Today's announcement by U.S. Treasury Secretary Henry Paulson is but the latest effort by the current administration to downplay the severity of the current economic crisis. In the grand old American tradition of hucksterism, Paulson's prescription is a sorely misleading sell.
It's time to wake up and smell the economy. Sadly, there's no short and easy fix to the longer-term problems created by excessive borrowing combined with rampant consumerism. Yet Paulson insists (White House Stimulus Fact Sheet, Jan. 18, 12:03pm, WSJ.com), "By passing an effective growth package quickly, we can provide a shot in the arm to keep our fundamentally strong economy healthy and help keep instability in the housing and financial markets from more adversely affecting the overall economy." Believing the economy to be grounded on a "solid foundation," Paulson is ignoring the walls falling down.
Paulson's leading theme is to "[get] money to them [U.S. consumers] so they will spend it." Help America spend our way out of a problem created by too much spending? Only in America. Low interest rates combined with easy and arguably predatory lending practices is what got us into this mess in the first place. Our national motto: I spend therefore I am.
We have become a culture of extreme consumption. The rest of the world sees it -- why can't we? Since 2005, the U.S. personal savings rate has been below 1% of disposable income [U.S. Bureau of Economic Analysis, www.bea.gov], while China's, in contrast, sits at 20%. [Credit Lyonnaise] We borrow against our homes we can not necessarily afford in order to buy a television better than the one we already own. We market Disney credit cards to children and convince Americans they can't live without time-shares in Orlando. We are the richest nation in the world and yet the greatest global borrower. The world's economy grew on the back of the overspending U.S. consumer and we are all waiting to see what happens now that the spine has snapped.
So what will help Jane and Joe Jones who earn a mean income of $48,201 [U.S. Bureau of Economic Analysis, www.bea.gov], a year, are funding their children's education, have leased gas-guzzling SUVs, and whose mortgage is now above the current market value of their home? Good question. And one we should be asking our candidates who will inherit this looming disaster. Where Paulson was short on specifics, our candidates have to offer us long-term sustainable solutions that will likely involve some pain.
Attention voters: We need to urge our candidates to rely on the capital markets and our fundamental belief in efficient markets to shore up the financial system. Any government-imposed strategy which circumvents the idea of the free flow of capital would have disastrous long-term consequences. Supply liquidity to the banking system? YES. Bail out one home buyer but not another? NO.
We are among those who believe we are already in a recession. A thoughtful stimulus plan is much needed, but with the mindfulness that fueling inflation will only open a whole new can of worms.
Now is the time for innovative thinking that aligns short-term fixes with long-term ethical direction. The promise that quick-fix maneuvers aimed at stimulating more spending will rescue the economy is yet another example of the current administration's wishful and delusional thinking. Jane and Joe deserve better. And so, dear readers, do we.
If we shop..we'll just be adding money to china's coffers..everything is made there..
God forbid a candidate could say "time for national sacrifice"..in the vein of FDR..(in today's amerika..that candidate wouldn't have a chance)..we are spoiled and petulant children..who want ours..now...
We need a shift in the paradigm of U. S thinking...an all for one..one for all kind of mentality.. but then...we have to see young trust fund babies..flaunting their wealth..and it does make paycheck to paycheck a bitter pill to swallow.
A big pessimistic BAH!
SPENDING? Who's got money for silly spending anymore?
C'mon Bush, sharpen your pencil! 800 bucks will get me caught up on this winter's heating bill...THAT'S IT! Please Daddy Bush, can I have more? I need new underwear, or maybe we can eat some "real" food this week!
In an unsustainable economy, it's impossible to convince people to save when interest does not even keep up with hidden inflation.
It's funny: no one who comes home and finds the home theatre missing and other goodies and the place trashed, ever says "We need to regulate the burglar industry."
But as soon as something goes wrong with the economy, screams of 'deregulation caused it.' Well, no, not completely. There were any number of restrictions, but no one was minding the store. Ask yourself why those wonderful GSEs, Fannie and Freddie, had their paws in the toxic pool? And money market funds and pension funds were delimited to low-risk investments. Etc.
You don't need special regulations to deal with the crime of burglary. Similarly, rampant fraud in the housing industry should be investigated and indictments issued.
If we really are part of this capitlizm then the solution is clear. If you have the flu, you throw up. If you have defaulted loans you foreclose. If you have noticed Alito and Roberts are not likely to put any responsibility on the predators, so it's clear. If you recall Ronnie, the old sap, extinguished 20% of farm families in the 80s and nobody seems to think this was anything more than economic "rationalization". So the invisible hand has "overshot" and a "correction" needs to take place. If you are a republican and a believer, then it is clear what needs to take place. If you are a liberal, then you provide legal help for each of these owner occupieds (speculators get what they deserve and it should be worse for them...they exacerbated the problem) and sue, class action for a) appraisals that are fraudulent b) documents for disclosure (reg z and respa) that have bogus charges taken and c) the board members of the respective entities along the way, (banks, brokers, appraisers) for their failures.
They knew these people could not make the payments on these loans. They deceived themselves into thinking a string of refinances of ever increasing property values would continue the scheme. And...they called themselves professionals. Yuk.
This is a partly serious and partly rhetorical question: Why are houses worth more when they're used than when they were new? If you buy a new car and drive it off the lot, it's worth less because it's a used car. If you buy some nice clothes or appliances, use them a little or a lot, then sell them, they're worth less because they're used. So why, if one buys a house and/or land, is it worth more after it's been used?
Used cars have more problems and will need more repairs than new ones - as do houses. Used land has become depleted of nutrients. If you need a new car or a new fridge, you're going to have to trade in the old one AND ante up some dough. Why do we expect to get a new house by trading in the old one but NOT coughing up some more money? Sure, there's no new land being created - but there's no land being removed from the planet, either.
Just curious.
And just yesterday Glen Beck and every other right wing commentator was attacking Clinton for suggesting $100 billion. They said Hillary was acting like a liberal pinhead for suggesting throwing so much money at the problem. Now they are all gung ho behind the Bush plan which is a drop in the bucket in an economy the size of the US. Republican/Wall St. biased Greenspan helped create this build up that has lead to the recession we are entering. He inflated the housing/lending bubble crisis to stay off the effects of the milder dot com bust.
Why not extend unemployment benefits, and rebate checks ?
For the longer term we need Medicare for everyone ... over half of all bankruptcies are due to healthcare costs, and half of those people HAD health insurance! Oh, and repeal the 2005 Bankruptcy Act that creates a new debtor nightmare.
It is clear that we need a new economic model, but it will very painful to get there.
The economy needs to be reregulated, the current fiasco makes this all too clear.
A necessary step is to FIRE the Fed, institute a Public Central Bank and use 'greenbacks' for currency. Using Federal Reserve money based on leveraging debt can only work with ever increasing consumer debt.