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17 Ways to Persuade People

You want to be persuasive. The power to influence people to get what you want is sometimes all it takes to be successful. These are some tactics, discovered through psychological research, that you have probably not yet heard about, but have the potential to increase your persuasive abilities.

I’m not going to cover reciprocity, scarcity or social proof and all those widely known persuasion principles. You already know all about those (in case you don’t, stop everything and read this book by Cialdini).



1. Be confident, talk fast

The best way to persuade audiences that are not inclined to agree with you, is to talk fast. Fast pace is distracting and people find it difficult to pick out the argument’s flaws. When talking to an audience who is likely to agree (preaching to the choir), slow down and give the audience time to agree some more.

Want to boost persuasive power? Talk with confidence.

Don Moore from Carnegie Mellon’s Center for Behavioral Decision Research has published research showing that confidence even trumps past accuracy in earning the trust of others.

We prefer advice from a confident source, even to the point that we are willing to forgive a poor track record. Moore argues that in competitive situations, this can drive those offering advice to increasingly exaggerate how sure they are.

People naturally associate confidence with expertise. Know your product, know the facts about its benefits and believe in what it does – true confidence becomes from knowing and believing what you’re saying. It’s essential that we communicate our confidence to others in order to persuade them.



2. Swearing can help influence an audience

Light swearing, that is. (Go overboard and lose all credibility.)

Researchers divided 88 participants into three groups to watch one of three slightly different speeches. The only difference between the speeches was that one contained a mild curse word at the start:

“…lowering of tuition is not only a great idea, but damn it, also the most reasonable one for all parties involved.”

The second speech contained the ‘damn it’ at the end and the third had neither. When participants’ attitudes were measured, they were most influenced by the speeches with the mild obscenity included, either at the beginning or the end.

The word ‘damn’ increased the audience’s perception of the speaker’s intensity, which increased persuasion. The audience’s perceived credibility of the speaker did not change.

So that’s the secret of Gary Vaynerchuk and Dave McClure. I thought they’re just cool guys, but turns out its the swearing that got me.



3. Get people to agree with you first

If you want people to buy into your message, start with something they can agree with.

In a research study by Jing Xu and Robert Wyerestablished, there were lingering effects of messages people agree with. In one of the tests, participants listen to a speech by John McCain or one by Barack Obama and then watch a TV ad for Toyota.

Republicans tended to be more swayed by the ad after watching the speech by John McCain, while Democrats showed the opposite effect, finding the ad more persuasive after the Obama speech.

So when you try to sell something, make statements or represent a world view your customers can agree with first – even if they have nothing to do with what you’re selling.


4. Balanced arguments are more persuasive

If what you are doing inspires (or can inspire) criticism, resist the instinct to paper over weaknesses. We fear undermining our point of view by talking about weaknesses, but actually it would help our case.
Psyblog writes: Over the years psychologists have compared one-sided and two-sided arguments to see which are the most persuasive in different contexts. Daniel O’Keefe at the University of Illinois collected together the results of 107 different studies on sidedness and persuasion conducted over 50 years which, between them, recruited 20,111 participants (O’Keefe, 1999, Communication Yearbook, 22, pp. 209-249).

The results of this meta-analysis provide persuasive reading. What he found across different types of persuasive messages and with varied audiences, was that two-sided arguments are more persuasive than their one-sided equivalents.

People are not idiots and they can think. If you don’t mention the other side of the coin in your arguments, people are less likely to believe you.

Perhaps it might be a good idea to mention the shortcomings of your product or service on your website.


5. People believe you more if they sit in the evidence

A research study by Ye Li, Eric Johnson, and Lisa Zaval looked into the belief into global warming and its relation to the current local weather.

Participants in the US and Australia rated the strength of their belief in global warming. They also rated whether they thought the temperature that day was warmer, colder, or about normal for that time of year. When people felt the day was warmer than usual, they also expressed a higher belief in global warming than when they felt the day was cooler than usual.

In the related study they asked the same stuff, but also asked for a donation to a non-profit combating climate change. The participants in this study donated over four times as much money when the day was much warmer than usual than when the day was much cooler than usual.

If you want people to buy your message, ask for the sale in the situation that supports your claims. Online, use imagery or other visual material to build the stage for your story.


6. Upsell a product that cost 60% less

Once somebody gets to a point that they’ll buy something from you, they have given you their trust and have convinced themselves it’s okay to give you money. In that moment you are able to sell them more.

When somebody buys a shirt, you upsell should be a tie and not the whole suit.

The time-tested 60×60 rule says that your customers will buy an upsell 60 percent of the time for up to 60% of the original purchase price. Any upsell you offer must be congruent with the original purchase.

If you don’t use up-selling in your business yet, it’s a quick way to boost profits (“would you like fries with that?”).


7. Frame it in the positive

Emphasising the positive can be more persuasive than pointing out the negative.

An analysis added up the results of 29 different studies, which had been carried out on 6,378 people in total. The finding was that there was a slight persuasive advantage for messages that were framed positively.

This study had to do with the way people relate to disease prevention, such as encouraging people to use sunscreen, and promoting healthy eating habits, but it might have a wider appeal. The researchers hypothesized the reason to be that we don’t like to be bullied into changing our behaviour.

Try framing your marketing message in the positive (“Gain additional hour every day” vs “Stop wasting time”) and see if it makes a difference.


8. The paradox of choice

The more choice you offer, the less people will take you up on it – says this study.

Researchers set up a jam-tasting stall in a posh supermarket in California. Sometimes they offered six varieties of jam, at other times 24. Jam tasters were then offered a voucher to buy jam at a discount.

While more choice attracted more customers to look, very few of them actually bought jam. The display that offered less choice made many more sales — in fact, only 3 per cent of jam tasters at the 24-flavour stand used their discount voucher, versus 30 per cent at the six-flavour stand.

If you have a ton of products, invest in building better filters that help people make the choice. Read the excellent book or watch the great TED talk on the topic.



9. If something happens often enough, you will eventually be persuaded

Repetition of things has a distinct effect on us. Advertisements repeated replay themselves when we see the product. The songs that radios play over and over again eventually grow on us.

Repetition of a word or visual pattern not only causes it to be remembered (which is persuasive in itself), it also leads people to accept what is being repeated as being true.

ChangingMinds writes this about Hugh Rank’s persuasion research (Teaching about public persuasion, 1976):

Our brains are excellent pattern-matchers and reward us for using this very helpful skill. Repetition creates a pattern, which consequently and naturally grabs our attention.

Repetition creates familiarity, but does familiarity breed contempt? Although it can happen, the reality is that familiarity leads to liking in far more case than it does to contempt. When we are in a supermarket, we are far more likely to buy familiar brands, even if we have never tried the product before.

Think about the last time you bought a pair of shoes. Did you pick them then put them down several times before trying them on. Did you come back to try them again? If so, you are in good company. Many people have to repeat things several times before they get convinced. Three times is a common number.

Use repetition of key benefits or value proposition in your sales copy and ad campaigns many times. Effective advertising and political campaigns do that (“Geico can save you 15% or more …”). Use friendly repetition to create familiarity and hence liking.

Another research reveals even if only one member of a group repeats their opinion, it is more likely to be seen by others as representative of the whole group.


10. Men are more responsive to email than face-to-face talk

Guadagno & Cialdini research (2002) showed that men seem more responsive to email because it bypasses their competitive tendencies. Women, however, may respond better in face-to-face encounters because they are more ‘relationship-minded’

This research is suggesting that email could provide a way of side-stepping men’s competitive tendencies. But, this only applies to distant relationships. The closer the relationship between men, the better face to face works.

When you want to persuade a man you don’t know too well, start with an email.


11. Limiting the quantity you can buy makes you buy more

From Brian Wansink’s excellent book Mindless Eating: Why We Eat More Than We Think:


A while back, I teamed up with two professor friends of mine—Steve Hoch and Bob Kent—to see if anchoring influences how much food we buy in grocery stores. We believed that grocery shoppers who saw numerical signs such as “Limit 12 Per Person” would buy much more than those who saw signs such as “No Limit Per Person.”

To nail down the psychology behind this, we repeated this study in different forms, using different numbers, different promotions (like “2 for $2” versus “1 for $1”), and in different supermarkets and convenience stores. By the time we finished, we knew that almost any sign with a number promotion leads us to buy 30 to 100 percent more than we normally would.

