How Should We Respond to the Imploding Economy?
Boston, July 26, 2008: The questions we face in late July, as regulators seize two more failing banks, is this: will we be engulfed by a further collapse in our economy or can the damage be contained, or, even turned around?
We know what goes up must come down but when will what's down go back up?
It isn't looking good -- and, even now, the two presumptive major party presidential candidates are talking about everything but this deepening crisis. They are debating terrorists and Afghanistan and how to leave Iraq without leaving, but not the reality that so many Americans are living with: a squeeze that is leaving so many of us broke, deeper and deeper in debt and disgusted.
Until now, the doom and gloomsters were mostly to be found in the margins, in financial blogs or in the campaigns of Ron Paul, Ralph Nader or the Greens. The mainstream media has often been looking the other way and mostly downplaying the unfolding disaster. Even as foreclosures double, and the price of gas and food rises sharply, it's been business as usual on the business pages, and among the liberal political pundits who would rather debate the cover of the New Yorker than the growing desperation of so many Americans.
The Congress finally passed a housing bill a year into the crisis with most of the money allocated to try to shore up two housing agencies with more than a half a trillion in housing assets. The markets are melting down with more major stocks tanking, banks writing off still more billions. and unemployment rising.
People in the know like George Soros are saying this is the worst financial crisis since the depression. Others fear another depression. This pessimism has reached Newsweek, a guardian of conventional wisdom, which now says "It's Worse Than You Think," writing...
"this downturn is likely to last longer than the eight-month-long recession of 2001. While the U.S. financial system processes popped stock bubbles quickly, it has always taken longer to hack through the overhang of bad debt. The head winds that drove the economy into this dead calm -- a housing and credit crisis, and rising energy and food prices -- have strengthened rather than let up in recent months. To aggravate matters, the twin crises that dominate the financial news -- a credit crunch and the global commodity boom -- are blunting the stimulus efforts."
We have two challenges: understanding the gravity of what is threatening us, and then discussing what could or should be done. We might also want to think about what the press should be reporting and what policy makers should be proposing.
On the foreclosure crisis, for example, I was just in Washington for five days with NACA, the Neighborhood Assistance Corporation of America, which took over a major hotel and set up a shop to offer free counseling to at risk home owners and advocate for affordable loans.
The Washington Post, based just across the street from the lines of some 20,000 people seeking help, did not cover it until it was over. But, to their credit, when they did they recognized that this effort by a not for profit citizens organization was more effective in responding to the crisis than all the government agencies put together.
Writes Post Business columnist Steven Pearlstein:
"They came by plane and train, car and subway, starting before dawn and continuing late into the night, all of them clutching tattered folders and envelopes stuffed with the documentary evidence of their financial hardship and miscalculation.
"It was striking how well-organized and executed it all was. Outside, there were plenty of volunteers and staff -- 350 were flown in from around the country -- doling out information, advice and sympathy to those waiting in line. ...
"In the space of 30 to 60 minutes, the well-trained, upbeat counselors managed to win the trust of their new clients, wring promises of a more frugal lifestyle and enter into their computers the relevant financial details. At a push of a button, NACA's underwriting system declared how much the client could afford in monthly mortgage payments, and automatically requested the mortgage servicing company to modify the loan accordingly. Depending on the service and the loan, the answer might be available in a matter of days or even hours. In about half the cases, the result is likely to be a below-market, fixed-rate loan with hundreds of dollars cut from their monthly payments."
So here's one example of what can be done by an economic justice organization fusing services and advocacy. This all happened three blocks from the White House. While federal regulators visited, none of the progressive DC think tanks or even unions showed up in solidarity even though AFL-CIO headquarters is a block away.
Individuals need help but we all need change. Are we dealing with just another market mistake, the latest bubble gone bust in a volatile business cycle, or a straining system on the verge of breakdown? Can we solve all this with an Alka-Seltzer-like infusion of new taxes or regulations?
Or, is Gerry Gold, economics editor of the UK's A World to Win, right when he argues, "The urgency of building a movement to replace capital, not to rescue it, cannot be overstated. This will mean a major program extending social ownership to all sectors of the economy, ending the distribution of profits to shareholders, and replacing the system of selling labor for wages with collective decision-making about the distribution of an organization's income."
