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You are here: Home / Politics / Domestic Politics / Mo’ Money, Mo’ Money, Mo’ Money

Mo’ Money, Mo’ Money, Mo’ Money

by John Cole|  September 15, 20112:08 pm| 35 Comments

This post is in: Domestic Politics, Foreign Affairs

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Again, not sure what this all means:

Central banks moved Thursday to assuage fears that European banks could be threatened by a shortage of dollars, as they were at the height of the 2008 financial crisis, and opened new lines of credit to institutions in the first such show of force in more than a year.

Stock markets rallied after the European Central Bank said it would allow banks to borrow dollars for up to three months, instead of just for one week as before. The E.C.B. said it was acting jointly with the Federal Reserve of the United States, the Bank of England, the Bank of Japan and the Swiss National Bank.

It was the first coordinated effort to provide dollars since May 2010, and seemed to go beyond just providing reassurance that European banks would not be cut off by American lenders wary of their financial state. The central banks seemed determined to demonstrate that they would not hesitate to deploy their combined weight to keep the European sovereign debt crisis from becoming a bigger threat to the global economy.

“They are getting together and acting together,” Christine Lagarde, the managing director of the International Monetary Fund, said in Washington on Thursday. “To me, that is the most important message.”

I really don’t know what people think is going to happen that the economy is going to right itself. I guess we will just sort of meander through the next decade or so wondering WTF until someone says “Hey- if more people had jobs, they’d be buying shit.”

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35Comments

  1. 1.

    Linda Featheringill

    September 15, 2011 at 2:11 pm

    Are they stocking up on US dollars because holders of Euros are getting nervous?

    “This Euro is backed by US dollars.”

    They may be in trouble over there.

  2. 2.

    Sportello

    September 15, 2011 at 2:15 pm

    Dollar-denominated money market funds are no longer lending to some French banks. So now they can get them from the ECB.

  3. 3.

    ThatLeftTurnInABQ

    September 15, 2011 at 2:17 pm

    My not very highly informed take on this is that the central banks are trying to make sure that if/when Credit Default Swaps linked to the Eurozone crisis go BOOM! that it doesn’t create a very large scale liquidity crisis which in turn morphs into a run on the Euro banks. And they need lots o’ dollars to do that.

    If you know a fire is coming, fill the buckets up ahead of time.

  4. 4.

    fasteddie9318

    September 15, 2011 at 2:19 pm

    I really don’t know what people think is going to happen that the economy is going to right itself. I guess we will just sort of meander through the next decade or so wondering WTF until someone says “Hey- if more people had jobs, they’d be buying shit.”

    The fact is that our Galtian Overlords don’t care anymore. Back before The World became Flat, most of the ultra-wealthy still had some vested interest in the economic strength of their own country. That’s not true anymore. The global super-class has no national allegiance. Wherever a market or a middle-class emerges, they go dump their toxic, cheaply-made crap on that market until they suck it dry, then they move on, leaving debt and unemployment in their wake. If America is lucky, in a half-century or so they’ll finally make their way back here, pump up a consumer market, then suck it dry in about a decade, and move on again. But in terms of the Henry Ford principle that employees need to be well-compensated in order to create a market for manufactured products, it just doesn’t apply anymore. These guys don’t want to cycle money back through the economy to keep things humming, they want to take everything and scorch the earth behind them. Today’s rich aren’t participants in the economic system, they’re parasites off of it. They’re more akin to locusts or viruses than people. They extract everything they can from one place, wrecking the place in the process, and then they move on to the next host. We’re just another host about to be killed off.

    Whew, I’m glad I got that off my chest.

  5. 5.

    LGRooney

    September 15, 2011 at 2:21 pm

    There’s a lack of faith in EU-denominated bonds now and people are looking for a safe place to park their money. So, because our ultra-number-one economic CRISIS is our deficit spending and debt scaring away investment in this country, people want to park their money here in the good ol’ USA.

    IOW, anytime you’re arguing economic sanity with some teabagger, remind them that our interest rates are still very low because people consider this a safe place, and people are looking for US-denominated instruments because this is a safe place.

