Two new economic studies just came out that, especially taken in combination, are truly stunning and profoundly troubling. The first, by the Center for Economic and Policy Research (a DC-based think tank), reported that the federal government is essentially subsidizing the Too Big to Fail (TBTF) banks in terms of the interest rates banks must pay to borrow funds. The second, coming out of Rutgers University, tells us that- if all goes quite well- that we don't get back to our pre-recession level of employment until the last half of 2017.
These two things are each worthy of huge concern. In combination, they spell very, very big economic trouble for America.
Let's take the TBTF issue first. The administration certainly deserves plenty of credit for stabilizing the collapsing economic system when they came into office, but the way they did it was to resuscitate the big Wall Street banks rather than to restructure the system. In the process the TBTF banks actually got even bigger because of (sometimes forced) mergers some of their competitors going out of business. The TBTF banks are even bigger and even likelier to be bailed out in a future economic crisis.
Now it turns out that in addition to having helped bail them out in the first place, we are subsidizing them in other ways. The CEPR report makes clear the gap in the interest rate they have to pay between the TBTF banks (which are generally doing quite well) and smaller regional banks is getting bigger as a result of government policies. As the report notes:
If this gap is attributable to the TBTF policy, it implies a substantial taxpayer subsidy for the TBTF banks. In effect, because of the government safety net being extended to investors who lend money to these banks, the TBTF banks are able to borrow at a much lower cost than banks who must borrow based on their own credit worthiness. The increase in the gap of 0.49 percentage points implies a government subsidy of $34.1 billion a year to the 18 bank holding companies with more than $100 billion in assets in the first quarter of 2009.
Even as the big banks rake in massive profits, the smaller independent banks continue to struggle, with many going out of business.
Now let's take a look at the jobs report. An average of 1.3 million people are added to the American labor force every year, because of young people entering the job market, mothers re-entering the labor force, legal immigration, etc., so in order to get back to full employment, we have to produce a lot more jobs than that. And when you add to that the fact that the 2001-2010 decade will be essentially a lost decade in terms of job growth -- a job-shedding recession at the beginning, massive job losses at the end, and very weak private sector employment growth in the "recovery" in the middle of the decade -- we have dug ourselves into a deep, deep hole in terms of the number of new jobs we have to create in this century.
The Rutgers report estimate says that if the United States started producing 2.15 million jobs a year, starting at the very beginning of 2010, it would take almost eight years in a row of producing those numbers before we got back to December 2007 labor market conditions. That's August 2017. To put that in perspective, consider the following:
Which brings me back to our Too Big to Fail banker friends. This country needs an economic policy whose central focus, whose number one priority, whose driving mission is the creation of good jobs. Having a few big bankers making money through speculative trading does nothing to create jobs, and endangers us over and over again in the years to come.
We need to get health care reform passed, because (among other reasons) a good bill would cut costs and make our entire economy more productive. But then we need to get down to the hard work of (a) restructuring our financial system and breaking up these Too Big to Fail banks; and (b) a major new policy initiative to spur job creation in a very big way.
"Speculative trading" describes the futures markets, hedge fund managers, financial derivatives, and other extremely risky specualtion instruments our financial industries have invented over the last couple of decades. It is the same as gambling with other people's money, and taking the profits from them.
"Speculative trading" does not fall within the definition of an "investment". Our 401K plans, mutual fund plans, retirement plans, savings plans, etc. should not be tainted by this speculative trading, but should instead be composed of long term investments. That is how it started when we first started buying into this system, and before it became perverted by the greedy financial wizards of today.
We need to cleanse our banking systems and financial systems, of this "speculative trading" disease.
We the people are speaking out, and need this change to occur now.
It is a first step to securing our own futures.
It is not working, folks!
We need a better battle plan, we need an effective strategy. We need much more political activism and much more lobbying of our legislators and business leaders.
Or have we just admitting to failure, and watching helplessly as the system collapses around us?
When the system fails, there will be anarchy. Is that what we should be preparing for now?
I am confused. What is the strategy now?
As has been mentioned by others, there really is no representative at high levels of the Obama Administration who has experience creating and building a small business. That is how we can heal towns and cities, because the money earned will be spent locally. Jobs will be created. Communities will thrive.
Banks need to lend to small businesses. I believe there is micro-lending in the U.S., which is another way to help businesses that would otherwise not qualify for financing.
We need job training programs. In another story, recruiters were whining about not being able to find qualified workers. Wouldn't it be great if there was a government incentive to hire workers and retrain them for the jobs that are going unfilled?
bankers should always be secondary to manufacturing, but now they run everything, and even our principles: greed is good, and make a profit at any cost (that is, any cost other than financial)
system but they are witnessing our political system preventing what needs doing.