Pie in the sky? Or is the sky really falling, made worse by global warming, wars without end, and resource depletion? If Obama or McCain are to "fix" what's broken, they better start talking about it. And once they inevitably do, will either one of them, once elected, be able to overcome Congressional inertia and the power of corporate/finance industry lobbies?
If the rest of us see what's coming, we better speak up too. Remember, when you see something say something. It's also time to act, not just react to the endless campaign!
Mediachannel's News Dissector Danny Schechter has written PLUNDER (Cosimo). a new book investigating our economic calamity, and made the film IN DEBT WE TRUST. Comments to Dissector@mediachannel.org
To see Danny Schecter at NACA's Save the American Dream event in Washington.
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With a Weak Economy, We Need Smarter Policies
The old tricks aren’t working any more. The government’s tools for a weak economy have been to lower interest rates, borrow and spend, or have a war. Now, interest rates are so low that you can’t earn enough on your savings to keep up with inflation, the government owes $31,666 for every man, woman and child in America, and we have two of the longest running wars in U.S. history. We need something new, something smarter.
Here's one simple solution. Give corporations a deduction for paying dividends, and make up 100% of the lost tax revenue by getting rid of the capital gain benefits on the individual side and raising taxes a bit on people earning over $500,000 a year. On average, the over $500,000 group would still pay total federal and state income tax of only 37.6%. Cash would flow and jobs would grow. Wouldn’t that be smarter?
Matt Lykken is an international tax attorney and the Director of SharedEconomicGrowth.org.
Biographical information at http://www.sharedeconomicgrowth.org/home/aboutus.html
Neither candidate is campaigning on the real issues. What substantive solutions are either proposing to the major environmental and economic issues? Lately, the debate is devolving into race-baiting and whose tactics will win the "war on terror." John Edwards called the war a bumper-sticker slogan. Yes, we want to defeat those who would harm us and should go to war if threatened by a nation. We should use police actions against others. But the real issues are being avoided. Is it too risky politically or do neither of them have solutions?
we've had a purposeful destruction of our constitutional republic for over 80 years, promulgated by the creation of the federal reserve's fiat currency, the IRS, and our entitlement state. slather on some undeclared wars, big pharmacy and we've given free market capitalism a bad name when what we've help tolerate to creation is corporatism - another name for fascism.
the solutions are before us and historically are proven. our constitution is where to start.
The Constitution is a contract among people. The Constitution has not been altered without the consent of the people.
When people do not educate themsleves on the issues that control their lives they consent to taht which others do. It is all fine and good to say that others are the source of our probelms, but while it may be true it something that we the people allow.
Walt Kelly's cartton Character "Pogo", a possum, said it best when he said, "We have seen the enemy and they is us."
When we stop worshiping at the alter of money and materialism, then we may have a chance. Corporate America has dangled pretty trinkets in front of us and we have surrendered our heritage for those trinkets. Now we face having niether the heritage or the trinkets.
When the people of the United States fall for the offshore drilling gambit, when it is clearly no solution to anyone other than maybe the Oil Companies, there is not much hope.
But these are the same people who fell for the Invasion of Iraq, and now the farce that the Surge worked.
You ask good questions Danny. Here is a link to some inconvenient truth.
http://www.kitco.com/ind/schoon/jul302008.html
The solution sounds to me quite simple: across the board, recalculate both everyone's loans and the market value of the collateral (the house) used to secure it.
This will create an enormous paper loss for the banks.
No problem.
The Government merely squanders another 700-odd pieces of paper, burying into Yet Another Bill That Nobody Will Ever Read a little paragraph that "pledges the Full Faith and Credit of the United States" (tah daahh...) for the entire obligation.
Burp. Poof! PRESTO! The debt is Gone! The Balance Sheets... they Balance! There is rejoicing in Mudville!
Furthermore, this is (as we all know very well) simply an extension of the present status-quo. The United States Government already "borrows" more than $1 million every minute, around the clock, literally "from nowhere." The dollars simply Appear. So be it. Let more Dollars Appear. If we can "swish flick!" about $6 billion into existence to pay for "brain wave binoculars" (no kidding, BTW...) then we can "swish flick!" as many dollars into existence as we may require to "take care of this."
Roll back the tax cuts. Cut out all the loopholes now in existence. Cut nonessential programs. Implement universal health care and finance it with a payroll tax.
