Ever wake up and start to wonder if everything you’ve ever believed is a lie? Wednesday, I made a presentation on our current economic situation. It was filled with history and trends and comparisons and the economic values I’ve trusted since I was old enough to know better. This is part of the normal business cycle, I assured them. Our economy has a correction/economic slowdown about every five years. It lasts about 15 months and then we begin got recover. Look at the buying opportunity! In the context of history, blah, blah, blah. It was the longest presentation I’ve ever given, and I was relieved when my time was over. How do you tell someone everything’s fine when what you want to say is that we’re in the middle of a global mini-depression and the guy with the wallet can’t decide whether he’s coming or going?
This too shall pass, keeps reverberating between my ears, but our “leaders” are doing nothing to inspire confidence. On October 9, 2007, the Dow Jones Industrial Average (DJIA) hit its all time high of 14,164.53. Thursday, it closed at 8,835.25 or 62% of its high just 13 short months ago! Although both nominal and real gross domestic product are higher than ever, both the DJIA and S&P 500 are at 1997/1998 levels.
Over the last 40 years or so, our country’s economy has experienced phenomenal growth. In spite of the volatile environment of the last 40 years, we’ve continued growing and growing and growing. But, is it sustainable? Are we growing too big, too fast? In our effort for more, has greed gotten the better of us? Are we paying the piper? If we continue to artificially hold up our economy with ever increasing mountains of debt, will we ever have a strong, sustainable economy? If not, what will the crash be like?
Perhaps one of the least settling things about this is that many of the same people who helped create this mess are trying to fix it. Wednesday, Treasury Secretary Henry Paulson announced that he was planning to use $350 Billion of the Troubled Asset Relief Program (TARP) to help relieve pressure on consumer credit instead of buying “toxic” mortgages. Originally TARP was sold as a way for the Federal government to purchase nonperforming assets from a bank, removing it from their balance sheet, raising its credit rating and ability to borrow, and making it a healthier institution able to better perform its function of loaning money and investing in the market place. But now it appears more than ever that this is just a big slush fund so the tax payers can make up for the poor business decisions of which ever company or industry Hank likes.
Paulson has committed $290 Billion to purchase stakes in banks and AIG. Mr. Obama and the Democratic leadership wants as much as $50 Billion invested in the auto industry (which comes with additional perk of an “oversight czar” telling the industry what to make and how to make it). If they don’t get it, America could be out of the car business early next year. Cities are not approaching the Treasury for bailout funds. And the assistant secretary in charge of the bailout funds has already said that we’ll need more than the $700bn, maybe twice as much.
Consumers aren’t spending any money because we’re up to our eyes in debt and worried about our jobs. Businesses aren’t investing because consumers aren’t spending. Exports aren’t much help because the entire world is feeling the squeeze (Equador will miss a $30 Million interest payment tomorrow because of dropping oil prices). That leaves the government as the last spender in the equation, and the policy of the moment is public ownership of private companies and loans to help industries and companies bridge through this cycle. But where is the end of the bridge? Should the public own private companies? And have we made up our minds now?
In this case, I do support government spending, even deficit spending. Both of which are acceptable practices in this situation, but I would like to see it controlled and directed mostly to infrastructure. Extending unemployment benefits, increasing food stamps, and other welfare benefits will help a little but a bigger benefit will be gained by government spending on programs that will help Americans get back to work and invest in the infrastructure. I’d like to see $700bn spent on roads and bridges, energy generation and distribution, levies, and the like. Of course, the rub is in the fair distribution of the stimulus to ensure that influential districts do not receive a disproportionate allocation of the funds. Stimulus could also be directed at health care, education/job training, and national security especially in seaports and airports. But just loaning it to companies that can’t pay the bills they have? Where are they supposed to get their revenue from? The consumer still doesn’t have any money? We’re still in debt? And we’re still worried about employer cutbacks.
I can just imagine the Paulson strategy meetings… Phase one, pay full price for mortgage that aren’t worth anything and hope they’re worth something someday. No. Wait. Let’s borrower tax payer money to invest in private companies, especially the companies we regulate, making unprecedented public ownership in private companies. It doesn’t matter if they can’t pay their bills. We won’t worry about that right now. Then, we’ll go back to Congress, get the rest of our money, and see about the other thing we told them we’d do. And if that ain’t enough, we’ll just tell them we need more. Blackmail’s fun. Can you believe people rob banks?
More important than actually doing anything worthwhile, Washington needs to portray a sense that they actually know what they’re doing and are acting purposefully. Honestly, I don’t think most of us recognize when they screw up anyways. People are pretty forgiving and unless they do something foolish like draw attention to themselves, we generally assume they just meant to do it that way.
Finally, I appreciate a person who recognizes when they could have made a better decision, but the Secretary of the Treasury is one of the most powerful people in the world. He has the world’s resources at his disposal. Far too much is riding on his decisions for him to be wishy-washy. Come on, Hank. Get it together!
Burn Out
15 years ago
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2 comments:
On the off chance that you are right about that business cycle, where are we now? No!! The public should not own private business - the Christmas party is just to darn big to say nothing about all those cooks in the kitchen at the same time. I agree with you. Bailing out does not good at the level it is happening now unless there is some way made for me "the public" to feel better about spending money. It hasn't happen for me yet.
Ever since President Wilson signed into 'law' the Federal Reserve, many who new the consequences of government as business partner have been scared. The American public continues to accept the short sighted decisions of those we have elected. Hoover started to throw money at the problem, Roosevelt threw even more at it, and as I see it, if not for world war 2, things would have stayed the same. No investments, no employment, no new business. We rode the wave into the 60's and started to feel the undertow in the early 70's. The public as a whole just did not get it then and I do not see that we have learned, so now lets throw our children's children's money at it. My idea of insanity is to keep trying the same thing over and over again expecting different results. I think our elect fit into this cycle.
But not to be depressing, I do hold out hope, and always will.
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