  6. 6.

    aisce

    September 15, 2011 at 2:23 pm

    it’s the same thing the fed did for american and european banks in 2008-09.

    money market funds and other lenders aren’t trusting eurobanks with piigs sovereign exposure with their dollars and dollar-denominated assets. this is a problem for an international finance industry that depends on access to dollars and dollar-denominated assets. so the central bank steps in to maintain adequate short-term lending levels to keep the banks operational.

    it works if there’s only a liquidity crisis. as 2008 demonstrates, it does nothing to ward off a solvency crisis. no one posting on this board is qualified to tell you which, if any, eurobanks are insolvent or will become so.

    so you’ll just have to see.

  7. 7.

    ThatLeftTurnInABQ

    September 15, 2011 at 2:23 pm

    @fasteddie9318:

    Back before The World became Flat, most of the ultra-wealthy still had some vested interest in the economic strength of their own country. That’s not true anymore. The global super-class has no national allegiance. Wherever a market or a middle-class emerges, they go dump their toxic crap on that market until they suck it dry, then they move on, leaving debt and unemployment in their wake.

    Spot on, and worth noting that this is the logic of a biological virus at work. Infect the host, exploit its resources, propagate yourself, and after that who cares if the host dies.

    Works great until you run out of new hosts to infect.

  8. 8.

    Poopyman

    September 15, 2011 at 2:26 pm

    @fasteddie9318: Yeah, well you’re far from the only one I’ve heard saying pretty much the same thing, from both sides of the political chasm.

    I’m afraid that the arc of this story is already too predictable.

  9. 9.

    FlipYrWhig

    September 15, 2011 at 2:31 pm

    “Hey- if more people had jobs, they’d be buying shit.”

    What’s particularly maddening is that this rather obvious statement gets sidetracked into a rather arcane and distant debate about what kind of work qualifies as a real job. You’d think the important part is giving someone a damn paycheck. But instead the whole thing devolved into why The Government just giving someone a damn paycheck is anathema, “socia1ism,” “welfare,” etc., so the government has to come up with Rube Goldberg contraptions that give money to entities to give money for projects for which people can be hired and paid. It’s just asinine. I would happily be paying people to go back and forth on highway medians transplanting sod from one side to the other. But, no, we can’t do that, it’s not The Government’s place. GAAAAHHHHH.

  10. 10.

    Linda Featheringill

    September 15, 2011 at 2:32 pm

    @fasteddie9318:

    Nice rant. And no argument from me.

  11. 11.

    Comrade Dread

    September 15, 2011 at 2:32 pm

    I guess we will just sort of meander through the next decade or so wondering WTF until someone says “Hey- if more people had jobs, they’d be buying shit.”

    And that person will be rightly defined as a no-good filthy parasitic communist bastard and burned at the stake for his heresy against the Church of Rand.

  12. 12.

    ThatLeftTurnInABQ

    September 15, 2011 at 2:36 pm

    @FlipYrWhig:

    Bernanke’s vaunted helicopter isn’t working too well at getting money into the hands of anybody who will spend it, is it? Like one of those storm clouds in the desert where the water evaporates before it reaches the ground.

  13. 13.

    Svensker

    September 15, 2011 at 2:37 pm

    @Linda Featheringill:

    A friend just got back from Ireland and she said everyone she talked to there has pulled money out of the banks because they’re terrified the Euro will fall apart or Ireland will pull out and their bank accounts will be worthless. She said people are trying to get other currencies or gold and are keeping it at home.

  14. 14.

    Montysano

    September 15, 2011 at 2:43 pm

    @ThatLeftTurnInABQ:

    My not very highly informed take on this is that the central banks are trying to make sure that if/when Credit Default Swaps linked to the Eurozone crisis go BOOM! that it doesn’t create a very large scale liquidity crisis which in turn morphs into a run on the Euro banks.

    That’s my not-very-informed take as well: that the CDS situation in Europe is much larger and more complex than it was in the USA in 2008.

  15. 15.

    catclub

    September 15, 2011 at 2:45 pm

    @Sportello: “Dollar-denominated money market funds are no longer lending to some French banks. So now they can get them from the ECB”

    … which is getting the US dollars from the US FED? yes?

  16. 16.

    Cat

    September 15, 2011 at 2:45 pm

    Again, not sure what this all means:

    Banks sometimes need cash to payout to people but since they are required to keep very little cash on hand they have to borrow it from someone else. Think of it like a payday loans for banks, but since banks are run by “respectable” people they arent charged 500% interest.

