Why is economic stimulus only now being enacted? The problem has existed for nearly a year.

David Sirota points to the fraud of economic stimulus and explains what it really means:

Why are we talking about “stimulus” only now? After all, most people have been hurting for quite a while. Paychecks have been stagnating, foreclosures have become commonplace, health care premiums continue their double-digit increases—and up until recently, conservatives greeted such hardships with saccharine fantasy.

Following government reports showing a surge in income inequality, Treasury Secretary Hank Paulson last year gushed that the economy is “as strong as I have seen it in any time.” In the summer, as the housing crisis exploded, President Bush said the economy was “thriving.” This month, as the Labor Department reported another drop in wages, Republican Rep. Michele Bachmann of Minnesota said not to worry, her state is doing just great because “we have more people that are working longer hours, we have people that are working two jobs.” And with word that there are now 195,000 homeless veterans nationwide, Bill O’Reilly insisted on Fox News that really, “there’s not many [homeless veterans] out there.”

Message: Nothing to see here. The economy is fabulous. Move along.

Lately, though, the rhetoric has switched. Paulson now says there is an “urgent need” for action, and President Bush is demanding a “stimulus” package from Congress.

And that gets us back to the critical question: Why the sudden shift? Because the group demanding help has changed.

Before, it was just commoners complaining—regular homeowners, wage earners, troops coming home from Iraq, you know, the 99 percent of us who can’t afford the thousand-dollar-a-plate political fundraisers.

But now Wall Street is panicking. In the last month, the financial industry’s profit margins dropped, thanks to mortgage defaults brought on by irresponsible lending. And when the corporate executives who underwrite campaigns start whining, politicians develop “stimulus” schemes using the blight of layoffs, foreclosures and wage cuts to justify tax cuts for those doing the laying off, foreclosing and wage cutting.

Specifically, most GOP presidential candidates are demanding corporate tax cuts as the “stimulus” to improve American competitiveness, ignoring a recent Treasury Department report noting that the United States already has among the lowest effective corporate tax rates in the developed world. Republicans like John McCain, fresh off a Merrill Lynch fundraiser, say we need not expand unemployment benefits and food stamps to help workers and give the economy a reliable Keynesian boost. No, they say we must hand over more cash to the same financial industry that just gave its executives $39 billion worth of year-end bonuses.

Leading figures of both parties seem eager to help limit the debate over “stimulus” and make the final package a corporate goodie bag. According to the Washington Post, Democratic Sen. Max Baucus of Montana asked economists affiliated with the Hamilton Project—a Citigroup-backed think tank—to testify to Congress at its initial hearings on a stimulus package. Labor economists, by contrast, were not invited.

Think the stimulus is not a fraud? The banking industry is hemorrhaging money so badly they don't dare lend to most customers, yet the still give their executives $39 billion in year-end bonuses?

Compare that the to Congressional stimulus package of $150 billion, $70 billion of which is going to be given directly to businesses that are paying these year-end bonuses to their failed leaders. Those $39 billion in bonuses to banks who are now to afraid to lend money to get economic projects working amount to 26% of the $70 billion the government is going to give businesses as "stimulus." The taxpayers are paying for the bonuses that the failed financial industry just gave its failed executives.

That's fraud. Pure and simple. It is also the Reagan Revolution at work.

Screw up - get a $1 million retention bonus

Here is another typical example of the free market at work.

Last March the senior management of Circuit City decided that if they laid off their senior sales clerks who earned $14 - $15 an hour and had been there long enough for benefits, they could replace them with new hires who only earned $9 an hour. That's a savings of more than 1/3rd in salary. So they did it.

Without experienced clerks to help the customers determine what to buy, Circuit City's revenue dropped sharply. OK. Call up the laid off clerks and offer to hire them back. Of course, the story is that they offered to hire them back as new hires at $9 an hour. The response was as good as might be expected, and Circuit City is having a poor sales year now. As Ezra Klein says, "...things have not gone well for the bottom line. The company is now losing money and its share price is down more than 75 percent from its value earlier this year."

So of course, the geniuses who brought the company this far, the executive vice-presidents, will each get retention awards of $1 million. I guess that's pay for performance.

