The housing market slump is likely to produce over $3.15 trillion in paper losses. Our stock market swoon has already produced $3 trillion in paper losses in the total value of all American shares since November. Not to fear, our selfless agents in Washington have June dated $600-$1200 checks that might have your name on them. Some restrictions apply. That should buy $100 billion worth of votes, I mean right the economy. Businesses will also get $50 billion in tax cuts and investment inducements. Thus, we will get $150 billion in June to prevent the recession we are likely already in. Eureka! Our task today, if you are kind enough to afford me a few minutes of your time, is to examine our great big slump and their flaccid little stimulus.
The economy has been sputtering for months. The most high profile areas of severe economic weakness have been housing and equity markets. Across our fair nation all things related to building, buying, selling, furnishing and financing homes have been heading south. Financial markets have suffered as builders, bankers and retailers have seen their stock prices and profits tumble. Many and large firms have report massive losses. Total profits reported have softened. The size of losses, fears of further losses and recession have spilled over into financial markets with great drama. We are in the midst of the worst January stock market performance ever. This kind of pain, pain for banks, financial firms and large investors, registers quickly in Washington. I am sure you don't need a reminder as to why?
How bad is it?
Well over a quarter million people lost their homes in the second half of 2007. Our best estimates suggest that over a million Americans will face foreclosure in 2008. Tough times for tens of millions have been getting much tougher fast. This causes these folks to spend less and has pushed many off the debt cliff. For years tens of millions of Americans -- let's be honest and call them the citizens formerly known as middle class -- spending meant borrowing. There was no other way to continue to live like a middle class person with stagnant wages and rising prices. The most popular -- cheapest/easiest -- way for millions to borrow became their house. Between 2002 and August 2007 we borrowed an additional $4.4 trillion in home mortgages and home equity loans. That is an increase in American household borrowing of 73% in five years. The total increase in disposable income -- all types of income to all people -- was only $4.5 trillion across the same period. From 2002-2007 home mortgage borrowing generated as much money for America as the increase in disposable income! That is how we ended up with a big, fat, dragging slump. That is how we ended up with $10.4 trillion in home mortgage debt and $21 trillion in real estate holdings. If we assume that American household real estate holdings decline by 15% -- a generous assumption -- the loss in paper wealth will be $3.15 trillion -- or $3 trillion more than the stimulus! Our stock market losses since October 2007 total about $3 trillion on our $16 trillion in total equity holdings. Equity market losses and likely housing losses are more than 40 times the size of the stimulus.
Our slump is big, the stimulus is small. Our slump is in the mood right now, the stimulus comes in June. The checks are for people who pay income taxes and will be mailed out after April taxes are due. Millions are hurting now and don't know how they will pay their taxes. I just don't think you can stimulate a slump this big and now and with a stimulus that small and late.
Will stimulus attempt like this ever work like they once did? Thirty years ago we still had a vibrant consumer goods manufacturing base. Increased demand from government handouts created manufacturing jobs, or at least prevented large layoffs. These jobs are here anymore. While most people will use this to pay larger utility bills, mortgage payment or purchase rice or bread, wont spending on consumer goods serve to increase the trade deficit?
The 100 million stimulus is designed to give the Fed another Trillion to bail out their shareholders, the Money Center Banks. Because our Government will have to borrow this money the debt placed in the Fed will be leveraged 10 to 1 using debt based fractional banking.
Where are the editorials and columns about the role of debt-based currrency and the viability of a privately owned and operated Federal Reserve?
The Panic of 2008 is all about debt-based currency and the role of the Federal Reserve in (not) regulating the financial system.
Who will ask the tough but necessary questions:
-Why shouldn't we fire the Fed? and,
-What is the role of debt-based money in the rapacious destruction of our environment?
The Libertariann Right have their position on these matters; Where are the Progressives and Liberals ?
You forgot one important point. This "stimulus" package, in addition to being too little, too late, is also dangerous. The twin reasons for the current recession (or, dare I say it, depression) are cheap money and government debt/spending.
Cheap Money: the fed just performed an historic rate cut, likely to cause more of the same
Gov't Debt/Spending: Adding $150 BILLION to the national debt is just going to cause more inflation, do nothing (we'll be in the recession officially then!) and cause our grandkids to have to pay another $700 BILLION!!
I've long held there was something fishy about the DOW, I guess the 'dao' of DOW is that you go along with the fiction, and don't ask too many questions...questions, yes, many questions...but someone has to be the Bearer Of The Bad News, here, someone has to be honest, and if all it takes to make the whole apparatus fold up like a cheap kite is one or two people asking Honest Questions, well...what was really there to begin with? Decades of systematic fraud and rot have put paid to our short-term economic future, and possibly long-term also if they don't really dig into those lending practices. WHO signed off on it being legal for people to push plastic at 39% interest? Given, that's a penalty rate, but the 'regular' rate of 13,14, 17%, that's still wandering up into what would be considered bald-faced usury. That's Mob-land, there. So, when the Mob runs the campaigns, who do you think is going to get elected, and what kind of 'policy' will they be signing? Your life insurance policy, maybe?
Ah, the Digital Age, when your economic output is all that really matters...everyone else is just 'excess baggage' or whatever...kiss the ring, get the blessing, get the dough...
The fundamentals all still point in the same direction,the middle class, the working class and the poor will continue to get pummeled ...
No, you can't.
Especially when the politicians think the answer to the problem is to basically do more of the same.
It's true that many Americans are hurting already - and are going to continue to hurt for a long time.
So the idea that they may need some help is a good one.
But this is not the way. This is the same kind of nonsense that got us into this situation.
It sure as hell ain't going to get us out of it.
But, you're right, Max. This is all about the votes.
If any of them honestly believe it will help the economy they are complete idiots.
Then again, this isn't the only situation going on in Congress right now that could lead us to that same conclusion.
An economy slumping due to too much debt is stimulated by borrowing money to stimulate it at the same time increasing debt which is causing the economy to slump.
Ok got it.