    Some people, smart people in IMHO, think the EU denominated bonds backed by several countries are soon to be worthless and the banks that hold the worthless bonds will thus not be able to give back the cash lent to them in a timely maner. Most of these bank payday loans are overnight or other similiar short time periods so any delay in repayment will cause then loan originator huge problems as well.

    So the ECB and the Fed saying that they will loan USD to the banks isn’t really news worthy as they do it all the time now. The newsworthy part is that the repayment period will be months and not days like usual. You can infer that means the ECB/FED thinks there is a good chance there will be a crisis as you don’t announce a plan like this otherwise.

  17. 17.

    catclub

    September 15, 2011 at 2:46 pm

    @ThatLeftTurnInABQ: “storm clouds in the desert where the water evaporates before it reaches the ground.”

    The banksters are between the storm clouds and the ground(lings).

  18. 18.

    Linda Featheringill

    September 15, 2011 at 2:49 pm

    @Svensker:

    Ireland:

    Ooh. That’s not good.

  19. 19.

    Mark D

    September 15, 2011 at 3:11 pm

    Shorter Masters of the Universe:

    We’ll gladly lend billions upon billions of dollars to banks that are, in reality, totally insolvent, without ever caring what will happen once that money dries up. But NO FUCKING WAY can we use that money to actually hire people to do stuff we need done. That’s wrong because SOCIALISMSHUTIUPTHAT’SWHY!

    I wonder what it’s like to live in a sane world in which people care about what’s best for the most, rather than what’s best for those with the most.

    I bet the weather’s lovely …

  20. 20.

    Nemo_N

    September 15, 2011 at 3:12 pm

    And when they finally get around to fix the unemployment situation, the Very Serious People will claim it was the austerity what fixed the economy.

  21. 21.

    fasteddie9318

    September 15, 2011 at 3:20 pm

    @Nemo_N:

    And when they finally get around to fix the unemployment situation finally rectifies itself, the Very Serious People will claim it was the austerity what fixed the economy.

    Fixed. And by “rectifies itself,” I mean once the peasants have accepted that 10-15% unemployment is “the new normal.” That’s the only “solution” to this crisis that our corporate overlords will permit.

  22. 22.

    Brian

    September 15, 2011 at 3:29 pm

    Someone else put it this way:
    “It’s like lending your dollars to someone in a far away land who uses his watch for collateral.
    But he gets to keep wearing the watch, and he’s out of your legal jurisdiction.”

  23. 23.

    Ruckus

    September 15, 2011 at 3:31 pm

    @fasteddie9318:
    I’m glad you got it off your chest as well. Saved me the typing.

  24. 24.

    fasteddie9318

    September 15, 2011 at 3:32 pm

    @Brian:

    “It’s like lending your dollars to someone in a far away land who uses his watch for collateral.
    But he gets to keep wearing the watch, and he’s out of your legal jurisdiction.”

    …and it doesn’t really matter because if he doesn’t pay, you’ll just get your government to cover the losses out of tax revenue.

  25. 25.

    Anoniminous

    September 15, 2011 at 3:36 pm

    Read this.

    …European banks have basically stopped lending to US / dollar clients (something which includes the whole shipping and aviation industries worldwide…). And while that may sound innocuous, the underlying reality is that US banks do not do long term lending – close to 100% of long term lending (as opposed to bond financing) in the USA is done by European banks (and a few Japanese and Canadian ones). To give you an example, over 2010, of the 50 largest banks active in project finance (ie long term financing of infrastructure projects like bridges, power plants, hospitals, mines, etc…) in the USA, only a handful were American, with insignificant volumes contributed.

    and the ensuing discussion.

  26. 26.

    The Veil Has Been Lifted

    September 15, 2011 at 3:36 pm

    I guess we will just sort of meander through the next decade or so wondering WTF until someone says “Hey- if more people had jobs, they’d be buying shit.”

    ..the average wage of a worker in the United States has been driven down to the global average of $12K per annum. Until then, Tax Cuts! (too keep profits up don’t cha know)

    Just giving our globalized ‘free market’ economy a helping hand in the right direction.

  27. 27.

