Archive for the ‘Economics’ Category

Bernanke finally sees problems in the economy. . . . Duh.

August 23, 2008
I saw this on the news:
JACKSON, Wyo. -Federal Reserve Chairman Ben Bernanke  said Friday the financial crisis that has pounded the country — coupled with higher inflation — is taking a toll on the economy and poses a major challenge to Fed policymakers as they try to restore stability.
“Although we have seen improved functioning in some markets, the financial storm that reached gale force” around this time last year “has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment,” Bernanke said in a speech to a high-profile economics conference here.
Hmm. Perhaps he thought the economy couldn’t get any worse. You can’t blame him though; he has spent most of the past year trying to figure out how many ivory towers he has. Such a daunting task would be easier if they didn’t all look alike.
He likened the financial crisis to a gale which has been blowing for a year now. One wonders where such a wind comes from.
I can’t figure out why everyone wants to blame the financial markets for huffing and puffing on the economy and blowing the house values down. They were just doing their jobs, trying to make a buck like the rest of us. That’s a tough job when interest rates are lower than the inflation rate.
Here is the problem. Stage left we have a bunch of investment bankers whose Chinese clients won’t settle for two percent returns, and stage right is the world view of the administration, which needs those clients to keep recycling greenbacks back to where they were printed.The best kept secret during the last 7 years, maybe even 27 years, is that the economy has been in the throes of its own Katrina all along. While members of the elite ruling class were getting paid tens of millions of dollars to quit their jobs, the rest of us hadn’t had a real raise in many a year. Our employers were going broke getting rid of their CEO’s and couldn’t pay us enough to buy prescription drugs, so we had to get cash from somewhere else.
Once upon a time you robbed banks because that was where the money was. No longer. The money is in China and Sandi Arabia, and you don’t want to get caught breaking into a bank there. You have to be more creative. The problem is: the money lenders want a return closer to, say, 15 percent and all we can pay is two or three. This is where the financial markets make the big bucks and why Ben and co. were trying to decide which irony tower had the best view. They only got irate and complained about a shortage of hurricane shutters when the gale winds started to blow.
Since time immemorial alchemists have been trying to turn base metals into gold. Leave it to American free enterprise to make it a reality. Almost, anyway. The investment bankers invented a product called mortgage backed securities. It turned two percent inputs from borrowers into 15 percent outputs to lenders. The real beauty of this product is that no one knows how it works. One man’s leverage might be another’s Ponzi scheme, but if Elliott Spitzer wants to know how this system works he’ll have to dig out his waterboard. One wonders whether he’d let the rest of us in on what he finds out.
At any rate, everything looks good as long as we can pay the interest. We would have a better idea what we were doing if we were dealing with a really disreputable business, like a payday lender. When your interest rate is 20 percent per week, it doesn’t take long for a pleasant breeze to become a gale. How were we to know that Freddie and Fanny were really updated Bonnie and Clyde?
What I’m trying to say here is what most of us have known for a long time. The economy has been in bad shape. We who ultimately pay the bills finally couldn’t and started to default. Mortgage backed securities, miraculous inventions though they be, can’t turn zero into anything else. Fifteen percent return dried up. The Chinese, the Saudis, or whoever had money to lend, wised up to the smoke and mirrors hiding the reality of our economy. They stopped extending credit to those who wouldn’t pay it back. Presto, a credit crunch.
Like the soldiers being sacrificed so this administrator an save some face on the foreign front, the financial markets are taking the rap for the domestic economic mess.
None of this makes sense.

We vote for what is meaningful

August 17, 2008

Each one of us needs a meaningful life. We all know that, and we struggle to say what that, well, means. For many years observers have noted the loss of meaning from everyday life. We have had the death of God, alienated man, and the consumer culture, among other ways of defining the problem.

In recent years the Republican Party has been able to define itself as the protector of American values and of what it means to be an American. In so doing it has mystified Democrats, who have come to think that many people vote against their best interests. Democrats believe that they really represent the best interests of most people.

Recent events in our society can be understood is validating the truth of the Democratic position. Our government has been transformed into one that supports the interests of relatively few very wealthy people. Tax policy favors the concentration of wealth toward the top. Fiscal policy has favored the budget deficits that follow from reduced tax revenue. To fund the deficits we have borrowed billions of dollars from such countries is Sandi Arabia and China. Interest payments on that debt transfer the wealth if our country to our creditors. Increasing quantities of dollars possessed by foreign individuals and governments foster the devaluation of the dollar.