See how that works? Screw the employees and damage the company and get paid million dollar retention bonuses. Really, does circuit city want to retain those bozos? The Board of Directors who approved those retention bonuses are more interested in sharing the wealth with their fellow executives than they are in managing a successful business. When it goes under, they will all move on the equally lucrative Directorships.

My advice is to stay away from Circuit City and start a pool betting on what month they declare bankruptcy. The Board and the executives will, of course, blame the economy.

The bankruptcy judge can, of course, demand that the retention bonuses be repaid if the bankruptcy happens in the next couple of years. My bet is that the bankruptcy will occur next Summer at the latest (depending on how rapidly the Recession set in), and that the bankruptcy judge will not demand the repayment.

Dollar still dropping

According to Bloommberg:

Oct. 29 (Bloomberg) -- The dollar fell to a record low against the euro on speculation the Federal Reserve will cut interest rates this week as a U.S. housing slump reverberates through the economy.

The U.S. currency also slid to its lowest in 23 years versus Australia's dollar as prospects the Fed will lower its 4.75 percent overnight lending rate between banks by at least a quarter-percentage point on Oct. 31 prompted investors to seek higher-yielding assets. Two-year Treasury yields are near the lowest since September 2005.

``I remain bearish on the dollar,'' said Greg Gibbs, a currency strategist at ABN Amro Holding NV in Sydney. ``The U.S. has the lowest yields of all other major countries except Japan and Switzerland. This is sending people into a whole range of higher-yielding currencies.''

The dollar fell as low as $1.4426 per euro, the weakest since the introduction of the 13-nation common currency in 1999, before trading at $1.4420 as of 6:29 a.m. in Tokyo from $1.4393 in late New York on Oct. 26. It may drop as low as $1.4530 this week, Gibbs said.

Australia's dollar, also benefiting from speculation that nation's central bank will raise interest rates from an 11-year high on Nov. 7, traded as high as 92.14 U.S. cents, the strongest since May 1984, before buying 92.11 cents from 91.84 late last week. It has jumped 17 percent this year.

The U.S. currency was little changed against Japan's currency at 114.08 yen.

The lower dollar will make U.S. exports more competitive, but will also put pressure on U.S. inflation. The Federal Reserve act to protect the bond market, which means raising interest rates whenever inflation threatens.

But increased interest rates depress the economy. That job has already been done by the collapse of the housing bubble. Meanwhile, China and the third world nations are providing the goods and services at a lower cost than the U.S., even after the drop in the value of the dollar.

In the short run the lower dollar value is not going to help the U.S. economy much, but it will lead to inflation. So I expect a Recession.

For the long run, American business needs to look closely at the largest waste of money in America - CEO pay. They aren't worth what they are collecting. If the SEC would require that every financial statement include a breakout of the amount of pay the CEO and manager was receiving above some standard like 25 times the pay of the lowest paid workers and show that as a percentage of revenue and of profit excluding management pay, then stockholders could compare return on investment to the excess expense of management.

CEO pay would drop sharply, as would the excess costs of American goods and services.

Then maybe American exporters could better compete with foreign companies without lowering the cost of American labor to the level of third world nations. The Republican mantra of "Free Trade - Small government" sure isn't working.

Kevin Drum on income inequality and excessive CEO Pay

Kevin Drum addresses several economic issues of interest to almost all of us.

• Personal income of the top 1% has sharply increased recently.
• Public policies have been responsible for the increased income inequality.
  
• The people who are getting the greatest increases in personal income say this is the way the economy is supposed to work and that nothing else is workable.
  
• The LA Times has started reporting the percentage of company profits which CEO pay has cost the companies with the 100 highest paid CEOs in California. Apparently CEO pay is now so high that it is dragging down corporate profits. (Kevin then suggests that this be reported for the top dozen or so executives, and sit back and watch the as the shock runs through shareholders.)

I'd like to see that last bullet-point made part of the mandatory SEC reporting by all public companies, and by all companies operating in the United States including foreign and non-public ones if that is possible.

It would also be very interesting to see if the figures could be compared across nations. I don't think very many non-executives understand how much American executives are overpaid.