The media were all over the sentencing of Bernie Madoff yesterday, featuring the wailing and gnashing of teeth of the Madoff victims. To a person, these people have an over-developed sense of entitlement. First of all, they felt that their invitation to join the coterie of Madoff investors entitled them to a life of ease, without doing a shred of work or investment diligence.  As Joe Nocera says in the NYT:

What’s more, most of the people investing with Mr. Madoff thought they had gotten in on something really special; there was a certain smugness that came with thinking they had a special, secret deal not available to everyone else. Of course, it turned they were right — they did have a special deal. It just wasn’t what they expected.

Some, it appears, put their entire life savings with Madoff, without the slightest concern for diversification. That was pure greed. And these same people now feel that they are entitled to be reimbursed by the taxpayer, not only for the loss of money that they put in, but even for the profits that Madoff fraudulently reported to them.

There must be consequences for bad investment decisions, particularly the failure to perform even the most rudimentary due diligence. Otherwise these frauds will spread, because they will in effect receive a taxpayer guarantee. People need to learn that they are on their own with these decisions, that government agencies such as the SEC do not provide any useful protection, and in fact favor the industry over the public.

All you folks out there buying Treasuries hand over fist, you must be feeling lucky. Sprott Asset Management’s letter outlines the massive issuance of U.S. Treasury debt over the second half of this year.

The US government raised $705 billion worth of new debt in 2008. The debt was raised to pay for a $455 billion budget deficit and $250 billion in “supplemental appropriations” for the wars in Iraq and Afghanistan. In 2009, the US government will (and must) sell $2.041 trillion in new debt. This debt will pay for a projected budget deficit of $1.845 trillion, supplemental appropriations of $196 billion for Iraq and Afghanistan, a fund for pandemic flu response and a line of credit to the IMF. In fiscal 2009, the United States must find buyers for almost three times the debt that was issued last year.

Or to put it another way, Treasury debt outstanding will grow by about 20%. Oops. I am not feeling lucky.

Straight (and correct) talk from GE’s CEO, Jeff Immelt:

The world’s largest economy can no longer count on consumer spending to drive demand, nor can it rely on Wall Street financial wizardry if it wants its population to continue to enjoy a high standard of living, the head of the largest U.S. conglomerate said.

“We should clear away any arrogance, false assumptions, or a sense that things will be ‘OK’ just because we are America,” Immelt told the Detroit Economic Club. “Our competitive edge has slipped away and this has hit the middle class hard.”

The U.S. should work to have manufacturing represent about 20 percent of employment, more than double its current level, he said.

Not about to happen under current management, unfortunately. The carbon tax legislation passed by the House last week is estimated (by the Congressional Budget Office)  to cost the average household about $1,600 annually. This is equivalent to a 50% increase in Federal income tax. In addition, it will force many manufacturing and processing facilities to close as they will no longer be economically viable. And of course, then there is the health care “reform,” which apparently is only going to increase the cost of healthcare by $1 trillion over 10 years. With health care already running more than 50% higher as a proportion of GDP than any other developed country? They need to submit these proposals to Suze Orman’s “Can I afford it” show. They will be DENIED.

People seem to be amazed that the personal savings rate is shooting up – of course it is, people cannot borrow anymore to fund their everyday lifestyle. The sad thing is that the government is apparently intent on spending every penny that households save, and then some. This means that the potentially beneficial effects of savings are completely lost. Instead of being invested in plant and equipment to rebuild the shattered manufacturing sector, as Jeff Immelt recommends, the money is being used to keep bureaucrats in their plush lifestyles. For a while, anyway.

You don’t get much useful information from government releases, despite the market reactions in the short term. You need to check with the horse, in this case Warren Buffett, in a CNBC interview yesterday with Becky Quick.

BECKY: The last time we sat down to talk to you was on May 4, and at that point you told us that you think we’re in an economic war right now. How much progress do you think we’ve made in that war?

BUFFETT: Well, it’s been pretty flat. I get figures on 70-odd businesses, a lot of them daily. Everything that I see about the economy is that we’ve had no bounce. The financial system was really where the crisis was last September and October, and that’s been surmounted and that’s enormously important. But in terms of the economy coming back, it takes a while. There were a lot of excesses to be wrung out and that process is still underway and it looks to me like it will be underway for quite a while. In the (Berkshire Hathaway) annual report, I said the economy would be in a shambles this year and probably well beyond. I’m afraid that’s true.

