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Saturday, April 14, 2012

Transcript: 494: Demand Side the Book, Stephen Roach and an Affirmation of the Demand Side Forecast

Today brought to you by Demand Side the book, now available for your e-book pleasure via Demand Side Books dot com. Soon to be available in print at Amazon. Actually this is the review and comment edition, and I am soliciting your input with a special, or at least unique, offer. More about that at the end of today's podcast.

Listen to this episode

Some may think we've actually been waiting for bad news, such as Friday's jobs print before we raise our heads on the podcast again. Such is not the case. Our forecast has remained gloomy throughout the "things are getting better period." Over the past six months we've heard the good news is that global warming wiped away a winter, making everything from auto sales to home selling more attractive. Good news is in the eye of the beholder I guess, and not just about global warming. I don't care how many autos were sold, overall consumer spending is still moping along at 0.5 percent per year, as it has over the past four years. Beyond this, we expect downward seasonal adjustments to past good news from a bias the data has toward bigger companies, who are doing better than the smaller companies.

Yes, we confirm our forecast/backcast. The U.S. is still in recession by our call. The business cycle is broken and there is not even tepid recovery in the business cycle sense, because there is no investment, particularly in construction. We will continue to bounce along the bottom, a bottom sloped downward, a bottom littered with the craters of potential crises.

The way out is hiring by the public sector, either directly or through contracting, to do the things that need to be done, for education, infrastructure and the environment. This addresses the primary burden, the enormous debt in both public and private sectors, by creating income and – perish the thought – inflation to reduce real debt burdens. Other debt that cannot be repaid must be written down. We'll have stagnation until we do.

The great obstacle is the power of entrenched corporate interests, with their control of the political machinery in all three branches of the federal government. One arm of corporate control is the financial sector, whose existence in its present form relies on maintaining debt on their books and maintaining a structure of too big to fail casino capitalism.

Just to reprise, debt in itself is not so bad, but it needs to be in constructive, productive assets – like education, infrastructure and climate change mitigation. It cannot be in Ponzi structures. The real economy is now hostage to the financial sector.

On Wednesday I had the chance to sit in on a briefing by the San Francisco Fed's roving voice Yelena Takhtamanova. She was very engaging and clear about the Fed's forecasts and their style, and I was very grateful for her overview. You had to wonder how long the leash was when she had to split the hair between "modest" and "moderate" recovery and between "non-traditional" and "unconventional" monetary policy. She let us in on something I guess I already knew, that the Fed's Open Market Committee spends more time crafting their statement to the Market than they do deliberating on the decisions.

the new "transparency" under Ben Bernanke was a topic of the presentation, as well. I for one appreciate it. The minutes and forecasts let us know just how bad the economics is that goes on up there. By the way, I saw Titanic the Concert last night. The captain had a Bernanke beard. Just sayin'

Not that the Fed is claiming huge results from its various activities, at least for jobs. 700,000 jobs have been created (or saved, I presume) by the various QE's, she said. Somebody piped in from the audience that at a cost of $7 trillion, it came out to $1 million per job. I didn't really follow that.

In any event, the various numbers Ms. Takhtamanova presented were not all that rosy. Output is finally back above the pre-recession number, lo these many years later. Jobs are halfway back. Hopefully we can get hold of the PowerPoint and put it up. Much more clear than other presentations I have seen.

So there she was, at the end of the talk, right in the cross hairs, available for me to ask whatever biting questions I wanted. Why if the economy is doing so well, is it still on life support? What happened to the money supply? U1 spikes, broad money lays low. And Isn't QE mostly for the stock market? That isn't on the dual mandate. Or any one of a number of questions she would have fielded deftly, but would have made her squirm.

I didn't do it. Didn't have the energy, sad to say. Some sort of post-partum blues with regard to the book, I guess. Before we get to that, let's get some audio.