So put numbered limitations or anchors on the quantity your customer can buy from you.


12. Story beats data

A Carnegie Mellon University study in 2007 by Deborah Small, GeorgeLowenstein and Paul Slovic compared the effects of story vs data.

Test subjects where asked to collect donations for a dire situation in Africa. The data pitch contained statistics about food shortages in Malawi, lack of rain in Zambia, and the dislocation of millions in Angola.


The second version talked about a particular girl in Zambia, Rokia, who was starving. People were shown her photo and asked to donate to help her directly.

On average, students who received the fact-based appeal from Save the Children donated $1.14. Students who read the story about Rokia donated an average of $2.38, more than twice as much.

In a third experiment, students were told Rokia’s story but also included statistics about persistent drought, shortfalls in crop production, and millions of Africans who were going hungry. While students who had read Rokia’s story alone donated an average of $2.38, those who read the story plus the data donated an average of $1.43.

The plight of Africa, the fight with poverty is too overwhelming and people feel their contribution is just a drop in a bucket, hence feel less inclined to help.

“If I look at the mass I will never act,” said Mother Teresa. “If I look at the one, I will.”


13. Marketing to men? Use photos of women

A field experiment in the consumer credit market found that pictures of women as as effective as low interest rate.

A South African lender sent letters offering incumbent clients large, short-term loans at randomly chosen interest rates. The letters also contained independently randomized psychological “features”. As expected, the interest rate significantly affected loan take-up. Inconsistent with standard economics, some of the psychological features also significantly affected take-up.

For the male customers, replacing the photo of a male with a photo of female on the offer letter statistically significantly increases takeup; the effect is about as much as dropping the interest rate 4.5 percentage points… For female customers, we find no statistically significant patterns.

Overall, these results suggest a very powerful effect on male customers of seeing a female photo on the offer letter. Standard errors however do not allow us to isolate one specific mechanism for this effect. The effect on male customers may be due to either the positive impact of a female photo or the negative impact of a male photo.

The experiment featured a rather dramatic range in interest rates – 3.25% to 11.75%. The effect of a photo of a woman on a loan offer was equivalent 4.5% difference in the loan interest rate.

Next time add a photo of a woman to your offer and see your conversions go up.

The above study did not feature sexy women. But would a sexy women wearing bikinis help?

Research shows that arousal makes men stupid, as they become bad at making decisions. It gives them tunnel vision. The effect seems to be a short-term -one that would be most effective at the point of purchase, for impulse purchases.

The ideal selling situation would be to have the bikini-clad babe selling to the men in person. I guess you could do that also online for products meant only for men.

Studies have shown that sexy ads don’t really make men remember the product. We’re so lasered in on the sexy stuff, we don’t care what brand of product it is.


14. Want to convince leaders? Make them feel less powerful

Don’t bother trying to persuade your boss of a new idea while he’s feeling the power of his position, research suggests he’s not listening to you.

“Powerful people have confidence in what they are thinking. Whether their thoughts are positive or negative toward an idea, that position is going to be hard to change,” said Richard Petty, co-author of the study and professor of psychology at Ohio State University.

The best way to get leaders to consider new ideas is to put them in a situation where they don’t feel as powerful, the research suggests.

“Our research shows that power makes people more confident in their beliefs, but power is only one thing that affects confidence,” Petty said. “Try to bring up something that the boss doesn’t know, something that makes him less certain and that tempers his confidence.”

“You want to sow all your arguments when the boss is not thinking of his power, and after you make a good case, then remind your boss of his power. Then he will be more confident in his own evaluation of what you say. As long as you make good arguments, he will be more likely to be persuaded,” Petty said.

So in a nutshell: make the leaders feel less powerful and confident by talking about stuff they don’t know and if possible, talk outside of his office (neutral territory), after the pitch, remind them who’s the boss, so they could take action on your request.


15. The Sullivan Nod

Invented by restaurant consultant, Jim Sullivan, the Sullivan nod involves reciting a list of options but just inclining your head slightly when you reach the choice you’d like the buyer to make. The nod has to be subtle, but perceptible and works best in lists of no more than five items. According to Jim Sullivan, it’s successful up to 60 percent of the time.

Whenever servers suggest a beverage, have them smile and slowly nod their heads up and own as they make the suggestion. Body language is powerful, and research shows that over 60% of the time, the guest will nod right back and take your suggestion!

I bet you could use that online in sales videos. When talking about plans or packages, do the nod on the one you want them to buy.


16. Clarity trumps persuasion

Dr. Flint McGlaughlin of Marketing Experiments likes to say this: “Clarity trumps persuasion”. Remember this.

Persuasion tricks work when done subtly and skillfully. Overdo it and you lose the sale. When you’re writing sales copy or doing presentations, the best way to persuade people is to use clarity. Give people enough information to make up their mind without being cheesy or using hype.


17. 87% of people believe everything if there’s a percentage in it

That’s what I’ve heard anyway ;)

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   ::       Comment / Remark•

No CPR - Woman Dies - Nursing Home

Glenwood Gardens - VERY Independant Living

Glenwood Gardens
350 Calloway Drive, Bakersfield, CA 93312
(855) 204-3103

========================

911: "We need to get CPR started. That's not enough. OK?"

Nurse: "Yeah, we can't do CPR."

911: "Okay, then hand the phone to a passerby. If you can't do it, hand it to the passerby and I'll have her do it. Or if you've got any sitting citizens there, I'll have them do it.”

Nurse: "No. No."

911: "Anybody there can do CPR. Give them the phone please. I understand if your facility is not willing to do that. Give the phone to that passerby, then, that stranger. This woman is not breathing enough. She's going to die if we don't get this started. Do you understand?"

Nurse: "I understand.”

911: "Okay."

Nurse: "I am a nurse, but I cannot have our other senior citizens who don't know CPR--"

911: "I will instruct them in it."

Nurse: "--to do this. We're in a dining room."

911: "I will instruct them. Is there anyone there who is willing...?"

Nurse: "I cannot do that."

911: "I don't understand why you're not willing to help this patient."

===================

BAKERSFIELD, Calif. — A nurse's refusal to give CPR to a dying 87-year-old woman at a California independent living home despite desperate pleas from a 911 dispatcher has prompted outrage and spawned a criminal investigation.

The harrowing 7-minute, 16-second call also raised concerns that policies at senior living facilities could prevent staff from intervening in medical emergencies. It prompted calls for legislation Monday to prevent a repeat of what happened Feb. 26 at the Glenwood Gardens in Bakersfield.

Lorraine Bayless collapsed in the dining room of the retirement home that offers many levels of care. She lived in the independent living building, which state officials said is like a senior apartment complex and doesn't operate under licensing oversight.

"This is a wakeup call," said Assemblywoman Mariko Yamada, chair of the California Assembly Aging and Long-term Care Committee. "I'm sorry it took a tragedy like this to bring it to our attention."

Yamada cautioned that while it's not yet known whether intervention would have saved the woman's life, "we want to investigate because it has caused a lot of concern and alarm."

Independent living facilities "should not have a policy that says you can stand there and watch somebody die," said Pat McGinnis, founder of California Advocates for Nursing Home Reform, a consumer advocacy group. "How a nurse can do that is beyond comprehension."

In all her years of advocating for the elderly, McGinnis said: "This was so horrifying. I've never seen this happen before."

State officials did not know Monday whether the woman who talked to the 911 dispatcher actually was a nurse, or just identified herself as one during the call. She said one of the home's policies prevented her from doing CPR, according to an audio recording of the call.

"The consensus is if they are a nurse and if they are at work as a nurse, then they should be offering the appropriate medical care," said Russ Heimerich, spokesman for the California Board of Registered Nursing, the agency that licenses health care providers.

The executive director of Glenwood Gardens, Jeffrey Toomer, defended the nurse in a written statement, saying she followed the facility's policy.

"In the event of a health emergency at this independent living community, our practice is to immediately call emergency medical personnel for assistance and to wait with the individual needing attention until such personnel arrives," Toomer said. "That is the protocol we followed."

