So, how bad could this get?
Until a few months ago, it was accepted wisdom that the American economy functioned far more smoothly than in the past. Economic expansions lasted longer, and recessions were both shorter and milder. Inflation had been tamed. The spreading of financial risk, across institutions and around the world, had reduced the odds of a crisis.
Back in 2004, Ben Bernanke, then a Federal Reserve governor, borrowed a phrase from an academic research paper to give these happy developments a name: “the great moderation.”
These days, though, the great moderation isn’t looking quite so great ”” or so moderate.
As long as you’re in debt, every dollar you spend (instead of repaying) remains a [b]borrowed[/b] dollar, which is indeed a mirage unless it involves a productive, self-liquidating asset, such as a new machine for a business.
I don’t see how when 94% of home owners are paying their mortgages there is such a loud outcry to bail out the 6% who bought homes they couldn’t afford. I don’t trust any goverment plan when it comes to spending money. In fact, the only time I truly feel safe is when Congress is in recess and not making any new ridiculous laws that restrict our rights, take away more of our money, or spend the money they have on some pork-barrel project.
The economy is doing great. It is fear and Democrats talking about how bad things are that incites negative reaction in the stock market and elsewhere. The Federal Reserve reacted wisely this week and proved they can offset negative speculation and worry. It worked.
“It is fear and Democrats talking about how bad things are that incites negative reaction in the stock market and elsewhere”
That’s right, All Is Well®. Or would be well but for that Vast Democratic Conspiracy moving markets from Tokyo to Singapore to Frankfurt and London.
Think positively! Whistle a happy tune!
Yes. I’d rather be content and happy than not. Democrats, besides being miserable, want everyone else to be miserable too.
When you think about it, so much of what happens in terms of the stock market, or even something as basic as shopping in a super market is based on faith, hope, and trust. You believe the accountants and the financial reporters won’t lie, you believe the bankers, et.al. will make good decisions, you believe that the milk you buy won’t be poisoned, etc. So when that trust is broken, it can have widespread ripple effects.
Some will argue that the stock market is ridiculously oversold. Others will argue that 25% of the sub-prime problem is located in about 4 states. It doesn’t really matter. What matters is the attitude that people have, and if they have fear (or panic), a recession really could be in the offing, because we are such a consumption-oriented society, and we need people to spend money in order to make money. If they hold onto it, the merry go round comes to a standstill.
What we should really do is figure out how to balance the budget, reduce our debt, generate surpluses, lower interest rates, strengthen the dollar, reduce our future taxes, save Social Security, invest in innovation, and focus on infrastructure and capital investment if we want to put the economy on a positive long-term footing. My fear is that this tax cut will stimulate inflation, increase the deficit, lead to higher interest rates in the long-term, postpone, but deepen the next recession, continue to weaken the dollar and continue America’s structural transition away from its manufacturing base and toward financials and services.
As a lifelong Republican, I never thought I’d say this, but Bill Clinton was a much better steward of the economy than George Bush has been.
I think the “Clinton prosperity” was accidental, and it was followed by a recession in 2001 mostly offset by the early passage of Bush tax cuts. This is another fairly normal business cycle, set off by some really unwise borrowing and lending, and by the financial instruments constructed around it. Except for tax policy, the White House really has little to do with recessions and expansions. The Fed does, but even so, business cycles are going to happen. Congress can screw it up by spending too much, and unfortunately this has been Bush’s major failing — he just recently found his veto pen. Whether the vicious cycle of Congress buying votes with spending bills can ever be interrupted is a serious question.
Katherine, so… are you saying we shouldn’t do anything? As Keynes said, in the long run, we’re all dead.
So, was Reagan’s momentary fortune because of Carter?
Clinton does bear some responsibility, as he was the president who really got rid of a lot of the regulation.
Clinton inherited the economic prosperity that was the result of President Regan cutting taxes. It works every time. Clinton is responsible for the largest tax increase in history. You cannot tax a nation into prosperity. Bush 41 forgot that, and went back on his promise, “Read my lips…no new taxes.” —and lost re-election. Bush 43 got it, and despite the huge economic impact of 9/11 and an extended war, he cut taxes and our economy has not only recovered but flourished.
Relax, folks. This is an election year. The Feds will do everything short of killing their grandmothers, and maybe even that, to put up good numbers before November. And it’s a great time to buy.
John Wilkins #7, nothing would be okay. Even better would be to make the tax cuts permanent, and to find some way to get the Congress-White House to stop spending so much public money. But I think the housing and financial markets will get through this without help. As CharlesB says, it’s a great time to buy, either investments or a house.
Katherine, making the tax cuts permanent doesn’t help an economy. There is simply no economic evidence for that. There is more evidence that spending helps – but it doesn’t matter who: it can be the government OR corporations OR people. But the government is the largest institution, so when it spends it helps corporations AND people directly.
