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Free Fall
Free fall. The US has lost private sector jobs for 10 straight months. One quarter of all businesses in the US plan to cut payroll over the next year. Retail sales fell in October by the largest monthly drop on record. Auto sales have collapsed, driving the auto companies towards the precipice. Unemployment is up to 6.1%, with most analysts predicting it will soar past 8% over the next year. (That translates into unemployment among young minority men at rates of 50% or more). States are now facing $100 billion in deficits in operating budgets for the next fiscal year. Twelve million homes are "under water," worth less than their mortgages. The US has joined Germany and Japan in what is becoming a global recession.
The era of big government is over is over. In the crisis, we are, as Richard Nixon once said, "all Keynesians now." Former Clinton Treasury Secretaries Robert Rubin and Lawrence Summers, until recently notable deficit hawks, now call for substantial fiscal stimulus -- deficit funded federal spending -- to get the economy going.
Summers whose alliterative guidelines for this year's earlier $150 billion stimulus -- "timely, temporary and targeted" -- helped to fix its mistaken focus on tax rebates, has changed his consonants. Now he says the stimulus should be "speedy, substantial and sustained," noting that some estimates on Wall Street have gone as high as "$500 to $700 billion." Rubin agreed, saying "we need a very substantial stimulus," while mumbling about needing to reduce the budget deficit over the longer run.
A major recovery program -- featuring substantial public investment -- will be inevitably the first initiative of the Obama administration. It should feature more spending than tax cuts -- investing in renewable energy and conservation, in rebuilding everything from schools to bridges to a smart electric gird, in helping cities and states avoid crippling cuts of services, in keeping college affordable, providing health care to children, and aiding those most in need.
Our public investment needs can easily use the money. A stunning report by Eric Lotke at the Campaign for America's Future details the staggering investment deficits that have accumulated over the last thirty years. For decades, we've chosen to cut taxes on the wealthy while starving vital public investments. The result is an America that is literally falling apart, while much of the private wealth was squandered in the speculative frenzy that now has leveled our economy. Rather than adding to that folly, we should be focusing on strategic public investments that will put people to work in the short term while contributing to a more competitive economy, a better educated citizenry and a cleaner environment.
The Last Obstruction
The time to get started has already passed, as the downturn is accelerating. Tomorrow, as Senate Majority leader Harry Reid suggests, Congress should pass a $100 billion down payment on recovery, while instructing the Treasury Secretary to use some of the $700 billion rescue fund to help keep the auto industry from going belly up, with devastating effects throughout the Midwest.
But, as this is written, it looks like that won't happen. Republicans didn't get the message from the election, and apparently don't read the financial section of the papers. The Republican minority in the Senate seems intent on adding one last obstruction to its ignominious record. Secretary Paulson has indicated that while he's happy to throw $250 billion at Wall Street banks with no conditions, he isn't ready to save the Midwest with a $25 bridge loan for the automakers under strict conditions.
In the face of the threatened Republican filibuster, this Congress is likely to adjourn for the final time without acting on the deepening economic downturn. When the new administration and the new Congress convene next January, the crisis here -- and across the globe -- will surely be far worse. Make no small plans, President Obama, you are about to inherit the full catastrophe.
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Obama will take charge and course-correct as needed. He will use his intellectual ability to absorb as much as he can from all the expert appointees and form the big picture necessary to guide us through this curvy juncture. I think everyone is so used to the Bush leadership vacuum that we automatically assume that the economy being on autopilot and going down hill fast is just the foregone conclusion of the events we are facing now. Expect differently from Obama, certainly no autopilot approach here. A series of timely interventions in the economy with the ability to course-correct as needed will put us all back into the game again.
That being said, I believe that stock market will not be the same ever again. Expect that institution to be radically reformed by the virtue of what has already taken place and will continue to take place. Banking will also be reformed through a series of mergers and additional regulation that will ensure we won't be getting into this kind of pickle again.
When we start hitting our stride in wind solar, hybrids and natural gas trucks the stock market will soar to new heights, based on reality no hyped derivatives.
Dow's down another 5% today.
