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Since the Great Recession began the people of the Earth have been told in some fashion or another by some politician or another that things are going to get better. In fact there have been many decisions made in a fiscal fashion based on the concept that they will get better or that the very action itself will make things better. Example? Every single bailout package created by every government who thought they would be a good idea. There is a fundamental problem with the line of thinking that you can buy your way out of a financial situation – if you don’t have the cash to do so then all you have managed to accomplish is to go further in debt.
Consider it a different way. Bob loses his job (tax income) and owes lots of money on credit cards (national debt) so he figures the best way to get a new job is to put even more charges on his credit card (increasing his debt). Bob doesn’t get a job (tax income still down) but now owes more money (bigger national debt) so what does he do? He puts even more on his credit card! Do you see where this is going? This is financial suicide at its finest.
The other major issue going on is the USA, and the world in many instances, is looking to the Federal Reserve for magic bullets to solve the crisis. There is even more flawed logic here. The value of the dollar is based on an interest rate the Fed sets, really a series of interest rates but we won’t go into that here. There is one interest rate that is VERY important and that is the rate that the Fed lends cash money to the USA government. Think that through for a minute – the USA mint prints money, gives it to the Fed who then lends it to the very government that just printed it. Yes this is what happens - no conspiracy theory – look it up. Anyway that interest rate dictates the turn of much of the world. Another very important interest rate is the one the Fed gives to big banks – which is the rate that Big Banks pay on money that they borrow from the Fed.
The “please save us” theory here is the Fed lowers these interest rates to stem a slide into Recession and Depression by freeing up more money for loans, which banks and thus businesses can get, hopefully resulting in the economy booming. The catch of course is that the Fed can make the interest rates just so low – and they are already at the bottom – literally like 1%. So if your grand plan to save the Earth is to lower interest rates, and you are already at the bottom – then you are out of options. Newsweek covers this scenario today here.
The part that people don’t like to think about is two fold:
- If the interest rate stays low for too long you could get inflation and oddly you may also get deflation – both are scary.
- If the interest rate is raised you may end up fostering recession – you know the thing we are already in.
So what now? Now people come to the realization that things aren’t getting better any time soon. There are lots of guys on the radio lately that have been saying this, have really been saying this for years, who were constantly dismissed by politicians that somehow knew better. Conspiracy theorist and fear mongers were a few of the brands thrown on them. Irony once again raises her ugly head – these guys were right all along – and has there been a conspiracy? Not yet. Why? Because its all been out in the open since day one – Ignorance and Arrogance.
Well there is a counter-point here… one that has been growing this week particularly. This point asserts that we need another trillion placed on the Fed’s books to solidify the plan that took effect a year and a half ago.
Here is another viewpoint based on empirical data showing the bailout was necessary:
http://www.nytimes.com/2010/07/28/business/economy/28bailout.html?_r=3&refsite=twitter
I’m still not sure where I stand here. It is kind of simplistic to assess the situation in hindsight and I want to remain cognitive of that fact before drawing conclusions. This is a gigantic issue that truly isn’t over yet. I will offer that the majority of shit that could be entitled “conspiracy theory” or “fear mongering” attributed to this issue was truly shit that could be properly entitled “conspiracy theory” and “fear mongering”. The chicken-littles came out of the woodwork on this topic.
It’ll be interesting to see what takes place over the next two weeks.
I personally believe the bailout was crap. Money thrown away. Was money needed to be spent? Yes, how it was spent was the problem imo.
Is the housing market fixed? Nope. In fact many economists are now afraid of what is being called the commercial crash – hasn’t happened yet but there are many many commercial buildings that are empty and were purchased the same way that house were.
Are banks lending again? Nope.
Is the auto industry saved? Nope – although Crysler did report that they loat something like 12 million less than usual lass quarter – losing only 165 million!
Are people still losing their homes? In record amount.
USA just recorded the biggest loss in export percentage in years.
Job growth is barely alive.
Consumer spending is down last month HUGE.
So was spending needed? I say sure – was it spent right? NO WAY IN HELL. The money was thrown away, not spent. Had it been spent wisely the government, and thus the taxpayer would have had a gain from it – instead the debt has gone up massively, and there appears to be no end in site.
I don’t see what many economists are saying as being conspiracy crap or doom saying – I see it as very real. My father lives in California – take a look at that state if you need to see an example of what is really going on.
Did the spending stop a Depression? Debatable. Did it fix the problem and the future – I don’t believe so.
BTW – Alan Blinder – liberal.
Mark Zandi? Registered Democrat.
WEIRD.
hmmm… well i’ll offer another dimension o’ thought upon this fiasco.
at the very beginning the nutty conspiracy peeps stated (in descending order of magnitude):
1) this is the end of the world as we know it (please sing along with this one)
2) the united states is dead
3) this is the beginning of a fascist state
4) capitalism is gone
5) how come we have small penises
as i understand world events up to today:
1) the world is still here (and due to the swift movement of the fed, the world economy was saved a probable disaster) note: i am NO fan of the fed.
2) the united states is sick, but it might not be terminal
3) fascism? bullshit.
4) capitalism didn’t go anywhere. we actually needed better regs on wall street. it was out-of-control there.
5) based on perception of exhibited behavior via the written word only.. .yes, conspiracy theorists have miniscule junk
and finally… in so far as the question of did the spending stop a depression? i guess this is affirmative unless everyone has the title of the “great recession” all wrong.
Ah – we are talking about different doom sayers – makes sense now.
I am referring to those that were saying the stimulus would not save the earth and generate a zillion jobs etc.
The stopping a depression is debatable because you first have to believe that one would have definitely occurred – and that in and of itself is a debate.
got no props for the penis joke?
damn. rough crowd.
Sorry about that.
Ahem.
MADD PROPS ON THE PENIS PWNAGE DUDE!
thanks. came just in time too. loosening the noose now.
http://www.msnbc.msn.com/id/38692233/ns/business-eye_on_the_economy/
woot!