All you need to do is look at the military. The way we use public money is through this institution. The military invests in universities; it invests in communities. It even has a fund for education.
As far as “its a great time to buy” shows a complete lack of empathy for the poor or lower middle class. How does one buy a house on $8 an hour; $3.50 gas; and 31% credit cards and $1000 a month insurance for a family? Ideas? These people might not be innocent. But there are plenty of predators upon these people who get bailed out in the name of the free market.
Daniel… if that’s the case, then perhaps Reagan’s prosperity was only due to Johnson’s investment on the war on poverty.
You are also completely wrong. A mild transfer of wealth does good things for an economy; and investment in jobs does wonders. The transfer in wealth discourages greed (after about $4million dollars a year, why do people work? What sorts of people continue working for more than $4 million dollars a year?) and investing in jobs (the better indicator of an economy’s health) creates an economy thats better for a greater number of people. As it is, many American corporations decide to create jobs in other parts of the world. Not that there is anything wrong with that.
FDR and Truman’s policies ushered the country into the greatest growth we’ve ever seen – so you might want to study some economic history first. Someone like Ben Friedman at Harvard. Do that before you make your partisan choices.
John, you have it completely backwards. Completely. Read some competing economic theories.
All I need is evidence, Katherine, and an idea of what criteria we’re using to judge an economy’s health. Jobs? Happiness? Public health? Spending per student? I read economics far an wide as a non-expert, but I object to the religion of tax cuts. If you look carefully, public spending tends to have long term effects that we often take for granted. Think NASA. Think every person who has ever gone to a public school and become an engineer. Think the salaries of teachers which go into the economy (they buy cars, go to the grocery store, drink at the local saloon, and buy houses).
Tax cuts have worked up to a point: Kennedy learned that. But standards of living have fallen since 1972 – save for the face we have better technology. And technology has advanced precisely because of public investment in the military and NASA. It’s not hard to find how public money is useful. I wonder how businesses would do if there weren’t any roads, or without government subsidizing the education of their workers; or the government paying for the legal system that ensures that the contracts they sign are adhered to.
But government investment worked as well. My argument is that investment is what builds an economy, and it doesn’t matter who. That’s what makes logical sense.
I do understand why people are frustrated with the government. We actually wouldn’t need to raise taxes. If we had just decided to spend whatever trillion we are spending on war on health, schools and jobs in this country, we’d have given everybody insurance and perhaps had a population that could compete with the Asians doing work we can’t do. Instead, our money goes to war profiteers who are unregulated and gleefully billing the taxpayers for mediocre supplies that our soldiers are forced to use. We won’t spend on auditors; we will spend three times as much for the sake of the privatization cult, threatening our own soldiers.
So I do understand frustration about our taxes. We’re not getting what we deserve. It’s all going to Iraq.
I find it hard to believe that there are any who feel that ‘stay the course’ will help. The combination of massive deficits (primarily – but not exclusively – due to the tax cuts), and a horrendous trade imbalance that leaves billions of US dollars in the hands of China and other countries, have lead to this disaster scenario. A slight decrease in American global economic dominance might have been a good idea, but if the foreign investors holding US dollars start to panic as the dollar loses value, I fear we may see an upheaval unlike any encountered before.
The recent move by the federal reserve to cut the discount rate, and the current preparations by the government to initiate a “stimulus package” by buying us all a big chocolate soda, indicate that the “thinkers” think this is a spending problem. At the risk of running afoul of these experts, I disagree. This is not a spending problem, unless it is that we spend way too much. This is a savings problem. We aren’t.
FDR’s policies did very little to get the US out of the Depression. PR mostly. But the war worked wonders–which is why the US economy has been on a permanent war footing ever since.
Prez. 43 has proven that a country can have “guns and butter.” All it has to do is borrow itself silly in debt to China, OPEC, and a couple of other places. In the long run the US will do well, but it has not been helped by my party, which is supposed to be the conservative party, spending every every penny it can borrow to bloat up the guns and bloat up the government. In what sense have we been cost conscious about the managemant of our affairs? How has my party lead us into a less oil-dependent future? Please don’t go into the jokes about ethanol.
Oops, that is “led us”. Can’t seem to get the lead out.
Cana,
Ethanol IS a joke. It takes more than a gallon and a half of fuel to produce a gallon of Ethanol, and it only delivers about 3/4 the power per gallon of gasoline.
But I do agree with one thing: the Republicans this past eight years have spent like they were democrats, in fact, it looked like they never meet a spending plan they didn’t like!