One indication of our gumption and worth in toto.
Send more manufacturing offshore or kill the Detroit 3, business jets and all, and see the crevasse we end up becoming wedged in. It'll take generations to get back to the levels of (false) 'prosperity' we saw as recently as 4 years ago.
BANKRUPTCY AND NAFTA
"Why not restructured before bankruptcy? Agree on everything you say. Yet we should not be cavalier about the staggering losses across the country in jobs, etc -- which will simply deepen our fall towards ecomomic depression." (Source: Robert L. Borosage)
Why not restructured before bankruptcy? Here's what your doing with a restructure, simply opening the acordian, filling it with more money for those who you already owe money to. Your simply expanding the time of the loan you can't pay, and increading the time your paying interests on the loan you can't pay. And, if you are already one of those out on the street looking for a job that's going to pay you less because so many others need the work, your working for less, paying longer, with more interests.
Do we remember (NAFTA) the North American Free Trade Agreement? Do we remember who's administration gave it too us, the Clinton Administration, and under who's administration did the dot com bubble bust? Are we going into a DEPRESSION, YES, and it is being driven by Harry Reid and Nancy Pelosi, you can't have (18%) effective people cleaning up their own mess.
It's the GOP religion of privatization and deregulation that caused this crash, just like the Depression.
To the degree democrats including Clinton and his GOP congress adhere to the false GOP religion they are damaging and wrong.
FDR was right.
War
Public works.
Your choice.
That makes harry Reid and Nancy Pelosi the sitting President. That is a heck of revisionism. I will brand it Repug style revisionism.
US CHARMIN TISSUE DOLLAR VS EURO
"Governments aren't like you and me. They can print money. The question is whether the money has any value. What's clear now is that the US dollar still is valued across the world." (Source: Robert L. Borosage.
This is a very debatable statement, as numerous article's have been written and are still seen about even international Super-Models refusing to be paid in the American Charmin Tissue Dollar, but are demanding payments only in EURO's.
There are many articles now appearing stating that The Peoples Republic of "Red" China, no longer want American (IOU's) in the form of increasingly wortless US Treasury Bill, but want to begin having interests in the properities across the The United States, part ownership, in various interests of their choosing. Not worthless paper.
You simply can't keep printing yourself out of a hole with with charmin tissue dollars, sooner or later your going to be up to your eyes in it. Tax and Spend, Trickle Down, its time to slow down and/or stop the talk and start some action FAST!
Money supply growth concerns are only relevant if they cause excessive inflation and devaluation relative to other major currencies. Right now, there are deflationary pressures on the economy and the dollar is also relatively healthy. So the printing presses, as you put it, can run without any real concerns. Although we have to be very careful about this kind of posturing because it is very rare that a country can run such huge fiscal deficits and stay solvent. This situation really underscores the gravity of the global economic crisis we are facing now and its particularly unusual nature.
No matter how you slice the baloney you still get baloney so the ultimate dilemma here is how do you satisfy the global economic system's insatiable appetite for liquidity without the U.S. running such huge fiscal deficits? Until someone comes up with a tidy answer to this question, we have to live with the stigma of budget deficits hanging over our collective heads. Of course, we do get to enjoy the privilege of having the rest of the world pay our bills while all this is going on.
I wonder if Bush will be the first president to have created not a single new job in his eight year term in office. What a disastrous record he owns on so many fronts. Actually the nation would have been better off if the office of president was vacant the last eight years.
He created plenty of jobs in Mexico, China and other other points East.
The auto companies should declare bankruptcy and restructure. Part should be to jettison the union contracts. I am not against workers, I contend the unions have been mostly bad for the workers. Large amounts of money are taken from their paychecks and spent to line the pockets of politicians. When a guy is hired at an auto plant, his starting wage is set, with no negotiation allowed. When it comes to raise time, it is already pre-set, regardless of how well that worker or his company has done. Where's the incentive to do a good job? When a guy works hard, and finds out the lazy guy will get the same raise, do you think he's going to work hard next year? Of course not.