Toomer offered condolences to the woman's family and said a thorough internal review would be conducted. He told KGET-TV that residents of the facility are informed of the policy and agree to it when they move in. He said the policy does not apply at the adjacent assisted living and skilled nursing facilities.

Multiple calls to the facility and its parent company seeking more information were not returned.

Unlike nursing homes, which provide medical care, independent living facilities generally do not.

"These are like apartments for seniors. You're basically living on your own. They may have some services provided by basic nursing staff, but it's not their responsibility to care for the individual," said Dr. Susan Leonard, a geriatrics expert at the University of California, Los Angeles.

Residents of independent living communities can still take care of themselves, but may need help getting to doctor's appointments. In skilled nursing facilities and nursing homes, many residents require around-the-clock care.

Staff members are "required to perform and provide CPR" unless there's a do-not-resuscitate order, said Greg Crist, a senior vice president at the American Health Care Association.

Bayless did not have such an order on file at the facility, said Battalion Chief Anthony Galagaza of the Bakersfield Fire Department, which was the first on the scene. That's when firefighters immediately began CPR, continuing until she reached the hospital.

Dr. Patricia Harris, who heads the University of Southern California's geriatrics division, said the survival odds are slim among elderly who receive CPR. Even if they survive, they are never the same. She said she would override the home's policy and risk getting fired "rather than watch somebody die in front of me."

During the call, an unidentified woman called from her cellphone, and asked for paramedics to be sent to help the woman. Later, a woman who identified herself as the nurse got on the phone and told dispatcher Tracey Halvorson she was not permitted to do CPR on the woman.

Halvorson urged the nurse to start CPR, warning the consequences could be dire if no one tried to revive the woman, who had been laid out on the floor on her instructions.

"I understand if your boss is telling you, you can't do it," the dispatcher said. "But ... as a human being ... you know, is there anybody that's willing to help this lady and not let her die?"

"Not at this time," the nurse answered.

Halvorson assured the nurse that Glenwood couldn't be sued if anything went wrong in attempts to resuscitate the resident, saying the local emergency medical system "takes the liability for this call."

Later in the call, Halvorson asked, "Is there a gardener? Any staff, anyone who doesn't work for you? Anywhere? Can we flag someone down in the street and get them to help this lady? Can we flag a stranger down? I bet a stranger would help her."

"I understand if your facility is not willing to do that. Give the phone to a passer-by. This woman is not breathing enough. She is going to die if we don't get this started, do you understand?"

The woman had no pulse and wasn't breathing when fire crews reached her, Galagaza said.

Sgt. Jason Matson of the Bakersfield Police Department said its investigation so far had not revealed criminal wrongdoing, but the probe is continuing.

First responders say often it's hard to find someone willing to provide CPR in an emergency.

"It's not uncommon to have someone refuse to provide CPR if they physically can't do it, or they're so upset they just can't function," Kern County Fire Department Deputy Chief Michael Miller said. "What made this one unique was the way the conversation on the phone went. It was just very frustrating to anyone listening to it, like, why wasn't anyone helping this poor woman, since CPR today is much simpler than it was in the past?"

===========================

A 911 dispatcher pleaded with a nurse at a Bakersfield, Calif., senior living facility to save the life of an elderly woman by giving her CPR, but the nurse said policy did not allow her to, according to a newly released audiotape of the call.

“Is there anybody there that’s willing to help this lady and not let her die?” the dispatcher asked in a recording of the 911 call released by the Bakersfield Fire Department.

“Not at this time,” the nurse said.

The incident unfolded on Tuesday when 87-year-old Lorraine Bayless collapsed at Glenwood Gardens, a senior living facility in Bakersfield.

In the seven-minute, 16-second recording, the nurse told the dispatcher it was against the facility’s policy for employees to perform CPR on residents.

With every passing second, Bayless’ chances of survival were diminishing. The dispatcher’s tone turned desperate.

“Anybody there can do CPR. Give them the phone please. I understand if your facility is not willing to do that. Give the phone to that passerby,” the dispatcher said. ”This woman is not breathing enough. She is going to die if we don’t get this started.”

After several minutes, an ambulance arrived and took Bayless to Mercy Southwest Hospital, where she died.

Glenwood Gardens released a statement confirming its policy prohibiting employees from performing CPR.

“In the event of a health emergency at this independent living community, our practice is to immediately call emergency medical personnel for assistance and to wait with the individual needing attention until such personnel arrives. That is the protocol we followed,” the statement said.

Despite protocol being followed, the nursing home said it would launch an internal investigation into the matter.

=============================

The “no CPR” policy that has embroiled Brentwood-based Brookdale Senior Living Inc. in controversy is fairly common among independent living facilities but not always fully understood by residents, senior housing experts say.

Independent living facilities, such as the one in California where an employee said company policy prevented her from performing CPR on an elderly resident who subsequently died, are not required and usually are not equipped to perform CPR or other emergency medical care, they say.

“Independent living does not provide care,” said Paul J. Williams, senior government relations director for the Assisted Living Federation of America, whose members also operate independent centers. “It’s like renting a senior apartment, with meals and social activities included. There is no care provided.”

The controversy erupted after authorities released a taped 911 call surrounding the Feb. 26 death of 87-year-old Lorraine Bayless in Glenwood Gardens, a Brookdale-owned facility in Bakersfield, Calif.

In the call, an unidentified employee who said she was a nurse refused to perform CPR — despite the 911 operator’s pleas — on Bayless because it was against the facility’s policy. The local police department is now investigating the episode, the Los Angeles Times reported.

Parent company Brookdale Senior Living said in a statement Tuesday that the incident “resulted from a complete misunderstanding of our practice” regarding emergency care. Brookdale says that employee is on voluntary leave while the company investigates.

“Glenwood Gardens is an independent living facility, which by law is not licensed to provide medical care to any of its residents,” according to a separate statement from the facility. “We are conducting an internal review to determine all of the facts about what occurred while waiting for the paramedics, who arrived moments later. Our associate who was involved was serving in the capacity of a resident services director, not as a nurse.”

The publicly traded company, the nation’s largest owner and operator of senior living communities, operates more than 645 assisted living and retirement communities with nearly 60,000 residents in 33 states, according to its website.

Independent facilities essentially are senior-housing complexes in which residents pay rent in exchange for living quarters and other services, such as prepared meals and home maintenance. As such, they’re not regulated by Tennessee or any other state.

“Living in an independent living facility is just like having a landlord-tenant relationship,” said Jerry Blasingame, Tennessee’s long-term care ombudsman. “They’re not required to have any medical staff or provide any medical care.”

That differs from assisted living facilities and nursing homes, which are regulated and licensed. All but nine states require those facilities to have at least one employee who is certified in first aid and CPR on duty at all times, Williams said.

The only time they can refuse to perform CPR is when the resident has a “do not resuscitate” order or other pre-existing directives against such attempts, he said.

It’s a distinction that residents and their families need to understand, an AARP of Tennessee spokeswoman said.

“This heartbreaking situation in California absolutely points to the need to get as much information as possible about facilities and what their policies are,” Karin Miller said.

But those policies can differ, even among the same type of facility.

Five Star Quality Care Inc. has a policy similar to Brookdale’s for its more than 260 facilities nationwide, including a dozen in Tennessee, said Lisa Cooney, associate general counsel for the Newton, Mass.-based company.

“Our response to incidents and issues involving our independent residents is dictated based on the specific circumstances of each incident,” she wrote in an email. “In the event of an emergency, staff immediately call 911, remain with the resident, follow all reasonable instructions, and provide whatever assistance is needed to emergency responders upon arrival at the scene.”

She declined to elaborate on whether “following all reasonable instructions” includes performing CPR as directed by a 911 operator.

Elmcroft Senior Living, though, has a different policy for its 103 facilities in 19 states, including those offering independent living, said an official of the Louisville, Ky.-based company.

In the event a resident suffers cardiac or respiratory arrest, to the extent allowed under state law, our policy is to call 911 and perform CPR unless the resident has a do-not-resuscitate order,” said Bob Goyette, Elmcroft’s senior operations vice president. “That is a standard practice in the assisted living industry. Performing CPR at independent facilities — it’s up to the facility.”

=========================

NASHVILLE, Tenn. — The "no CPR" policy that has embroiled a California independent living facility in controversy is fairly common but not always fully understood by residents, senior housing experts say.