    Social outcast

    September 15, 2011 at 4:15 pm

    “Hey- if more people had jobs, they’d be buying shit.”

    I was reading an article on Yahoo from Forbes or one of the other business rags in which the author suggested that one way for the country to deal with less disposable income was to focus on simplifying their lives by buying less. “Food and a small place to sleep between work shifts is all you need” seemed to be the implication for our future financial health. (I would have included going to the library to read books in that short list, but no doubt the libraries will be the next socialistic institution that gets cut).

  28. 28.

    Duckest Fuckingway: Ask not for whom the Duck Fucks. . .

    September 15, 2011 at 4:42 pm

    And yet no one will pay attention b/c John bigfooted his own post and/or because ‘econ r boringz’.

  29. 29.

    Caz

    September 15, 2011 at 5:28 pm

    Lower individual taxes. Lower corporate tax rate. Less regulations. Smaller govt. Then you’ll see jobs being created and our country turning around. Keep up this massive spending, higher taxes, more regulations, bigger govt, and the country will continue to tank. Simple as that. That’s how capitalism works. It’s no secret, that’s how it worked for hundreds of years, and it works less and less as govt becomes more and more.

  30. 30.

    fasteddie9318

    September 15, 2011 at 5:32 pm

    @Caz: Yeah, because the nineteenth century was a real golden age. Fuck off.

  31. 31.

    jnfr

    September 15, 2011 at 5:33 pm

    @fasteddie9318:

    I hope you don’t mind if I pass the link to your rant all around the entire Internet.

  32. 32.

    TenguPhule

    September 15, 2011 at 6:35 pm

    Lower individual taxes. Lower corporate tax rate. Less regulations. Smaller govt.

    Yeah, that Great Depression worked so well for us back then.

    I have plan less stupid and more likely to work.

    Round up the Cazs in America.
    Employ them as indentured servants for $.10 an hour.
    Profit!

  33. 33.

    Marginalized for stating documented facts

    September 15, 2011 at 6:57 pm

    I really don’t know what people think is going to happen that the economy is going to right itself.

    All too many people think this is just another recession, like the recessions prior to the year 2000 in America. Those recessions were almost all produced by the central bank increasing interest rates to choke off inflation. Aggregate demand collapsed, and in the wake of the recession, the central bank lowered interest rates and the economy took off like a rocket again with 7% GDP growth and tens of millions of new jobs created to make up for the shortfall until we got back to normal 6% unemployment and 4% inflation and a standard 3.5% annualized GDP growth rate.

    That’s not what has happened to the American economy since 2000.

    If you look at this chart, you’ll see that the net number of new jobs created in the upturn after each new recession since 1948 has dropped steadily, and in 2000 the net number of new jobs created that decade reached zero. Since 2000, the net number of new jobs created over the last decade has been negative, and now Americans have seen their net income drop in real inflation-adjusted dollars.

    America is now a taxi meter running in reverse.

    Everything is getting worse. People are getting poorer, our roads are falling apart, our cities are degenerating, our schools are collapsing, our universities are firing teachers and reducing the number of courses, our industries are offshoring millions of workers every year, and the middle class is dwindling away.

    But of course that’s only for low-skill low-wage jobs, right? We don’t have to worry about people with college degrees or graduate degrees or high skills getting automated out of their jobs or offshored, right?

    Wrong.

    IBM’s Watson supercomputer to diagnose patients

    IBM and WellPoint, which is Blue Cross, Blue Shield’s largest health plan, have agreed to develop Watson-based applications that can improve patient care through the use of evidence-based medicine, which is designed to standardize patient treatments by identifying proven best practices. A simple example of evidence-based medicine in action would be when a provider automatically places someone who has suffered a heart attack on an aspirin regimen upon leaving the hospital.

    Source: Computerworld, 12 September 2011.

    This has every prospect for producing better medical care than we currently get from doctors. Because doctors have this nasty habit of believing in treatments that don’t work.

    The practice of medicine contains countless examples of elegant medical theories that belie the best available evidence.

    Recent press reports detailing the dangers of cough syrup for children have noted that cough syrup doesn’t work. True: No cough remedies have ever been proven better than a placebo, either for adults or children. Yet their use is common.