While socialism may sound good in textbooks or left-wing blogs, in the real world it does not work. People are humans, and are bound to react to their circumstances according to human nature. People, no matter how good-intentioned, will always do things to benefit themselves first. There is a good (although unrelated) example. Obama said he would take public financing because it was the right thing to do. When it became apparent that his donations from here and abroad would exceed what he would get in public financing, did he choose to do the right thing, or what was best for him? Do you need any more proof, when someone who believes in socialism, doesn't follow it when it doesn't suit him?
It amuses and amazes me to hear from small-minded people who are jealous of the wages paid to others. When I was a young worker, I wanted to earn more income than my peers, so I pursued an education and developed skils that allowed me to earn a very good income. At no time did I ever consider that what was really needed was the minimization of others wages rather than the maximization of my own. Perhaps my mind is defective, but I cannot fathom the depths of pettiness required to begrudge any other worker a decent wage.
I welcome socialism in the US.
Corruption will always exist, yet in a socialist country, at least there is regulation which mandates the inefficiency will allow the poor to have SOMETHING. In our enlightened capitalist society, the corruption just allows the richest amongst us to benefit.
If we are to have inefficiency, I'd rather it benefit the most people. I'd like it to enrich the bottom at the expense of extreme wealth, rather than what we currently have, the wealthy getting wealthier at the expense of the poor.
If inefficiency has a moral component, our country seems to have pursued the LEAST moral of economic choices.
You might want to ask yourself why you worship so fervently at the altar of mediocrity.
Ridiculous.
I don't worship ANYTHING.
I have seen and experienced human beings. We are flawed, and when en masse, we exhibit selfish and stupid behavior.
I have no problem with our inefficiencies benefiting the most people.
You might want to ask yourself why you feel compelled to become offensive.
Although I agree with Marx on his analysis of Capitalism ("Das Capital" reads like a psychic premonition to our past 30 year history), I don't agree on the prescription.
Capitalism is, undoubtedly, a failed system and no amount of rhetoric could restore credibility of free-market mentality but instead of Nationalizing, why not try worker co-ops and other means to mix Social Democracy with Market Economics?
Wallstreet will have no place in the system, of course.
Revolution is coming very slow but at least Ayn Rand and "Trickle-Down" will be marginalized severely in the coming months.
How many of us have enjoyed low-cost Chinese imported goods over the past decades? How many have used a credit card to buy same? Then took out a home equity loan to pay off those credit card bills? Be truthful! Low overhead for Chinese manufactured goods and easy credit terms got the American consumer in the mess he or she is in today. As goes the consumer, so goes the economy. This is not going to be fixed with
a - handing out borrowed billions to banks so they can sit on the cash
nor with
b - a band-aid loan to carmakers.
We need to think out of the box. The current American subsidized capitalist market model will not work. All over the world there are people who are happy to earn $10 USD a day and count themselves blessed to have enough to eat and clean water. We have to learn to compete in this global marketplace without becoming protectionist. We have to relearn how to innovate - and how to manufacture greenly and leanly.
I watched some of the House hearing this morning and the Big 3 could not give a straight answer. A democratic congressman from PA asked how much cash did GM have on hand and how long would it last, and he could not get a straight answer. The "bridge loan" would only last through March and then they would be back for more cash. This cannot be resolved except through Chapter 11 restructuring. They will keep coming back for operating loans. These loans will only delay the inevitable.
agreed. The top 2 or 3 levels of management need to be fired. The gov't should take 51% of the board seats, with the ability to get some things done. We need management and turn around hired guns.
Carlos Ghosn of Renault / Nissan should be the model. he turned around Nissan, and now Nissan is about the strongest of the Big 3 Japan.
The time for shuffling cash to banks should be over
Chapter 11 is the only way. Wagoner. Mullaly, and Nardelli should be fired and have their assets clawed back.
I don't claim to know about the feasibility of this proposal, but what about letting the car companies crash, and using the bail money to subsidize workers until those people secure new work, or bankruptcies recovers? (Teaching fishing, rather than giving a single fish.)