Facilities, such as the one in Bakersfield, Calif., where an employee said company policy prevented her from performing CPR on an elderly resident who subsequently died, are not required and usually are not equipped to perform CPR or other emergency medical care, they say.

"Independent living does not provide care," said Paul J. Williams, senior government relations director for the Assisted Living Federation of America, whose members also operate independent centers. "It's like renting a senior apartment, with meals and social activities included. There is no care provided."

The controversy erupted after authorities released a taped 911 call surrounding the Feb. 26 death of 87-year-old Lorraine Bayless in Glenwood Gardens, a facility owned by Brentwood, Tenn.-based Brookdale Senior Living Inc. in Bakersfield.

In the call, an unidentified employee who said she was a nurse refused to perform CPR — despite the 911 operator's pleas — on Bayless because it was against the facility's policy. The local police department is now investigating the episode, the Los Angeles Times reported.

So is Brookfield, the company said in a statement.

"Glenwood Gardens is an independent living facility, which by law is not licensed to provide medical care to any of its residents," the statement said. "We are conducting an internal review to determine all of the facts about what occurred while waiting for the paramedics, who arrived moments later. Our associate who was involved was serving in the capacity of a resident services director, not as a nurse."

Brookdale did not respond to repeated requests for further comment Tuesday. The publicly traded company, the largest owner and operator of senior living communities in the country, operates more than 645 assisted living and retirement communities with nearly 60,000 residents in 33 states, according to its website.

Independent facilities essentially are senior housing complexes in which residents pay rent in exchange for living quarters and other services, such as prepared meals and home maintenance. As such, they're not regulated by Tennessee or any other state.

"Living in an independent living facility is just like having a landlord-tenant relationship," said Jerry Blasingame, Tennessee's long-term-care ombudsman. "They're not required to have any medical staff or provide any medical care."

That differs from assisted living facilities and nursing homes, which are regulated and licensed. All but nine states require those facilities to have at least one employee who is certified in first aid and CPR on duty at all times, Williams said.

The only time they can refuse to perform CPR is when the resident has a "do not resuscitate" order or other pre-existing directives against such attempts, he said.

It's a distinction that residents and their families need to understand, an AARP of Tennessee spokeswoman said.

"This heartbreaking situation in California absolutely points to the need to get as much information as possible about facilities and what their policies are," Karin Miller said.

But those policies can differ, even among the same type of facility.

Five Star Quality Care Inc. has a policy similar to Brookdale's for its more than 260 facilities nationwide, said Lisa Cooney, associate general counsel for the Newton, Mass.-based company.

"Our response to incidents and issues involving our independent residents is dictated based on the specific circumstances of each incident," she wrote in an email. "In the event of an emergency, staff immediately call 911, remain with the resident, follow all reasonable instructions, and provide whatever assistance is needed to emergency responders upon arrival at the scene."

She declined to elaborate on whether "following all reasonable instructions" includes performing CPR as directed by a 911 operator.

Elmcroft Senior Living, though, has a different policy for its 103 facilities in 19 states, including those offering independent living, said an official of the Louisville, Ky.-based company.

"In the event a resident suffers cardiac or respiratory arrest, to the extent allowed under state law, our policy is to call 911 and perform CPR unless the resident has a do-not-resuscitate order," said Bob Goyette, Elmcroft's senior operations vice president. "That is a standard practice in the assisted living industry. Performing CPR at independent facilities — it's up to the facility."

============================

BAKERSFIELD, Calif. (AP) — A nurse's refusal to give CPR to a dying 87-year-old woman at a California independent living home despite desperate pleas from a 911 dispatcher has prompted outrage and spawned a criminal investigation.

The harrowing 7-minute, 16-second call also raised concerns that policies at senior living facilities could prevent staff from intervening in medical emergencies. It prompted calls for legislation Monday to prevent a repeat of what happened Feb. 26 at the Glenwood Gardens in Bakersfield.

Lorraine Bayless collapsed in the dining room of the retirement home that offers many levels of care. She lived in the independent living building, which state officials said is like a senior apartment complex and doesn't operate under licensing oversight.

"This is a wakeup call," said Assemblywoman Mariko Yamada, chair of the California Assembly Aging and Long-term Care Committee. "I'm sorry it took a tragedy like this to bring it to our attention."

Yamada cautioned that while it's not yet known whether intervention would have saved the woman's life, "we want to investigate because it has caused a lot of concern and alarm."

Independent living facilities "should not have a policy that says you can stand there and watch somebody die," said Pat McGinnis, founder of California Advocates for Nursing Home Reform, a consumer advocacy group. "How a nurse can do that is beyond comprehension."

In all her years of advocating for the elderly, McGinnis said: "This was so horrifying. I've never seen this happen before."

State officials did not know Monday whether the woman who talked to the 911 dispatcher actually was a nurse, or just identified herself as one during the call. She said one of the home's policies prevented her from doing CPR, according to an audio recording of the call.

"The consensus is if they are a nurse and if they are at work as a nurse, then they should be offering the appropriate medical care," said Russ Heimerich, spokesman for the California Board of Registered Nursing, the agency that licenses health care providers.

The executive director of Glenwood Gardens, Jeffrey Toomer, defended the nurse in a written statement, saying she followed the facility's policy.

"In the event of a health emergency at this independent living community, our practice is to immediately call emergency medical personnel for assistance and to wait with the individual needing attention until such personnel arrives," Toomer said. "That is the protocol we followed."

Toomer offered condolences to the woman's family and said a thorough internal review would be conducted. He told KGET-TV that residents of the facility are informed of the policy and agree to it when they move in. He said the policy does not apply at the adjacent assisted living and skilled nursing facilities.

Multiple calls to the facility and its parent company seeking more information were not returned.

Unlike nursing homes, which provide medical care, independent living facilities generally do not.

"These are like apartments for seniors. You're basically living on your own. They may have some services provided by basic nursing staff, but it's not their responsibility to care for the individual," said Dr. Susan Leonard, a geriatrics expert at the University of California, Los Angeles.

Residents of independent living communities can still take care of themselves, but may need help getting to doctor's appointments. In skilled nursing facilities and nursing homes, many residents require around-the-clock care.

Staff members are "required to perform and provide CPR" unless there's a do-not-resuscitate order, said Greg Crist, a senior vice president at the American Health Care Association.

Bayless did not have such an order on file at the facility, said Battalion Chief Anthony Galagaza of the Bakersfield Fire Department, which was the first on the scene. That's when firefighters immediately began CPR, continuing until she reached the hospital.

Dr. Patricia Harris, who heads the University of Southern California's geriatrics division, said the survival odds are slim among elderly who receive CPR. Even if they survive, they are never the same. She said she would override the home's policy and risk getting fired "rather than watch somebody die in front of me."

During the call, an unidentified woman called from her cellphone, and asked for paramedics to be sent to help the woman. Later, a woman who identified herself as the nurse got on the phone and told dispatcher Tracey Halvorson she was not permitted to do CPR on the woman.

Halvorson urged the nurse to start CPR, warning the consequences could be dire if no one tried to revive the woman, who had been laid out on the floor on her instructions.

"I understand if your boss is telling you, you can't do it," the dispatcher said. "But ... as a human being ... you know, is there anybody that's willing to help this lady and not let her die?"

"Not at this time," the nurse answered.

Halvorson assured the nurse that Glenwood couldn't be sued if anything went wrong in attempts to resuscitate the resident, saying the local emergency medical system "takes the liability for this call."

Later in the call, Halvorson asked, "Is there a gardener? Any staff, anyone who doesn't work for you? Anywhere? Can we flag someone down in the street and get them to help this lady? Can we flag a stranger down? I bet a stranger would help her."

"I understand if your facility is not willing to do that. Give the phone to a passer-by. This woman is not breathing enough. She is going to die if we don't get this started, do you understand?"

The woman had no pulse and wasn't breathing when fire crews reached her, Galagaza said.

Sgt. Jason Matson of the Bakersfield Police Department said its investigation so far had not revealed criminal wrongdoing, but the probe is continuing.

First responders say often it's hard to find someone willing to provide CPR in an emergency.

