rape considering abortion: 'Lemons can be made into lemonade.'

- Advancing abortion-causes-breast-cancer myth

- Expressing a desire to abolish Social Security

- Raising the possibility of an armed insurrection

Yeah, armed insurrection against the government was my personal fav. Read the rest of this post...

Reid improving in Nevada Senate race

Apparently the fat lady - or in this case, the crazy lady - has not sung. Interesting, this comes from Rasmussen, a GOP pollster.

Senate Majority Leader Harry Reid has edged ahead of his Republican opponent Sharron Angle in his bid for reelection in Nevada. Both candidates are seen to hold extreme views by large segments of the population.

The latest Rasmussen Reports telephone survey of Likely Voters in Nevada finds Reid with 45% of the vote, while Angle earns 43% support. Seven percent (7%) favor some other candidate, and four percent (4%) are undecided.

Read the rest of this post...

GOP worried that Angle isn't doing so well against Harry Reid

Well, she is a bit nutty. From CQ Politics:

Republicans are growing increasingly frustrated with Sharron Angle and her lackluster campaign to unseat Senate Majority Leader Harry Reid (D-Nev.), fearing she is jeopardizing what they had long viewed as a sure pickup and costing them a chance to reclaim the majority.

Senate Republicans quietly acknowledge that Angle’s controversial views on some issues remain a political liability. But the former Nevada Assemblywoman’s larger problems are a progression of unforced errors stemming from a lack of campaign experience and an amateurish staff incapable of offering her the necessary guidance. However, Angle has proved to be adept at fundraising, corralling $2.6 million in the second quarter.

Read the rest of this post...

Harry Reid at Netroots Nation

Reid began his opening statement with a shout out to Lt. Dan Choi who was discharged from the Army on Thursday. That generated a standing ovation.

The Q&A is being moderated by Joan McCarter from DailyKos.

Reid attended the first Netroots Nation, then known as YearlyKos, back in 2006.

UPDATE @ 6:56 PM. Joan McCarter began the Q and A by handing Senator Reid the West Point ring of Dan Choi. Reid said he didn't deserve it and wanted to give it back. After some shouts from the audience, Reid said he would hold on to it til the DADT repeal is signed. Dan got on the stage and hugged Reid. It's was pretty intense. Also, my tweets on the speech are here. Read the rest of this post...

Reid's GOP opponent sends him cease and desist, for reposting her own Web site

I'm sensing a few things here. One, Harry Reid's opponent Sharron Angle is a bit dumb. Two, she's a bit strong-headed, as someone on staff must have told her that the last thing she needs to do is help Reid publicize her wacky earlier statements - which is exactly what she's doing, by sending Reid a cease-and-desist. From The Hill:

Senate Majority Leader Harry Reid (D-Nev.) and Republican nominee Sharon Angle traded jabs over the weekend after Angle's campaign took legal action to prevent her opponent from re-posting an old version of her campaign website on the Internet.

Reid's campaign still mocked the letter as a "threat of a frivolous lawsuit" and took a parting shot of its own.

“These are Sharron Angle’s positions in Sharron’s own words from Sharron’s own website. What was good enough for Nevada voters to read during the primary should be good enough for them now,” said Reid campaign spokesman Jon Summers.

You can find the site here: http://www.sharronsundergroundbunker.com/ Read the rest of this post...

Reid mocks Palin

Well that's not going to win him any friends among the teabaggers :-)

"I was going to give a few remarks on the people who were over here a week ago Saturday," Reid said in a video posted by Fox News anchor Greta Van Susteren, "but I couldn't find it written all over my hands.

"You betcha," Reid added to supporters' laughter, mimicking one of Palin's trademark slogans.

Read the rest of this post...

My initial thoughts on health care summit

I'm at the eyes glazing over point in the discussion, which is never a good moment. But I think we learned something key during the first hour. Harry Reid and President Obama rock when they get ticked off. It's jarring how good Obama, especially, is when he's forced to fight. The White House staff needs to take advantage of that more. If this were the Hill, and he were my boss, we'd be forcing him (without him knowing it) into situations where he was publicly confronted by his critics, his blood pressure would rise, and he'd show the American people some fight, some conviction, and some humanity. Same for Reid. They're both so damn measured, the two of them together could sell an iPhone sleep aid app and retire in riches. Get Reid and Obama ticked off, and suddenly you remember why you supported them in the first place. Read the rest of this post...