    Patients with ear infections are more likely to be harmed by antibiotics than helped. While the pills may cause a small decrease in symptoms (for which ear drops work better), the infections typically recede within days regardless of treatment. The same is true for bronchitis, sinusitis, and sore throats. Unnecessary antibiotics are still given to more than one in seven Americans each year for these conditions alone, at a cost of more than $2 billion and tens of thousands of serious adverse medication effects requiring treatment.

    Back surgeries to relieve pain are, in the majority of cases, no better than nonsurgical treatment. Yet doctors perform 600,000 of these surgeries each year, at a cost of over $20 billion.

    More than a half million Americans per year undergo arthroscopic surgery to correct osteoarthritis of the knee, at a cost of $3 billion. Despite this, studies show the surgery to be no better than sham knee surgery, in which surgeons “pretend” to do surgery while the patient is under light anesthesia. It is also no better than much cheaper, and much less invasive, physical therapy.

    Treatment based on ideology is alluring. Surgeries to repair the knee should work. A syrup to reduce cough should help. Calming the straining heart should save lives. But the uncomfortable truth is that many expensive, invasive interventions are of little or no benefit and cause potentially uncomfortable, costly, and dangerous side effects and complications.

    The critical question that looms for health care reform is whether patients, doctors and experts are prepared to set aside ideology in the face of data.

    Source: “Believing in treatments that don’t work,” Tara Parker-Hope, The New York Times, 2 April 2009.

    Since doctors are human, they’re subject to kind of irrational thinking and cognitive biases Kahneman and Tversky identified in their Nobel-prize-winning research in psychology.

    So computers are eventually going to take over from humans diagnosing illnesses — and they’ll do a better job than humans, because they’ll work from the evidence, not from irrational beliefs like “antibiotics should help and ear infection” which are disproved by the evidence, but which doctors continue to believe despite the evidence.

    And this is in the process of happening with every high-skill educated graduate-degree-requiring profession right now.

    For the first time in its history, Stanford is offering some of its most popular engineering classes free of charge to students and educators around the world. (..)

    …One way or another, the current paradigm [of university education], where it’s cheaper and easier than ever to learn something but harder and more expensive than ever to get a degree, isn’t going to persist.

    The newspaper industry, the TV industry, the music industry, universities, doctors, accountants, graphic designers, engineers, technicians…all getting automated or offshored to the third world.

    I guess we will just sort of meander through the next decade or so wondering WTF until someone says “Hey- if more people had jobs, they’d be buying shit.”

    No, we’re not going to “sort of meander through the next decade,” this process of automating and offshoring is accelerating. America is going to undergo a demonic descent into a third world nation without a middle class as the vast majority of America’s high-skill high-wage jobs gets automated or offshored.

    In the years ahead, sizable numbers of skilled, reasonably well-educated middle-income workers in service-sector jobs long considered safe from foreign trade—accounting, law, financial and risk management, health care and information technology, to name a few—could be facing layoffs or serious wage pressure as developing nations perform increasingly sophisticated offshore work.

    Source: “Europe: The Big Squeeze,” NEWSWEEK International Edition, 30 May 2010.

    Harvard economist Umair Haque has been saying the same thing:

    This crisis…isn’t likely to vanish, like a mirage in the desert, just because we soldier on. Rather, it will take deep-seated institutional reinvention and transformation… If we don’t get serious about it soon, well, my hunch is: this pretty much is the shape of the future. Hence, the final lesson just might be: fail to heed lessons…for long enough and you’re on the Express Train to the Federation of Banana Republics.

    Source: “Market Correction? Try Perma-Crisis,” Umair Haque, Harvard Business Review, 5 August 2011.

    Take a look at the cover story for the latest issue of The Atlantic magazine, “Can the middle class be saved?”

    In October 2005, three Citigroup analysts released a report describing the pattern of growth in the U.S. economy. To really understand the future of the eocnomy and the stock market, they wrote, you first needed to recognize that there was `no such animal as the U.S. consumer,’ and that concepts such as `average’ consumer debt and `average’ consumer spending were highly misleading.