That was April 5 on Bloomberg and Liz Ann Sonders, chief investment strategist at Charles Schwab Corp.,

Yikes, so much wrong. Deleveraging the pub lic sector is definitely a headwind, I guess you would say. See our next audio. QE, of course, as we said, is the reason for commodity and stock strength, or inflation. What else? Oh, the economy is operating with its own engine. Why the huge deficits, then. Why the zero interest rates? And the stock market as a leading indicator. We wish. Hit its highs after, yes AFTER, the start of the Great Recession. Now on life support. The real threat is that Bernanke is operating monetary policy for the benefit of the stock market.

Liz Ann Sonders Idiot of the Week

Here is a bit from David Resler, chief economic adviser at Nomura Securities International.


Seems to be a difference of opinion. The difference between negative 4 percent growth and now is federal fiscal policy, mostly tax breaks that support consumer spending. Fiscal drag, it is called. Ah, maybe it is just debt migrating to the public sector. And by the way, from these two examples, and more we could play, the monolithic Market speaks in many voices, as many as it has interpreters, it seems. Seems to demand a variety of actions. One wonders whether sacrifices of virgins is not too far away.

Now just a bit from Stephen Roach, Morgan Stanley executive last in China as non-executive chairman for Morgan Stanley Asia.


Stephen Roach

Yes, we've been gone these past ten weeks or so. Thank you for noticing. We appreciate very much the notes we've gotten. We were gone to finish the book Demand Side Economics, subtitle "A System that Works" and we have prepared the review and comment edition. Ten dollars, soon at Amazon or $3.99 for your kindle or iPad or other e-book format. Check out Demand Side Books Dot Com. This is the review and comment edition. Don't tell our e-book conduit, and our unique offer is if you buy the book and send us your comments, we will send you a clean version of the final first edition at no charge.

Demand Side Economics, the book, is a treatment of the demand side perspective through the work of nine of its notable exponents plus a few chapters at the end. We go from John Maynard Keynes and the Great Depression through visits with Leon Keyserling, Truman's chief economist, John Kenneth Galbraith, Hyman Minsky, James K. Galbraith, Joseph Stiglitz, George Soros, Steve Keen all the way to Nouriel Roubini and crisis economics. Yes, history, personalities, and most importantly the system they developed that works even as we see the Neoclassical and market fundamentalist schools fumbling away the future.

You can link to it via Demand Side Economics, the site of the transcripts for our podcasts and occasional postings and relays on this and that. Also Demand Side Books. Don't be confused. Demand Side Books Plural, even though there is only one at this point, Dot Com.

This is an attempt to show economic thought is not as bankrupt as the neoclassical free marketeers make it appear to be. Keynes and Keyserling and the Galbraiths and Minsky, Stiglitz, Soros, Keen and Roubini have actually explained the shape and the working parts of the economy and described why it has gone off the rails. And they check their answers with reality.

Listeners to this podcast should find the book very accessible, and that is the point of the review and comment edition. We are actively soliciting feedback, with the special inducement. When you're ready to make that connection, drop us a line at demandside@live.com and we will give you the appropriate address. Say something nice, and we might include it on the cover. So, get your history, theory and polemic in one place.

April 4 (Bloomberg) -- Stephen Roach, a professor at Yale University and former non-executive chairman for Morgan Stanley Asia, says the U.S. economy is "out of the emergency room" and Federal Reserve "rates should start to rise on a regular basis."

April 4 (Bloomberg) -- David Resler, chief economic adviser at Nomura Securities International, says the U.S. economy "has a lot of slack in it," and until we get an unemployment rate closer to 6%, "we will have downward pressure on wages and prices

April 5 (Bloomberg) -- Liz Ann Sonders, chief investment strategist at Charles Schwab Corp., says the U.S. economy is "operating with its own engine right now." Sonders talks with Bloomberg's Ken Prewitt and Tom Keene on Bloomberg


  1. YEAH you are back... thought you were gone forever. Will certainly buy the book for "light" reading on my way to Italy. I thought you said something about a book long ago....so here it is. Thanks for you podcast... I don't think I've missed one since well before the crash. You educated me immensely... now if we can just get the rest of the supply siders on board civilization can pick it self up and start moving forward again.

  2. I got your book for my iPad. Just about to head out to Italy for an anniversary celebration.... I guess it will be my lite reading instead of The Merchant of Venice. Of course both books are about the same topic... a pound of flesh. Thanks