"It's not uncommon to have someone refuse to provide CPR if they physically can't do it, or they're so upset they just can't function," Kern County Fire Department Deputy Chief Michael Miller said. "What made this one unique was the way the conversation on the phone went. It was just very frustrating to anyone listening to it, like, why wasn't anyone helping this poor woman, since CPR today is much simpler than it was in the past?"

Facebook: What's on your mind?


Rand Paul and Drones


To This Day - Shane Koyczan

You have to believe that they were wrong.

George Noory on the Alex Jones Show

I respect both of these guys in what they do but it's a lot like watching a cinderblock and a cherry-cheesecake dance when they get together.

"Exterminate the Negro population"

Margaret Sanger
Founder of Planned Parenthood

In Her Own Words

   


"The most merciful thing that a large family does to one of its infant members is to kill it."
Margaret Sanger, Women and the New Race
(Eugenics Publ. Co., 1920, 1923)


Margaret Sanger (1883-1966)
On blacks, immigrants and indigents:
"...human weeds,' 'reckless breeders,' 'spawning... human beings who never should have been born." Margaret Sanger, Pivot of Civilization, referring to immigrants and poor people

On sterilization; racial purification:
Sanger believed that, for the purpose of racial "purification," couples should be rewarded who chose sterilization. Birth Control in America, The Career of Margaret Sanger, by David Kennedy, p. 117, quoting a 1923 Sanger speech.

On the right of married couples to bear children:
Couples should be required to submit applications to have a child, she wrote in her "Plan for Peace." Birth Control Review, April 1932

On the purpose of birth control:
The purpose in promoting birth control was "to create a race of thoroughbreds," she wrote in the Birth Control Review, Nov. 1921 (p. 2)

On the rights of the handicapped and mentally ill, and racial minorities:
"More children from the fit, less from the unfit -- that is the chief aim of birth control." Birth Control Review, May 1919, p. 12

On religious convictions regarding sex outside of marriage:
"This book aims to answer the needs expressed in thousands on thousands of letters to me in the solution of marriage problems... Knowledge of sex truths frankly and plainly presented cannot possibly injure healthy, normal, young minds. Concealment, suppression, futile attempts to veil the unveilable - these work injury, as they seldom succeed and only render those who indulge in them ridiculous. For myself, I have full confidence in the cleanliness, the open-mindedness, the promise of the younger generation." Margaret Sanger, Happiness in Marriage (Bretano's, New York, 1927)

On the extermination of blacks:
"We do not want word to go out that we want to exterminate the Negro population," she said, "if it ever occurs to any of their more rebellious members." Woman's Body, Woman's Right: A Social History of Birth Control in America, by Linda Gordon

On respecting the rights of the mentally ill:
In her "Plan for Peace," Sanger outlined her strategy for eradication of those she deemed "feebleminded." Among the steps included in her evil scheme were immigration restrictions; compulsory sterilization; segregation to a lifetime of farm work; etc. Birth Control Review, April 1932, p. 107

On adultery:
A woman's physical satisfaction was more important than any marriage vow, Sanger believed. Birth Control in America, p. 11

On marital sex:
"The marriage bed is the most degenerating influence in the social order," Sanger said. (p. 23) [Quite the opposite of God's view on the matter: "Marriage is honorable in all, and the bed undefiled; but whoremongers and adulterers God will judge." (Hebrews 13:4)

On abortion:
"Criminal' abortions arise from a perverted sex relationship under the stress of economic necessity, and their greatest frequency is among married women." The Woman Rebel - No Gods, No Masters, May 1914, Vol. 1, No. 3.

On the YMCA and YWCA:
"...brothels of the Spirit and morgues of Freedom!"), The Woman Rebel - No Gods, No Masters, May 1914, Vol. 1, No. 3.

On the Catholic Church's view of contraception:
"...enforce SUBJUGATION by TURNING WOMAN INTO A MERE INCUBATOR." The Woman Rebel - No Gods, No Masters, May 1914, Vol. 1, No. 3.

On motherhood:
"I cannot refrain from saying that women must come to recognize there is some function of womanhood other than being a child-bearing machine." What Every Girl Should Know, by Margaret Sanger (Max Maisel, Publisher, 1915) [Jesus said: "Daughters of Jerusalem, weep... for your children. For, behold, the days are coming, in which they shall say, Blessed (happy) are the barren, and the wombs that never bare, and the breasts which never gave suck." (Luke 23:24)]

Police shut down lemonade stands

From this

I’m beginning to think that there’s a nation-wide government conspiracy against either lemonade or children, because these lemonade stand shutdowns seem to be getting more and more common. If you set up a stand for your kids, just be prepared for a visit from the cops.

In Coralville, Iowa police shut down 4-year-old Abigail Krstinger’s lemonade stand after it had been up for half an hour. Dustin Krustinger told reporters that his daughter was selling lemonade at 25 cents a cup during the Register’s Annual Great Bicycle Race Across Iowa (or RAGBRAI), and couldn’t have made more than five dollars, adding “If the line is drawn to the point where a four-year-old eight blocks away can’t sell a couple glasses of lemonade for 25 cents, than I think the line has been drawn at the wrong spot.”

Nearby, mother Bobbie Nelson had her kids’ lemonade stand shutdown as well. Police informed her that a permit would cost $400.



Meanwhile, in Georgia, police shutdown a lemonade stand run by three girls who were saving money to go to a water park. Police said the girls needed a business license, a peddler’s permit, and a food permit to operate the stand, which cost $50 per day or $180 per year each, sums that would quickly cut into any possible profit-margin.

In Appleton, Wisconsin the city council recently passed an ordinance preventing vendors from selling products within two blocks of local events – including kids who want to sell lemonade or cookies.

These are hardly isolated incidents. From slapping parents with $500 fines for letting their kids run unlicensed lemonade stands (though this was later waived after public outcry), to government officialscalling the cops on kids selling cupcakes, the list goes on and on and on.

Nor does it stop with kids. Food Trucks are also under the gun of regulators and city governmentsacross the country. This isn’t to say that food trucks don’t need any regulations at all, but many of the regulations that come down the pipeline are pushed by brick-and-mortar competitors who want to keep competition at a minimum.

But it’s the shutdown of lemonade stands that I find so inexplicable. Who stands to lose from a couple of six-year-olds selling lemonade? Who stands to gain from shutting them down? Do local governments really think parents are going to pay for $400 vendor permits, or that kids can scrape together the money for food permits? Are there any actual safety risks? Kids have been selling lemonade for decades without permits of any sort. They often set the stands up just for fun, but many lemonade stands (or bake sales) are used to raise money for schools, cancer, or sick pets. Lemonade stands represent the most innocent, optimistic side of capitalism out there.

Fortunately, August 20th is now unofficially National Lemonade Freedom Day, because when life gives you overbearing government regulations…make lemonade, or something.

A map of lemonade stand crackdowns can be found here. They’re spread out pretty much all across the country.

Hat tip to Radley Balko and the Reason team for many of these stories, so many of which sound like they’ve been pulled straight from The Onion.

Is the United States 9 meals away from anarchy?

From Their Newsletter

FEMA, the Federal Emergency Management Agency, urges all Americans to have at least a 3-day supply of non-perishable food and water in case of emergency. We agree ... especially when you consider their track record at providing disaster relief.

We’re not talking, though, about cans of soup and peanut butter and crackers. Because while those items are indeed non-perishable, they aren’t really portable. In an emergency situation where you need to leave in a hurry, canned soups and jars of peanut butter are going to be heavy. And those crackers will get smashed.

That’s why we like 72-Hour Kits. Each 72-Hour Kit is designed for one person and includes four servings per day for 3 days. They are airtight, compact, and best of all, lightweight ... and they’re shelf stable for years (far longer than those cans of soup and boxes of crackers in your pantry). I’ll tell you more about our 72-Hour Kit in a moment.

But first, consider this:

You might think you can make it 3 days without food, and you probably can, but do you really want to? When food supplies are cut off, irritabilitysets in within half a day. (Imagine being cooped up for days with family or even strangers who are just as hungry and irritable as you are.)

Within one day ... or less if you have blood sugar or other health issues ... your ability to make good decisions is affected. Your cognitive processes are not firing on all cylinders, and in an emergency, you need to be able to think clearly. Within two days, you’ll probably be experiencinggnawing stomach pains. You may be able to stand it, but do you want to watch your loved ones suffer like that?