The only solution would be to a) make the tax cuts permanent, and b)put a halt to pork and other needless spending by congress — make them stop spending or increasing the budget on non-essential items (like a one million dollar museum dedicated to the Woodstock Festival!).
oh, and c) open ANWR and the Gulf to oil drilling and d) build more refineries.
#19 Dear LibraryJim,
I know, I know. I am a member of both the American Chemical and Physical Societies and have been pointing out the “great corn debacle” for years. Dr. David Pimentel said it first and probably says it best. Corn is a net energy cost and total environmental disaster. (His calculation is that it takes the equivalent of 1.29 gallons of gasoline to produce enough ethanol to replace 1 gallon of gasoline.) So you see we agree about a couple of things.
I never thought I would live to see Republicans spend money like drunken sailors. In the federal budgeting process, a small agency that spent $400 million last year will propose a budget of $800 million for this year. When that request is “trimmed” to $600 million, the agency will scream that it has taken a $200 million cut! Republicans used to be better at keeping a knot on the pursestrings without this kind of pseudocutting.
Back to energy, I really think that most commuter traffic should be handled by mass transit. Where that is not feasible, electric cars should be used and those should be extensively recharged by non-carbon based electric power. Nuclear is a far better option than has been admitted for the past 30-40 years. There are problems associated with it, but they can be solved. — Best wishes.
CanaA,
In many parts of the country I have visited, for example the Western US, mass transit is non-existent and some people have to commute over 30 or 50 miles to work. For example, I did a mission stint in Sundance Wyoming one year, where a number of the people worked in Spearfish SD, 35 miles away. Electric cars were not feasable for those distances nor for the climate conditions. However, an electro-magnetic monorail (such as Disney uses) would have been an idea worthy of consideration.
Where I live now, I had to take a job 35 miles from where I live in a neighboring county (I started out working closer to home, but had to change jobs and took what I could get). Moving closer is not an option, but, again, there is not a ‘trans-county’ transit system. And if there were, it would be going the opposite way I travel (I ‘reverse commute’. Most people are coming into the city for work when I am going out).
America’s wide open spaces create problems not found in European cities, for example. So, there are very complex problems at work that unfortunately cannot be solved by simple solutions such as “take the bus or train”. I wish I could. In fact, I wish we had a viable commuter train service between Florida cities. My daughter could come home from college more often (212 miles away, in a straight line!).
Peace
Jim E. <><
Jim E.
You are absolutely right. I too have experience in the outback, e.g. Fairbanks Alaska (when it was a territory), Morton, Muleshoe, and Slaton, in Texas, and even Prattville Alabama. In the 50’s my uncle in Muleshoe (actually out on a farm) had a pickup truck with a butane tank mounted on it. He ran his tractors on butane, so it was always available. A toggle switch under the dash would let me switch between butane and gasoline. I could run about 800 miles on the butane and if caught out somewhere on empty, switch to the gasoline and have another 400 miles available before buying gasoline.
All of that was carbon-based and would not help us too much today. It only shows a model of dual fuel technology was used over 50 years ago. Cars, trucks and buses could all be run electrically. For the first 50 to 100 miles or so this could be done off stored charge. An onboard gasoline powered generator would have to be activated if more range is needed. For perhaps 30 million metropolitan commuters, what would happen if you could take 50 miles a day of their commuting off gasoline? Well, for starters you would cut gasoline consumption about 100 million gallons per day. That is around $100 billion per year cut out of OPEC payments.
My point is we can produce electricity without oil, or even other carbon-based fuels for that matter. Why are we not using that technology? Not every rural situation would be amenable to electrical usage. But why not concentrate on the more metropolitan areas first? I think 30 to 40 years downline quite a bit could be done in rural areas. People commuting from Morton to Lubbock, Texas typically drive their cars only about 150 miles a day. A vehicle that got the first 100 miles from electricity and the last 50 from gasoline could average 75 mpg of gasoline overall.
I lived in Montgomery County, MD for 30 years, so I had the kind of no mass trasnsit service you are talking about. However, if I had had a car that would have done even 60 miles per day on overnight charging, I would have virtually ceased buying gasoline.
The only thing that being a “wide open spaces” country forces us to do is come up with a wide open spaces solution. There is no law of physics that requires carbon-based power to do that. Sure, gasoline is the easy way up to now. For the future I think we are going to have to get a little more creative. I support ANWR and offshore drilling. ANWR might give us a couple of years of gasoline. Offshore might yield another 20. These are not solutions that will be of much help to my grandkids.
Keep on truckin’ ! — Stan
True, they may not be long range solutions, but they will buy us time to develop our own self-sufficient sources without being ‘held hostage’ by foreign suppliers.
I still think high speed rail is an idea that needs to be implemented, and if a monorail system (since our rail system is in sad shape) so much the better!