Reid storms out of meeting with CEOs

The public likes their politicians with some populist fire in their belly. This is good for Reid. It's the kind of ire the President should be showing as well. Read the rest of this post...

Harry Reid's seat now a toss-up

From Taegan. Read the rest of this post...

In the wake of the Democratic victories, Harry Reid is reshaping the Senate

The outcomes of the Senate races in Georgia, Alaska and Minnesota remain uncertain. In Georgia, there will be a run-off on December 2nd, because neither candidate achieved 50% of the vote. In Minnesota, it's pretty clear incumbent Norm Coleman is freaking out. We've been following this one pretty closely. The margin between Coleman and Al Franken has dropped to 221 votes, before the recount actually starts. As John reported last night, Coleman has started filing lawsuits. That's a sure sign the Republican is desperate. And, we're all waiting on Alaska, but Nate Silver's projections that Begich could pull it out were heartening.

Even while we're waiting, Harry Reid is reshaping the Senate to reflect Democratic pick-ups. This is what happens when we win big. First, the committees. Then, the real votes on real policy. From The Hill:

Senate Democratic leaders plan to cut Republican committee seats to reflect the new balance of power in the upper chamber, according to Democratic aides.

Republicans will lose at least one seat on most committees and may lose as many as two on some of the larger panels, such as the powerful Appropriations committee.

Mitch McConnell doesn't like this idea, which makes it all the better:

Don Stewart, spokesman for Senate Republican Leader Mitch McConnell (Ky.), said Democratic and Republican leaders had not yet met to negotiate the new committee ratios. He questioned whether the Senate would automatically follow precedent on the issue.

“There’s lots of precedents for lots of things,” said Stewart. “None of that stuff is going to start until everyone is back in town and we know how many members we have.”

Here's the thing we do know, Don: There are a lot fewer Republicans in the Senate this session. Get used to it.

And, we're all waiting to hear that Lieberman lost his committee chairmanship, too. Read the rest of this post...

Harry Reid's office responds to Palin's "shrill and sarcastic political attacks"

During the big speech tonight, Sarah Palin took a swipe at Senate Majority Leader Harry Reid because like so many people, Reid can't stand John McCain. Not sure if she knows who Harry Reid is, but it was in the speech that was written for her. Anyway, Reid's office responded (via email):

Jim Manley, spokesman for Senator Reid: "Anyone who knows Senator Reid knows he never backs down when he's fighting for what's right and that he always stands up to John McCain when he is wrong. Shrill and sarcastic political attacks may fire up the Republican base, but they don't change the fact that a McCain-Palin administration would mean four more years of failed Bush-Cheney policies."

In our live blog of the Palin speech, I wrote "Thanks for telling the world that Harry Reid can't stand John McCain, Sarah. That's one reason we love Harry Reid. (p.s. You might want to talk to John McCain's GOP Senate colleagues. They can't stand him. They really hate him. His temper scares them. You'll find that out soon enough, no doubt.)" Read the rest of this post...

Harry Reid on John McCain: "I just think he doesn't have the temperament to be president" -- and GOP Senators think that, too

Harry Reid was his usual blunt self talking about John McCain with Nevada reporter Jon Ralston. Reid has worked with John McCain for 26 years, so he speaks with experience. This is why we like Harry Reid. He says it like it is:

"I just think he doesn't have the temperament to be president," Reid told Las Vegas Sun columnist Jon Ralston during the taping of "Face to Face," in Denver on Wednesday. The show airs on a Las Vegas, Nev., cable channel.

"I've served with the man 26 years," Reid said. "Do I have the ability to speak with experience about someone who has abused everyone he's dealt with? Someone who does not have the temperament to be president, who's wrong on the war, wrong on the economy, wrong on nuclear waste. What am I supposed to do? Walk around talking about what a great guy he is? I don't believe that. .... "

"There isn't a Republican serving in the Senate that's happy he's the nominee. Now, they're all supporting him, but I'll tell you they have told me. I've had Republican senators tell me they don't think they'll vote for him," Reid said.

When Ralston asked if Reid thought it would be "dangerous" to let McCain be president, Reid answered: "Well, if you said it, I wouldn't correct you."

"Is that right?" Ralston asked. "You really think that?"

"That's right," said Reid, who predicted that Democrat presidential candidate Barack Obama would carry the battleground state of Nevada by 5 percentage points.

We need more Senators who know McCain to be honest about him. This is exactly the kind of insight the American people need. Exactly.

John McCain is George Bush, but unstable, angry, abusive and dangerous. That's even worse than Bush. Read the rest of this post...