Support for “the commons” – those elements of society on which we all rely – has fallen on local governments whose share of our national wealth has steadily decreased. Those elements include roads and bridges, schools, police and fire protection, and water, sewer and communications systems. “Deregulation” has been used as a way to allow businesses to profit by providing these services. The first priority of a business, by law, is to make a profit for shareholders, not to serve the public good.

Increasing reliance of politicians on lobbyists and donors has resulted in laws favoring big business and unregulated development. Deregulation has “increased competition” to the point where Wavecable has “defeated” its rivals and is now my only cable provider, whether I like it or not. Their service goes down so often that Qwest, my landline telephone provider, doesn’t have to worry about one switching to Vonage. I see Comcast ads wanting my business, but they aren’t available in Wavecable’s territory.

“The chicken has come home to roost.” As more and more money has been transferred to the wealthy and to overseas governments, many ordinary Americans have had to find more and more creative ways to pay their daily expenses. With their wages stagnant and their expenses increasing, they have also resorted to using borrowed money. Seeing yet another way to accumulate more of the country’s wealth, those who had money lent it, for a price. The Interest payments became another way to transfer money to the wealthiest. So much of our country’s money has been transferred to the richest people in our country and to countries like China and Saudi Arabia, there isn’t enough left for some to pay the interest on their debt.

People can default on their mortgages, they can ignore their credit card statements, and they can curtail much of their spending, but they can’t stop driving their vehicles or eating. The most recent way to suck money from peoples’ wallets, but probably not the last, has been the rapid rise in the prices of oil and food. The oil companies’ profits have pretty much sucked up the “stimulus” package. What could possibly be a better “golden parachute” for the Bush-Cheney set as they prepare to give up the levers of power?

After this series of events, how in the world can Barack Obama and the Democratic Party be called elitist? It is actually quite simple. The Republican Party has a better understanding of what is most important to most voters. It isn’t an abstract concept such as global warming or the value of the dollar. People base their lives on their personal values and on what makes their lives meaningful.

For most people, meaning in life comes from belonging to a family and in a community. They value that which holds together their family and their community. They find meaning in and they value their church and their religion. They love their children. They work to ensure whatever means success for their children. They love their spouse and will do what is necessary to protect him or her.

Most people trust their neighbors. They also assume that their leaders work for their interests and tell the truth. They believe that the morals taught in their church apply to all aspects of life, even to the laws of the land.

Most people will instinctively reject anyone or anything which threatens those values and sources of meaning. They won’t believe that leaders lie. They won’t give up the right to protect their families. They will fight perceived threats to their church and religion. They will reject whatever threatens the cohesiveness of their social bonds. They will fit the new or incomprehensible into what they already know. They will rely on their social network to help them decide what to believe. They will be amused, at best, by the attempts of others to tell them what is “really” best for them.

Neither the Democratic Party nor the Republican Party represents “most people.” The Democratic Party, trying to be the party representing the middle and lower classes, has proved itself to be cowardly and irrelevant. The Republican Party has studied the culture of the middle and lower classes. It has discovered that, as long as it supports the social structures of meaning and value of those classes, it can do whatever it wants economically. Voters believe that a government, which defines itself as pro-religion, against gun control and for family values, will do what is in their best interests. To believe otherwise simply makes no sense.

When voters living paycheck to paycheck are told their taxes are too high, they will support a tax cut. When told that too much regulation is funneling their tax money to do-nothing bureaucrats, they will support deregulation. When those policies eventually lead to the events described above, virtually no one makes the connection. It makes no sense to blame the worsening problems of our society on the government which told us how to solve them. Some of us will look to the news media to tell us what is really happening. They turn out to be, surprise, the same as everyone else.

Consumer spending is two thirds of our economy. When the consumer is tapped out, two thirds of our economy comes to a stop. A business tax cut allows businesses to keep more money. If the consumer can’t afford to buy more, businesses don’t need to create more jobs. Democrats can call all they want for more regulation and look all they want for villains. They will continue to be irrelevant cowards. America needs fiscal and monetary policies which are in fact designed to increase the financial health of the 98 percent of people on the bottom of the economic pile. As Horatio Caine says on “CSI Miami,” “The question is…”