And if the emergency - and lack of access to food - goes on past three days, forget about it. Within a week, you’re probably too weak to stand. Your vision becomes blurry. You won’t be able to think straight, much less do what you need to do to weather the emergency.

It’s worth planning for “just in case,” wouldn’t you agree?

9 Meals From Anarchy

In 2000, the British coined a saying that should inspire everyone to get prepared. In that year, fuel protests broke out across England. British oil refineries were blockaded by the protestors and the resupply of fuel came to a standstill. Trucking and distribution was crippled. Supermarket owners warned government officials that there were just three days of food left. The nation was, it was said, nine meals away from anarchy. That’s 72 hours ... and it can seem like a lifetime if you’re hungry.

We face the same 72-hour logistics barrier here in the U.S. One major civil disturbance, one earthquake, one blizzard, one hurricane ... and we, too, are looking at the “9 meals from anarchy” phenomenon. (And that’s a major reason why FEMA encourages every citizen to have a 72-hour supply of emergency food on hand.)

In a perfect world, every home would have 72-Hour Emergency Meal Kits for every person. You can’t control the world around you, but you can control your own preparedness.

Thousands of pigs dumped in Shanghai river raise concern



BEIJING, China – A surge in the dumping of dead pigs upstream from Shanghai — with more than 2,800 carcasses floating into the financial hub through Monday — has followed a police campaign to curb the illicit trade in sick pig parts.

The effort to keep infected pork off dinner tables may be fueling new health fears, as Shanghai residents and local media fret over the possibility of contamination to the city’s water supply, though authorities say no contamination has been detected.

Authorities have been pulling out the swollen and rotting pigs, some with their internal organs visible, since Friday — and revolting images of the carcasses in news reports and online blogs have raised public ire against local officials.

“Well, since there supposedly is no problem in drinking this water, please forward this message, if you agree, to ask Shanghai’s party secretary, mayor and water authority leaders if they will be the first ones to drink this meat soup?” lawyer Gan Yuanchun said on his verified microblog.

On Monday, Shanghai officials said the number of dumped adult and piglet carcasses retrieved had reached 2,813. The city government, citing monitoring authorities, said the drinking water quality has not been affected.

Shanghai’s Agriculture Committee said authorities don’t know what caused the pigs to die, but that they have detected a sometimes-fatal pig disease in at least one of the carcasses. The disease is associated with the porcine circovirus, which is widespread in pigs but doesn’t affect humans or other livestock.

Shanghai’s city government said initial investigations had found the dead pigs had come from Jiaxing city in neighbouring Zhejiang province. It said it had not found any major epidemic.

Huang Beibei, a lifetime resident of Shanghai, was the first to expose the problem when he took photos of the carcasses and uploaded them onto his microblog on Thursday.

“This is the water we are drinking,” Huang wrote. “What is the government doing to address this?”

His graphic photos apparently caught the attention of local reporters, who followed up.

Huang said he’s most concerned about water safety. “Though the government says the water is safe, at least I do not believe it — given the number of the pigs in the river. These pigs have died from disease,” Huang said.

The dumping follows a clampdown on the illegal trade in contaminated pork.

In China, pigs that have died from disease should be either incinerated or buried, but some unscrupulous farmers and animal control officials have sold problematic carcasses to slaughterhouses. The pork harvested from such carcasses has ended up in markets. As a food safety problem, it has drawn attention from China’s Ministry of Public Security, which has made it a priority to crack down on gangs that purchase dead diseased pigs and process them for illegal profits.

Zhejiang police said on their official website that police have been campaigning to rid the market of unsafe pork meat and that the efforts were stepped up this winter as Chinese families gathered to celebrate the Lunar New Year in February.

In one operation last year, police in Jiaxing broke up a criminal gang that acquired and slaughtered diseased pigs. The provincial authorities said police arrested 12 suspects and confiscated nearly 12 tons of tainted pork meat.

“Ever since the police have stepped up efforts to crack down on the illicit market of sick pigs since last year, no one has come here to buy dead pigs, and the problem of pig dumping is worse than ever this year,” an unnamed villager told the Jiaxing Daily newspaper, which is run by the local Communist Party.

Wang Xianjun, a government worker for Zhulin village, told the newspaper that villagers were breeding too many pigs.

Wang said the village had 10,078 dead pigs in January and another 8,325 in February. “We have limited land in the village,” he said. “We do not have that much land for burial.”

Zheng Fengtian, a professor at the School of Agricultural Economics and Rural Development at Renmin University in Beijing, acknowledged that there is illegal trade in diseased dead pigs in China.

“According to the law, dead pigs must be burned or buried, but if there is not enough regulatory monitoring, it’s possible some of them will be sold into the market at low prices,” he said, adding that it isn’t known how serious the problem is.

Recession Is Over; Depression Has Just Begun by: Edward Harrison October 02, 2009


Below is a post I wrote on my site Credit Writedowns exactly two months ago. My impetus in writing the post was a need to reconcile my near-term optimism with my longer-term worry. So, I tried to pull some threads together to create a cohesive model of what to expect economically. As I have become less optimistic about the near-term economic picture, I re-read it and decided to post it here at the Huffington Post

What is now more clear to me is that the political calculus I outlined regarding economic stimulus and deficit spending is playing out much quicker than I would have anticipated. Generally, I have been supportive of stimulus, especially when it comes to job creation. But, the stimulus we have received so far has been poorly designed and too little by half. Unemployment remains high and the economy is weak. This has discredited economic stimulus in the eyes of many.

Combined with the spectacle of big banks being bailed out and then subsequently making record bonuses, there is no appetite from the American public for large scale deficit spending. When the banks were bailed out, I don't think the Obama Administration expected the banking industry to recover and start paying themselves so much so quickly. They have and this makes the Administration complicit in what should be seen as looting of taxpayers.

Therefore, the Obama Administration is chastened and are reining in their horns very quickly to provide cover for Blue Dog Democrats in 2010. Unfortunately, as you will see below, they underestimate our current economic situation and this will lead to a major recessionary relapse.

Otherwise, I stand behind the thoughts here. The original post is below.

For the last few months I have been casting around looking for bullish data points as counterfactuals to my more bearish long-term outlook. I have found some, but not enough. If you recall, early this year, I stated that we are in depression, making the case for the ongoing downturn as a depression with a small 'd.' Nevertheless, I was quite optimistic about the ability of policymakers to engineer a fake recovery predicated on stimulus and asset price reflation and I certainly saw this as bullish for financial shares if not the broader stock market. But, I saw these events as temporary salves for a deeper structural problem.

As a result, I have been on a quest to find data which disproves my original thesis - signs that the green shoots that everyone keeps talking about (and a term I had banned from my site) are part of a sustainable economic recovery. Unfortunately, I have concluded that they are not. This post will discuss why we are in a depression, not a recession and what this means about likely future economic and investing paths. I will try to pull together a number of threads from previous posts, add some context via Wikipedia links and draw in some good discussion via recent posts by Prieur du Plessis on balance sheet recessions and Marshall Auerback on the sector financial balances model of economics which completed the picture for me.

This post is very long and I have had to shorten it in order to pull all of the ideas into one post. Please do read the linked posts for background as I left out some of the detail in order to create this narrative.

Let's start here then with the crux of the issue: debt.

Deep recession rooted in structural issues

Back in my very first post in March of 2008, I said that the U.S. was already in a recession, the only question being how deep and how long - a question I answered in the next post saying "we are definitely in recession. And according to Gary Shilling, this recession is going to be a big one. Worse than 2001, 1990-91 or the double dip recession of 1980-82." This has certainly turned out to be true. The issue was and still is overconsumption i.e. levels of consumption supported only byincrease in debt levels and not by future earnings. This is the core of our problem - debt.

I see the debt problem as an outgrowth of pro-growth, anti-recession macroeconomic policy which developed as a reaction to the trauma of the lost decade in the U.S. and the U.K.. This was a period of low growth, high inflation and poor market returns, in which the U.K. became the sick man of Europe and labor strife brought that economy to its knees. It is a period that saw the resignation of an American President and the humiliation of the Iran Hostage Crisis.