    In fact, they said, America was composed of two distinct groups: the rich and the rest. And for the purposes of investment decisions, the second groups didn’t matter; tracking its spending habits or worrying over its savings rate was a waste of time. All the action in the American economy was at the top: the richest 1 percent of households earned as much each year as the bottom 60 percent put together; they possessed as much wealth as the bottom 90 percent; and with each passing year, a greater share of the nation’s treasure was flowing through their hands and into their pockets. It was the segment of the population, almost exclusively, that held the key to future growth and future returns. The analysis, Ajay Kapur, Niall Macleod, and Narendra Singh, had coined a term for this state of affairs: plutonomy.

    In plutonomy, Kapur and his co-authors write, `economic growth is powered by and largely consumed by the wealthy few.’ America had been in this state twice before, they noted — during the Gilded Age and the Roaring twenties. In each case,the concentration of wealth was the result of rapid technological change, global integration, laissez-faire government policy, and `creative financial innovation.’

    In 2005, the rich were nearing the heights they’d reached in those previous eras, and Citigroup saw no good reason to think that, this time around,they wouldn’t keep on climbing. `The earth is being held up by the muscular arms of its entrepeneur-plutocrats,’ the report said. The `great complexity’ of a global economy in capital transformation would be `exploited best by the rich and educated’ of our time. (..)

    Meanwhile another phase of the economy’s transformation — one more squarely involving the white-collar workforce — is really just beginning. `The thing about information technology,’ Autor told me, `is that it’s extremely broadly applicable, it’s getting cheaper all the time, and we’re getting better and better at it.’ Computer software can now do boilerplate legal work, for instance, and make a first pass at reading X-rays and other medical scans. Likewise, thanks to technology, we can now easily have those scans read and interpreted by professionals half a world away.

    In 2007, the economist Alan Blinder, a former vice chairman of the Federal Reserve, estimated that between 22 and 29 percent of all jobs in the United States had the potential to be moved overseas within the next couple of decades. With the recession, the offshoring of jobs only seems to have gained steam. The financial crisis of 2008 was global, but job losses hit America especially hard. According to the International Monetary Fund, one of every four jobs lost worldwide was lost in the United States. And while unemployment reains high in America, it has come back down to (or below) pre-recession levels in countries like China and Brazil. (..)

    Among the more pernicious aspects of the meritocracy as we now understand it in the United States is the equation of merit with test-taking success, and the corresponding belief that those who struggle in the classroom should expect to achieve little outside it. (..)

    (..) The overall pattern of change in the U.S. labor market suggests that in the next decade or more, a larger proportion of Americans may need to take work in occupations that have historically required little skill and paid low wages. Analysis by David Autor indicates that from 1999 to 2007, low-skill jobs grew substantially as a share of all jobs in the United States. And while the lion’s share of jobs lost during the recession where middle-skill jobs, job growth since then has been tilted steeply toward the bottom of the economy; according to a survey by the National Employment law Project, three-quarters of American job growth in 2010 came within industries paying, on average, less than $14 an hour. one of hte largest challenges that Americans will face in the coming years will be doing what we can to make the jobs that have traditionally been near the bottom of the economy better, more secure, and more fulfilling — in other words, more like middle-class jobs. (..)

    Yet productivity improvements at the bottom of the economy seem unlikely to be a sufficient answer to the problems of the lower and middle classes, at least for the foreseeable future. Indeed, the relative decline of middle-skill jobs, combined with the slow increases in college completion, suggests a larger pool of workers chasing jobs in retail, food preparation, personal care,and the like–and hence downward pressure on wages.

    Source: “Can the Middle Class Be Saved?” Don Peck, The Atlantic magazine, September 2011, pp. 60-78

  34. 34.

    Ronzoni Rigatoni

    September 15, 2011 at 7:29 pm

    “Hey- if more people had jobs, they’d be buying shit.”

    Krugman’s point exactly. Demand demand demand. No munny, no demand. No demand, no production. No production, no jobs. John Maynard Keynes still lives even tho’ the PTB still insist he’s dead. Jeeze, what morans.The Randians are essentially killing their biggest market. Morans!

  35. 35.

    Ecks

    September 16, 2011 at 11:06 am

    @FlipYrWhig: Y’know how every time you try to spend money in a shop the cashier has to hold your dollar bills under a special light and make you sign an affidavit that you didn’t earn them working for the post office or state university, because if you did then YOUR GOVERNMENT JOB MONEY IS NOT REAL AND DOESN’T COUNT.

    Thanks Tea Baggers, for your continued insights into what ails our economy.

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