BECKY: We hear people on our air all the time who talk about the ‘green shoots’ that they’re seeing. Are you seeing any of those green shoots?

BUFFETT: (Laughs.) I looked. I wasn’t seeing anything. I had a cataract operation on my left eye about a month ago and I thought maybe now I’ll be able to see green shoots. We’re not seeing them. Whether it’s retailing, manufacturing, wherever. We have a big utility operation. Industrial demand is down like we’ve never seen it for a simple thing like electricity. So it hasn’t happened yet. It will happen. I want to emphasize that. But it hasn’t happened yet.

Well, with all due respect, Mr Buffett, yes, I can’t argue with that, it will happen – eventually. But not for a long time, and from much lower levels. In my opinion, anyway.

In the meantime, the horticulture fans are driving up stock prices again. The big buying surge in the NDX today was led by BBBY – Bed, Bath and Beyond. They have to be kidding, is all I can say. You would really have to believe that the consumer is coming back – but that’s not happening unless the housing bubble re-inflates, so cash-out refinancing can drive spending. Oh well. One waits.

President Obama’s principal economic advisers – Mr Bernanke, Chairman of the Federal Reserve, and Mrs Romer, the chair of the Council of Economic Advisors – both claim to be devoted students of the Great Depression of the 1930s. As a result of their studies, they believe that the monetary stimulus applied from 1933 on was responsible for strong growth in the U.S. economy. As Mrs Romer says in a paper she wrote:

Plausible estimates of the effects of fiscal and monetary changes indicate that nearly all the observed recovery of the U.S. economy prior to 1942 was due to monetary expansion. A huge gold inflow in the mid- and late 1930s swelled the money stock and stimulated the economy by lowering real interest rates and encouraging investment spending and purchases of durable goods. That monetary developments were crucial to the recovery implies that self-correction played little role in the growth of real output between 1933 and 1942.

This is the worst kind of historicism. Mrs Romer believed that monetary changes would turn out to be important, so she made some estimates, based on that belief, of their potential impact. Guess what? She saw what she expected to see. Her belief was justified. This isn’t even analysis, let alone science. No wonder we’re in trouble. I hope Mr Bernanke’s studies were a little more analytical. But I doubt it.

In any event, it appears that they will be exercising their learning. A thorough comparison of present conditions to the Great Depression by two prominent academic economists shows:

• World industrial production continues to track closely the 1930s fall, with no clear signs of ‘green shoots’.
• World stock markets have rebounded a bit since March, and world trade has stabilised, but these are still following paths far below the ones they followed in the Great Depression.
• The big-4 EU nations divide north-south; today’s German and British industrial output are closely tracking their rate of fall in the 1930s, while Italy and France are doing much worse.
• The North Americans (US & Canada) continue to see their industrial output fall approximately in line with what happened in the 1929 crisis, with no clear signs of a turn around.
• Japan’s industrial output in February was 25 percentage points lower than at the equivalent stage in the Great Depression. There was however a sharp rebound in March.

It is particularly worrying that Mrs Romer authored the Obama administration’s economic recovery plan, and approves of Ms Pelosi’s stimulus package. She appears to have completely ignored the 1930’s recovery plans, in which the government went out and hired large numbers of the unemployed, and put them to work. On projects that were worthwhile investments in many cases – many of the the WPA projects around the country are still in use today and are an amazing legacy of that era. Employing 8.5 million people, the WPA built, inter alia:

• 800 airports, including for example New York’s LaGuardia.
• 78,000 bridges
• 125,000 buildings
• 650,000 miles of roadways
• Countless parks, golf courses and works of art.

Now that was stimulus that even a curmudgeon like me can believe in and get behind. But Mrs Romer apparently believes that this program had little or no economic effect. That is why she approves of Ms Pelosi’s bill, which essentially provides funding for programs already in place, a bailout bill for state bureaucrats for all practical purposes. There is a token amount of money for infrastructure, negligible by comparison with the overall program. Even the Obama administration lamely admits that, instead of adding millions of jobs and making strategic investments, as the Roosevelt administration did, the stimulus package merely preserves some existing jobs.

Most of today’s infrastructure was built in the 1930s through the 1960s. When President Eisenhower left office, 12.5% of the Federal budget was being spent on infrastructure. Today it is less than 2%. As a result, America’s infrastructure is old, worn-out, crumbling and, in many cases, dangerous. As recent bridge collapses have shown. But funding politically favored groups has clearly won out over any notion of the good of the nation.

Green shoots? No. Just a whole lot of fertilizer.