In essence, after the inflationary outcome that many saw as an outgrowth of theSamuelson-Keynesianism of the 1960s and 1970s, the Reagan-Thatcher era of the 1990s ushered in a more 'free-market' orientation in macroeconomic policy. The key issue was government intervention. Policy makers following Samuelson (more so than Keynes himself) have stressed the positive effect of government intervention, pointing to the Great Depression as animus, and the New Deal, and World War II as proof. Other economists (notably Milton Friedman, and laterRobert Lucas) have stressed the primacy of markets, pointing to the end of Bretton Woods, theNixon Shock and stagflation as counterfactuals. They point to the Great Moderation and secular bull market of 1982-2000 as proof. This is a divisive and extremely political issue, in which the two sides have been labelled Freshwater and Saltwater economists (see my post "Freshwater versus saltwater circa 1988").

However, just as the policy of the 1950s to the 1970s was not really Keynesian (read Keynes' General Theory as Richard Posner did and you will see why), the 1980s-2000 was not really an era of true 'free markets.' I call it deregulation as crony capitalism. What this has meant in practice is that the well-connected, particularly in the financial services industry, have won out over the middle classes (a view I take up in "A populist interpretation of the latest boom-bust cycle"). In fact, hourly earnings peaked over 35 years ago in the United States when adjusting for inflation.

Remember, the 1970s was a difficult period in which the U.K. and the U.S. saw jobs vanish in key industrial sectors. To stop the rot and effectively mask the lack of income growth by average workers, a new engine of growth had to be found. Enter the financial sector. The financialization of the American and British economies began in the 1980s, greatly increasing the size and impact of the financial sector (see Kevin Phillips' book "Bad Money"). The result was an enormous increase in debt, especially in the financial sector.

This debt problem was made manifest repeatedly during financial crises of the era. Not all of these crises were American - most were abroad and merely facilitated by an increase in credit, liquidity, and international capital movement. In March 2008, I wrote in my third post on the US economy in 2008:

From the very beginning, the excess liquidity created by the U.S. Federal Reserve created an excess supply of money, which repeatedly found its way through hot money flows to a mis-allocation of investment capital and an asset bubble somewhere in the global economy. In my opinion, the global economy continued to grow above trend through to the new millennium because these hot money flows created bubbles only in less central parts of the global economy (Mexico in 1994-95, Thailand and southeast Asia in 1997, Russia and Brazil in 1998, and Argentina, Uruguay, and Brazil in 2001-03). But, this growth was unsustainable as the global imbalances mounted.
Eventually, the debt burdens became too large and resulted in the housing meltdown and the concomitant collapse of the financial sector, a looming problem that our policymakers should have seen. This is why my blog is named Credit Writedowns. But, make no mistake, the housing and writedown problems are only symptoms. The real problem is the debt - specifically an overly indebted private sector (note the phrase 'private sector' as I will return to this topic).



This is a depression, not a recession

When debt is the real issue underlying an economic downturn, the result is a period of stagnation and short business cycles as we have seen in Japan over the last two decades. This is what a modern-day depression looks like - a series of W's where uneven economic growth is punctuated by fits of recession. A recession is merely a period of recalibration after businesses get ahead of themselves by overestimating consumption demand and are then forced to cut back by making staff redundant, paring back inventories and cutting capacity. Recessions can be overcome with the help of automatic stabilzers like unemployment insurance to cushion the blow. Depression is another event entirely. Back in February, I highlighted a blurb from David Rosenberg which summed up the differences between recession and depression quite well.

Depressions marked by balance sheet compression
Recessions are typically characterized by inventory cycles - 80% of the decline in GDP is typically due to the de-stocking in the manufacturing sector. Traditional policy stimulus almost always works to absorb the excess by stimulating domestic demand. Depressions often are marked by balance sheet compression and deleveraging: debt elimination, asset liquidation and rising savings rates. When the credit expansion reaches bubble proportions, the distance to the mean is longer and deeper. Unfortunately, as our former investment strategist Bob Farrell's Rule #3 points out, excesses in one direction lead to excesses in the opposite direction.
The next day, I highlighted Ray Dalio's version of this story because it takes a historical view and rightly emphasizes the debtor instead of the lender as the crux of the problem. Notice the part about printing money and devaluing the currency if the debt is in your own currency.

... economies go through a long-term debt cycle -- a dynamic that is self-reinforcing, in which people finance their spending by borrowing and debts rise relative to incomes and, more accurately, debt-service payments rise relative to incomes. At cycle peaks, assets are bought on leverage at high-enough prices that the cash flows they produce aren't adequate to service the debt. The incomes aren't adequate to service the debt. Then begins the reversal process, and that becomes self-reinforcing, too. In the simplest sense, the country reaches the point when it needs a debt restructuring...



This has happened in Latin America regularly. Emerging countries default, and then restructure. It is an essential process to get them economically healthy.

We will go through a giant debt-restructuring, because we either have to bring debt-service payments down so they are low relative to incomes -- the cash flows that are being produced to service them -- or we are going to have to raise incomes by printing a lot of money.

It isn't complicated. It is the same as all bankruptcies, but when it happens pervasively to a country, and the country has a lot of foreign debt denominated in its own currency, it is preferable to print money and devalue...

The Federal Reserve went out and bought or lent against a lot of the debt. That has had the effect of reducing the risk of that debt defaulting, so that is good in a sense. And because the risk of default has gone down, it has forced the interest rate on the debt to go down, and that is good, too.

However, the reason it hasn't actually produced increased credit activity is because the debtors are still too indebted and not able to properly service the debt. Only when those debts are actually written down will we get to the point where we will have credit growth. There is a mortgage debt piece that will need to be restructured. There is a giant financial-sector piece -- banks and investment banks and whatever is left of the financial sector -- that will need to be restructured. There is a corporate piece that will need to be restructured, and then there is a commercial-real-estate piece that will need to be restructured.



Commence the fake recovery

So where are we, then? We have left the fake recovery and are entering a new era of growth that could last as long as three or four years or could peter out very quickly in a double dip recession. By now, you have seen my post on the fake recovery, so I won't cover that ground here. However, I do want to highlight how I came to believe in the fake recovery and how asset prices have played into this period (the S&L crisis played out nearly the same way). I see writedowns as core to the transmission mechanism of debt and credit problems to the real economy via reduced supply and demand for credit. Again, this is why my site is called Credit Writedowns.

In March, at the depths of the downturn I wrote:

The problem is the writedowns. You see, if you get $30 billion in capital from the government, but lose another $40 billion because of credit writedowns and loan losses, you aren't going to be lending any money. To me, that says the downturn will only end when the massive writedowns end, not before.



The U.S. government has finally realized this and is now moving to stem the tide. Their efforts point in four directions:


Increase asset prices. If the assets on the balance sheets of banks are falling, then why not buy them at higher prices and stop the bloodletting? This is the purpose of the TALF, Obama's mortgage relief program and the original purpose of the TARP.

Increase asset prices. If assets on the balance sheet are falling, why not eliminate the accounting rules that are making them fall? Get rid of marking-to-market. This is the purpose of the newly proposed FASB accounting rule change.

Increase asset prices. If asset prices on the balance sheet are falling, why not reduce interest rates so that the debt payments which are crushing debtors ability to finance those assets are reduced? This is why short-term interest rates are near zero.

Increase asset prices. If asset prices on the balance sheet are falling, why not create Public-Private partnerships to buy up those assets at prices which reflect their longer-term value? This is what Geithner's Capital Assistance Program is designed to do.

So I lied, there is only one direction the government is headed: increase asset prices (or, at least keep them from falling). Read White House Economic Advisor Larry Summers' recent prepared remarks to see what I mean. (Summers on How to Deal With a 'Rarer Kind of Recession' - WSJ)
I was more on target in my thinking here than I could have known. Within two weeks, the mark-to-market model was dead and mark-to-make believe had begun. It was then that I knew a recovery was likely to take hold. And it was going to be bullish for bank stocks and the broader market. What you should realize is that, despite the remaining problems in credit cards, commercial real estate or high yield loans, limiting credit growth, the changes instituted by government definitely have meant 1. that banks will earn a shed load of money and 2. that house price declines have stalled, underpinning the asset base of lenders. This necessarily means an end to massive writedowns, a firming of banks' capital base, and a reduction in private sector deleveraging.