It is horrifying to watch this Obama administration go back on its campaign
promises.
American workers & middle class since 1980 who did us "the favor" of CRASHING AMERICA'S ECONOMY need to pay up, shut up with their ADVERTISING LIES & LOBBYISTS and
start to CONTRIBUTE TO AMERICA instead of shoveling our USTreasury's tax money into
their no-bid contract, deregulated, no-tax pockets.
Enough already with those grubby profiteers.
The Fed should be doing a lot more to help the rest of the country, including more investment in state and local governments, energy, infrastructure, new green industries, high speed rail, and so on.
The most effective way to rebuild our economy from the ground up is for communities to invest in themselves. Local credit unions and community banks are best placed to manage this investment.
The government should inject capital into these institutions in proportion to their deposits to lend into their respective communities, with profits split 50/50 between their depositors and the taxpayers.
Another portion of capital equal to the interest due on the rest should be set aside for debt-free grants to those members of the community in the most need who would not otherwise be creditworthy.
This is not a handout -- this creates the money that the community needs to pay the interest on the loans, which the local financial institutions issue by creating only enough money for the principal.
The distant government in Washington has to trust that communities know best how to take care of themselves and invest public capital in the local institutions that can best put it to work for Americans.
1) Incorporate the Federal Reserve System into the U.S. Treasury where all new money is created by government as money, not interest-bearing debt, and spent into circulation to promote the general welfare; monitored to be neither inflationary nor deflationary.
2) Halt the banks privilege to create money by ending the fractional reserve system. All the past monetized private credit is converted into U.S. government money. Banks then act as intermediaries accepting savings deposits and loaning them out to borrowers; what people think they do now.
3) Spend new money into circulation on infrastructure, including education and healthcare needed for a growing society, starting with the $1.6 trillion that the American Society of Civil Engineers estimate is needed for infrastructure repair; creating good jobs across our nation, re-invigorating local economies and re-funding government at all levels.
http://www.monetary.org/chicagoplan.html
But do you think the financial elite will let this happen?
1) Abolish the Fed. U.S. Treasury charters private banks to create money by issuing interest-bearing loans AND debt-free grants equal to the interest due.
2) Full reserve lending is unnecessarily conservative. As long as the ratio of debt-free grants to interest-bearing loans reflects the effective average interest rate, fractional reserve banking is a fair and effective means of supplying liquidity.
3) I don't believe that any one leader or institution has all the right answers as to how we should invest in our future. I believe in a marketplace of ideas where communities are free to come up with innovative solutions that befit the diversity of American life.
As President Obama once said, "What works in Chicago doesn't necessarily work in Cheyenne."
I believe that small, self-selecting collectives can be just as forward-looking and socially responsible as large, forced constituencies -- if not more so. It is only when we are encouraged to compete against one another as individuals that we lose our sense of civic duty and neglect our responsibilities to each other and to our future.
It all comes down to money. If the middle class had the big bucks to contribute and lobbyists, they would be given attention. As it is, the banks with their lobbyists and huge $$$ contributions are the one who will be consistently saved from their own greed and corruption. The middle class is on the receiving end of the the crooked practices of some of these banks and is basically left to fend on its own, while its tax dollars are used to save those who destroyed the economy.
This is so right on. There is only one way our country will become as vibrant, innovative and competitive as it once was: we must get rid of the artificially rigged health care prices that are breaking individuals, small businesses and the economy. And we must allow the demise of failed banks and their failed leaders so that new and better people can create new and more successful businesses and banks.
By turning our economy into one with a few monopolies, and by propping up incompetent, inefficient and unscrupulous industries and people, we just assure the failure of our country and economy. This un=free market is even more unAmerican and just as foolish as appointing a race track manager--- instead of the best person for the job-- to head FEMA. (We all know how Katrina went and can look forward to an even worse economic and social distress hurricane if this runaway government is not put back on track)
So much needs to be done, but the ONLY way it will be possible is to end the two wars and cut defense spending drastically. THAT is where the money should come from, to invest in the American people's domestic needs. For decades, defense has been the biggest drag on the economy, because other than technology spin-offs (like the Internet) most of that investment did not pay off except through arms sales to other countries.
Those technology advances should be made through research & development funded by a partnership of business and government, like they do it in Japan. But this should be directed toward manufacturing of high quality products for domestic use, instead of weapons systems, nuclear warheads, and foreign bases.