Deficit spend but only for things that are tangible. Wind and solar farms, retooling of factories to produce electric cars. Construction of high speed rail. Construction of new neighborhoods that are energy efficient centered around mass transit hubs. Factories that build the parts for the wind and solar farms.
Smart spending. Not stupid. Smart spending that creates jobs which in turn generates tax revenues which allows for more growth.
Bah. Do you know what a PUNY amount of the Federal Spending is actually compensated-for by "taxes?" All of the Income Taxes collected every year would pay for just a few weeks.
"How twentieth century."
We make money the New-Fashioned Way: we Create it. The Federal piggy-bank is a magical, bottomless well that never runs dry. (All the world has to pay for all their Oil using our Dollars, and if they ever have a problem with that, we'll teach them how to spell N-U-C-L-E-A-R W-I-N-T-E-R.) So, nobody has to scrimp at all. Just reach in that bucket and fill your cup to the brim...
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Whether that "makes sense" or not, that IS a perfectly-realistic expression of how the United States Government actually runs, and pays for, its affairs, and how it has done so certainly since the end of World War II. There's simply no pretense of trying to link spending to anything. The debt exists on paper ("debits must equal credits, you know! And we'll mark-off ten points on your homework if any of those penciled digits wander outside the boundaries of any of those little boxes!") but it doesn't exist in reality. If you walk away from any debt that you owe, sooner or later the Full Faith and Credit of the United States will make it disappear without a trace.
What I'm hearing is that its going to take until 2010 just to get back to "normal".
Don't expect to see "normal" again in your life time. People need to get it through their heads that we have been living beyond our means and consuming six times our share of the resources in the world. We will have to learn new ways to do everything. That is not a camapign slogan it the reality of the future.
-Your- future, maybe, but not mine. Hey, the idea of "brain wave binoculars" is already taken (and it netted some company about $6 billion so-far), but I'm sure that I can come up with a fat defense-contract ... how about "electrostatic toilet-paper?" Yah, that sounds good. Dunno what it means, but it sounds good. Stick it in the budget on page 1411. No one will read it, the gavel will fall, and just-like-that I'm a bezillionaire. And so is my Senator.
"Sound strange?" Sounds cynical? Sounds like I'm making a funny joke or somethin'? Well, guess what: I'm perfectly serious. The money really did get spent for those binoculars.
Go back to basics.
One: If you are in a consumer economy, let the consumers consume, or even better create more consumers of more products. Adopt the only real measures that work, trickle up. Push money into the lower income levels. (under 50,000.00 a year for family of four)
Two: Keep your money at home. Give tax credits and cuts for businesses that hire people making less that 15.00 an hour to increase the minimum wage to 15.00. Cut all incentives to purchase overseas items unless there it is a product that can not be made in the US.
Trickle down theory was a fairytale that we bought and was designed to re-allocate wealth up. Bring the Reagan Revolution to a halt. Until all of our people have the option to an adequate diet, health care, and adequate housing, we need to focus on those items. Once our economy settles down they we can go back and fix the rest.
How we should respond to the imploding economy, and how we will are two different things. The US is controlled by corporate money. Corporatists own the Republican party, the media, and much of the Democratic party. And, since they control the flow of information, the corporatists have successfully sold the myths of the "free market" economy to most of the US citizenry. Don't look for any big change. Even if Obama win the presidency, he's still being advised by Chicago School and Republican lite economists.
That's absolutely correct regarding Obama. I hope he can rise above those influences, but judging by his lack of willingness to discuss the issue, I'm not holding my breath. Of course, there is no chance with McCain, so I'll vote for the one who at least offers lottery-like odds. Only Fiengold stands a chance of speaking out - oh and on the Right, Senator Bunning (who I vehemently disagree with on almost every other issue imaginable) already has.
Well said Bubb. The corporatists need workers. But not nearly as many as currently exist. And they naturally prefer serfs to free citizens. And they obviously don't need old or sick or "uppity" workers. The only way us non-billionaires will have any future is to put aside our differences and unite against our corporate rulers.
Sadly, I believe BZB has the gist of the situation. The Corporatists still have firm hold on the reins of power, the populace is still blithely deluded and brainwashed, and the inertial mass as we all contineu to fall is huge.
This could get ugly.
The fairy tale life where when something breaks you throw it away and buy a new one (because it is cheaper than repairing) is probably passing ... as it should.
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