As an aside, I should mention that this dynamic called the asset-based economy, where economic well-being is dependent on asset prices, is far more pronounced in Anglo-Saxon countries like the U.S. and the U.K. (and Australia, Ireland, and Canada to a degree). While the free market ideal has gained sway globally, it is viewed with much more skepticism elsewhere. In Germany, for example, the term Anglo-Saxon is often bandied about as an epithet for political demagoguery to represent free market ideology. These cultural differences are something I explored in my post "Cultural attitudes on work, leisure and wealth in Europe and America."

As for the recent asset-based economic reflation, be under no illusion that these measures 'solve' the problem. The toxic assets are still impaired and banks are still under-capitalized. But the increased asset value and the end of huge writedowns has underpinned the banks and led to a rise in the broader market in a feedback loop that has been far greater than I could have imagined at this stage in the economic cycle.

The double dip or the economic boom?

So what's next? A lot of the economic cycle is self-reinforcing (the change in inventories is one example). So it is not completely out of the question that we see a multi-year economic boom. Higher asset prices, lower inventories, fewer writedowns all lead to higher lending capacity, higher cyclical output, more employment opportunities and greater business and consumer confidence. If employment turns up appreciably before these cyclical agents lose steam, you have the makings of a multi-year recovery. This is how every economic cycle develops. This one is no different in this regard.

However, longer-term things depend entirely on government because we are in a balance sheet recession. Ray Dalio and David Rosenberg make this case well in the previous quotes I supplied, but it was a recent post about Richard Koo from Prieur du Plessis which got me to write this post. His post, "Koo: Government fulfilling necessary function" reads as follows:

According to Koo, American consumers are suffering from a balance sheet problem and will not increase consumption until their personal finances are back in order. The banks are not lending mainly because nobody wants to borrow and, furthermore, the banks want to build their own balance sheets (raise cash) and get rid of toxic garbage...



Again, when asked what would happen if the government cuts back on its fiscal stimulus, Koo replies: "Until the private sector is finished repairing its balance sheets, if the government tries to cut its spending, we're going to fall into the same trap Franklin Roosevelt fell into in 1937 (a crushing bear market) and Prime Minister Hashimoto fell into in 1997, exactly 70 years later.

"The economy will collapse again and the second collapse is usually far worse than the first. And the reason is that, after the first collapse, people tend to blame themselves. They say, 'I shouldn't have played the bubble. I shouldn't have borrowed money to invest - to speculate on these things.'
This view of a second, more serious downturn mirrors the one I wrote of when I wrote about high structural unemployment last week. And, again, it is predicated on what government does. I wrote last November that if government stops the support, recession is going to happen.

The U.S. economy cannot possibly work itself out of the greatest financial crisis in some 70-odd years in a mere 4 years and then expect to raise taxes on the middle class without a major recessionary relapse.



So, when you hear policy makers talking about reducing the deficit as soon as possible, what you should think is 1938 and continued depression.
Right now, if you listen to what President Obama is likely to do when we see more economic growth, you know that the government prop for the economy is going to be taken away. Koo again:

So the fact that Larry Summers was talking about 'temporary' fiscal stimulus had me very, very worried. That whole Larry Summers idea that one big injection of fiscal stimulus will get the US out of the recession, and everything will be fine thereafter, probably led to President Obama's saying he's going to cut his budget deficit in half in four years."
Get ready because the second dip will occur. It will be nasty: unemployment will be higher and stocks will go lower than in 2009. I am convinced that it is politically unacceptable to have the government propping up the economy as Koo suggests it should. The question now is one of timing: when will the government stop propping up the economy? The more robust the recovery, the quicker the prop ends and the sooner we get a second leg down.



So to recap:


A depression was borne out of high levels of private sector debt, the unsustainability of which became apparent after a financial crisis.

The effects of this depression have been lessened by economic stimulus and government support.

Government intervention led to a reduction in asset price declines, which led to stock market increases, which led to asset price stabilization and more stock market increases and eventually to asset price increases. This has led to a false sense that green shoots are leading to a sustainable recovery.

In reality, the problems of high debt levels in the private sector and an undercapitalized financial system are still lurking, waiting for the government to withdraw its economic support to become realized

Because large scale government deficit spending is politically impossible, expect a second economic dip within three to four years at the latest.

Why is government spending necessary?



The government plays a crucial role here because of the huge private sector indebtedness. In the U.S. and the U.K., the public sector is not nearly as indebted. So while, the private sector rebuilds its savings and reduces debt, the public sector must pick up the slack. Why do I say must? It's because of an accounting identity which comes from the financial sector balances model. Marshall Auerback says it best in a recent post:

We've said it before and we'll say it again. As a matter of national accounting, the domestic private sector cannot increase savings unless and until foreign or government sectors increase deficits. Call this the tyranny of double entry bookkeeping: the government's deficit equals by identity the non-government's surplus.



So, if the US private sector is to rebuild its balance sheet by spending less than its income, the government will have to spend more than its tax revenue. The only other possibility is that the rest of the world stops saving on a massive scale -- letting the US run a current account surplus. But that is highly implausible and socially undesirable, since it means we export our economic output, rather than consume it domestically. And if the government deficit does not grow fast enough to meet the saving needs of the private domestic sector, national income will decline, which, given the size of the private sector's debt problem, will generate a huge debt deflation.

This is the foundation of modern monetary theory. Would that the IMF and the G20 understood these basic facts.
If the private sector is a net saver, the public sector must, I repeat must, run a deficit. That's the law of double entry book-keeping. The only other way to prevent the government from running a deficit when the private sector is net saving is to run huge current account surpluses by exporting your way out of recession - what Germany and Japan tried in the 1990s and in this decade. But, of course, the G20 and the IMF are all talking about global re-balancing. This cult of zero imbalances is something Marshall first brought forward back in April. And it ignores the accounting identity inherent in the financial sector balances model. I highlighted this model in my post, "Minsky: Turning neoclassical economics on its head." However, I must admit to having a preternatural disaffection for large deficits and big government which is what Koo and Minsky advise respectively - a recent cartoon shows why. It is this knee-jerk aversion to what is viewed as fiscal profligacy which is at the core of the cult of zero imbalances.



So, what does this mean for the American and global economy?


The private sector (particularly households) is overly indebted. The level of debt households now carry cannot be supported by income at the present levels of consumption.The natural tendency, therefore, is toward more saving and less spending in the private sector (although asset price appreciation can attenuate this through the Wealth Effect). That necessarily means the public sector must run a deficit or the import-export sector must run a surplus.

Most countries are in a state of economic weakness. That means consumption demand is constrained globally. There is no chance that the U.S. can export its way out of recession without a collapse in the value of the U.S. dollar. That leaves the government as the sole way to pick up the slack.

Since state and local governments are constrained by falling tax revenue (see WSJ article) and the inability to print money, only the Federal Government can run large deficits.

Deficit spending on this scale is politically unacceptable and will come to an end as soon as the economy shows any signs of life (say 2 to 3% growth for one year). Therefore, at the first sign of economic strength, the Federal Government will raise taxes and/or cut spending. The result will be a deep recession with higher unemployment and lower stock prices.

Meanwhile, all countries which issue the vast majority of debt in their own currency (U.S, Eurozone, U.K., Switzerland, Japan) will inflate. They will print as much money as they can reasonably get away with. While the economy is in an upswing, this will create a false boom, predicated on asset price increases. This will be a huge bonus for hard assets like gold, platinum or silver. However, when the prop of government spending is taken away, the global economy will relapse into recession.

As a result there will be a Scylla and Charybdis of inflationary and deflationary forces, which will force the hands of central bankers in adding and withdrawing liquidity. Add in the likely volatility in government spending and taxation and you have the makings of a depression shaped like a series of W's consisting of short and uneven business cycles. The secular force is the D-process and the deleveraging, so I expect deflation to be the resulting secular trend more than inflation.

Needless to say, this kind of volatility will induce a wave of populist sentiment, leading to an unpredictable and violent geopolitical climate and the likelihood of more muscular forms of government.

From an investing standpoint, consider this a secular bear market for stocks then. Play the rallies, but be cognizant that the secular trend for the time being is down. The Japanese example which we are now tracking is a best case scenario.