Clowns to the left of us… Jokers to the right… The Simpleton’s Analysis: Consumers cut back. The economy sank. Now, government must take action. It must help people out and take up the slack.

The downturn took $12 trillion off Americans’ net worth. The feds have pledged about $12 trillion to fix the problem.

But wait, where does government get any money?

Hey, they borrow it, just like consumers did. And besides, it’s ultimately the same money – taxpayers’ money. So what’s the big diff?

The big diff is the subject of today’s Daily Reckoning.

The first big diff is that the feds don’t spend your money the way you would. Private citizens spend money they don’t have on things they want but don’t need. The feds spend money that doesn’t belong to them on things that the rightful owners don’t even want.

Wait a minute. US markets were closed yesterday for

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Washington’s latest bailout scheme will rob you blind for years to come.  I object! Sometimes the stuff we talk about here is pretty academic. This country is up… that sector is down. Sometimes it’s all about a specific stock idea that you might care to invest in.

But today, I am writing to you about something that affects me on the most personal level (I’ll just bet it affects you the same way too), and I’m really ticked off about it.

Bandits in Academic Robes

I’ve got a statement in front of me right now by Gregory Mankiw and Kenneth Rogoff, baldly stating that they wish to take away a major portion of my hard-earned money (and yours) for years to come – and give it to idiots.

Rogoff and Mankiw are your classic ivory tower types who spend their adult lives hiding out in

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Notes from the Investment Underground Friday, April 17, 2009 Palermo Viejo, Buenos Aires, Argentina

Here comes subprime II… 3 toxic time bombs to come… The Richebächer legacy lives on… “Scamonomics” explored… Goldman bites the hand that feeds it… TARP loses 75% of taxpayers’ money… How to get $4,201 in your pocket by June 4… Banks’ top 4 accounting gimmicks… Short squeeze pushes market higher… John O’Neill on government’s deceit… James Dale Davidson: How to grab 19% yields on Treasurys (if you’ve got government connections)…  And more!

*** Rob Parenteau, the editor of the reincarnated Richebächer Letter, warns that we are in for the second wave of these toxic mortgages ahead. The first time subprime mortgages reset at a higher rate was in 2008 and the subsequent flurry of defaults sent banks into a tailspin.

Well, get ready, warns Rob. We still have “Option ARM” and “Alt-A” loan resets

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In every new Administration, there are some fresh faces and some holdovers. Among the holdovers on the economic team is Ms. Rosy Scenario. The president's budget assumes that while this will be a rough year, particularly in the first half, things will start to get better in the second half, and will be much stronger in 2010.

The graph below shows the year-over-year growth rates expected for each year out to 2014. I think they are all too high, but for 2010, the administration's forecast is the highest and, therefore, the most off base. Yes, the stimulus will help, but the underlying situation is much more dire than the forecasters admit. We are caught up in a vicious cycle, where declining wealth has lead to lower consumption, which has lead to decreases in production, which has lead to more unemployment, causing more stress on the financial system, causing more

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Misinformation in the talk-show world. From today's Rush Limbaugh show (which is titled "A Teachable Moment on Tax Hikes"):

CALLER: Thank you for taking my call. I just wanted to point out something to you about your comments on taxing, and Obama's own economic advisors agree with you, and it's in a report that I found online. It's the Economic Report of the President. It's issued by the Council of Economic Advisors, which were appointed by Obama, and there's an entire section in that report that says lowering tax rates stimulates economic growth.

RUSH: That was then. They have removed that from the website. What's the woman's name that wrote that? I'm having a mental block. Romer. Christina Romer. She wrote that. She put it on their website and once Obama won: Bam! It came off, and now in its place is: "Spending a

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President-elect Barack Obama said Saturday that an analysis of his stimulus proposal found that the capital infusion could save or create as many as 4 million U.S. jobs by 2010, nearly 90% of them in the private sector.

Obama previously estimated that his estimated $800 billion strategy for winching the American economy out of its year-long recession could save or create 3 million jobs, but the new study has found that the actual number would range between 3 million and 4 million.

The analysis was submitted by Christina Romer, head of Obama’s council of economic advisors, and Jared Bernstein, the economic advisor to Vice President-elect Joe Biden. The analysis directly follows an official government report showing that U.S. employers slashed more than half a million jobs in December, pushing the unemployment rate to 7.2% and bringing the number of jobs lost last year to 2.6 million — the worst showing since

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How many economic-advice-giving organizations does it take to run a White House?

MarketWatch reports:

President-elect Barack Obama tapped former Federal Reserve Chairman Paul Volcker to run a new White House advisory board tasked with offering independent advice about how to stage an economic recovery. Obama named the 81-year-old Volcker to head the President's Economic Recovery Advisory Board....

The board is modeled on the Foreign Intelligence Advisory Board that gave President Dwight Eisenhower independent opinions on intelligence issues. Austan Goolsbee, another key Obama adviser, will serve as the economic board's staff director and chief economist.

Volcker can be single-handedly credited with ending the great inflation of the 1970s, and has been critical of the unorthodox steps that Fed Chair Ben Bernanke has taken to address our current challenges. Although I share some of Volcker's concerns, it is not clear to me what specifically Volcker would propose to do instead.

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President-elect Barack Obama yesterday (Monday) formally unveiled his economic team, including the nomination of New York Federal Reserve Bank President Timothy F. Geithner as the new administration’s U.S. Treasury secretary. The team’s first challenge will be assembling an economic stimulus package that could be even larger than the $700 billion Troubled Asset Relief Program (TARP) the Bush Administration has deployed.

The nomination of Geithner to succeed current U.S. Treasury Secretary Henry M. Paulson Jr. was leaked over the weekend, and was reported by Money Morning yesterday.

Geithner (pronounced: GITE-ner) obtained a Master of Arts degree in International Economics and East Asian Studies from Johns Hopkins University’s School of Advanced International Studies in 1985. He also has studied Japanese and Chinese and has lived in present-day Zimbabwe, India, Thailand and China.

As

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President-elect Barack Obama today announced more details of the economic team that will be advising the new president. I find these quite encouraging.

The Wall Street Journal reports:

Speaking at a news conference in Chicago, Mr. Obama unveiled the team that will lead his administration's response to the slumping economy and battered financial markets, confirming that New York Federal Reserve President Tim Geithner will be nominated to replace Henry Paulson at the Treasury Department.... In addition to Mr. Geithner, Mr. Obama said former Treasury Secretary Larry Summers will head his National Economic Council, while economist Christina Romer will lead the Council of Economic Advisors and Melody Barnes will be director of the Domestic Policy Council.

I'm particularly reassured to hear that Larry Summers will head the National Economic Council. How much power this position involves will depend on how the internal White House politics play out, but potentially this

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If the new president looked a little, well, burdened on election night, chances are he’s aging a couple of years in the six-hour span between the release of unemployment figures this morning and his first news conference as president-elect this afternoon.

 

6.5% unemployment in October — worst since early Clintontime.  Worse still were the revisions of the August and September numbers.  And as Karl Denninger noticed, the number of unemployed plus the number of people working part-time who’d like to work full-time now tops 11%.  (And who knows what the real figure would turn out to be once John Williams applies Carter-era standards to the numbers.)

As I write, the president-elect is meeting with his “Transition Economic Advisory Board,” his temporary brain trust as it were.  The names on the panel are, well, interesting.  Some of the faces from I.O.U.S.A. are there.  But one has to wonder if

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