But maybe 25 bil, isn't enough to do this…
I admit this is likely conceptually incomplete, and maybe there is also the potential of many ancillary car-related arms of the economy that would suffer and so how do you cover those too?
(Though I also sense the Big3 are using this threat to cow us into believing the collapse would be even 'more' catastrophic when in reality there are specific big profit interests that are the issue, such as companies that manufacture part fasteners for building cars yet produce those fasteners for both US and non-US car companies, so that type of ancillary would take losses but not go under-granted I don’t have any number to substantiate, yet.)
So maybe it would be a healthier move to put the bucks directly on the Big 3 workers?
Big 3 failed to run themselves well, and ended up hurting the workers, people with or without families, who will suffer, so let the companies take their consequences and stop waving around the fate of their workers who the Big 3 have not very soundly protected if the first place. What do you think about this?
unemployment for 3+ million people?
3 million people x $750/week (vs $1250/wk salary) per = $2.25B per week, $117B per year . even at that rate, homes would be lost, and wealth destroyed, health insurance lost, etc etc etc. And what would take the place of those jobs lost? Green tech - maybe 5% of those workers would find jobs. Works projects? maybe 5% again.
Management must go, and outside people take over. Slash number of models, and work platform efficiencies.
At the end of the day, the Big 3 still don't make anything I would drive...
If Paulson would do his job and make credit readily available, then maybe the bailout wouldn't be so huge...
3 million workers will not be unemployed. Under Chapter 11 the company still operates. The airlines file for Chapter 11 all the time. Look at Continential Airlines for example. Chapter 11 will give good breathing room and a chance to restructure without too much pressure. We could give the Big 3 more than $50 billion in loans and they would still run out of cash. The GM CEO pretty much admitted they would run out of money (even with their portion of the loan) in March. Some employees would lose their jobs, but not all of them.
"Republicans didn't get the message"
Have they ever? Their greed is only exceeded by their dumbness.
Thank God somebody is putting a brake on the free goodies to failed businesses.
This entire bailout is a farce. We are paying billions and billions for nothing, so that just the people who got us into this mess can fill up their pockets one more time. I say enough bring those criminals to justice, all of them.
The auto industry needs the 25 billion loan, and this should come with strings attached, no doubht about this either.
The bottom line is our financial system is fundamentally broke. It started out in the 70's under Nixon and Kissinger when they made some fundamental changes in our financial structure. It got worse when Alan Greenspan came to the stage and started creating money out of thin air.
Then of course Bush and Co. with their wrong idiologycal philosohpies and their free market strategy put us over the edge for good.
We can not put money into a broken, failed system! We need to completely restructure how wall street works (is allowed to work). Small and medium sized company's and start up need a green light to flourish, large corporations have to be put on a short leash. We need new start up businesses that create new jobs (especially manufacturing jobs), and small and medium sized company's need free and fair access to the markets/consumer. This is where we create jobs that we need so much.
I could go on and on and on.
I always wondered why Washington gave the stimulous in the form of checks to the people. So many of them ran to wallmart to spend it. The money went straight to China where the bulk of their inventory comes from.
All our 'wealth' is borrowed money.
The bailouts are borrowed money.
The proposed stimulus is ... borrowed money.
The solutions proposed by Robert L. Borosage, Paul Krugman, Barack Obama, Ben Bernanke, Lawrence Summers, Henry Paulson ... the shade of John Maynard Keynes ... are more borrowed money. Am I missing something, here? Didn't borrowed money get us INTO this mess in the first place?
Rates are low and the exploding Treasury deficits can be 'serviced'. What happens when rates go up? How much will the Fed borrow to keep short rates low? Five Trillion? Ten Trillion? What happens when the Saudis realize we can't service our debt with a lot less growth? What happens when their own problems - and the Chinese's as well - are so great they cannot lend to us?
If we default we won't be able to import the 9 million barrels of oil we use EVERY DAY.
This has happened in other countries. .
Whenever this topic comes up I recall the proverb; 'Give a man a fish and he has a meal for a day. Teach a man to fish and he has meals for his lifetime.' Our government sez we have enough fish to hand out to all ... today, tomorrow ... forever.
They don't.
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