Finally, I have found a blog client that I can live with.
Since I last wrote much has happened.
Health Care reform was passed. Government shutdowns were averted. We won the Iraq war and got kicked out of Iraq by our ‘allies’. We got kicked out of Pakistan. We got kicked out of Afghanistan. Egypt got a new government. Libya got a new government.
Did anyone see any of that coming? I didn’t. Even health care reform didn’t look to me like it could get done.
Is any of that good news, though? What is the most pressing issue in the US right now? I would have to say that it is the state of the economy. In 2008 the US produced mostly houses for speculators to buy from one another, all of the products that are required to sustain that marketplace, and paper. The paper that we were producing was based on the homes that were being bought and sold. Banks sold that paper to one another just like the speculators were doing with the houses. The only difference being that the paper was a lot easier to create. The only limit to how much paper could be created was the amount of underlying debt that they were based on. So much profit was being made on this paper that a huge demand grew for debt. The only way to create more paper to sell was to lower the standards for making the loans that it was based upon. The rising tide floated all boats–until it didn’t.
Now our economy doesn’t create houses any more. There are too many. Now we don’t need to build them, furnish them, buy or sell them. All of those people that were busy making, selling, and living in all of those homes don’t do that any more. All of the industry that supported housing is idle. All of the financiers that packaged and housing debt don’t. All of the realtors and bankers that worked in real estate don’t any more.
In addition to that, now, because tax revenues have fallen due to falling state sales tax revenues, states are cutting their payrolls across the nation. The Federal government is cutting its payrolls and many other expenditures. All of this money that is being ‘saved’ is now not flowing into the system. More idle workers. Less money to buy with. The pool of money is quickly drying up.
Why would any business that relies on sales for it’s sustenance create more or add more employees before there is a market for the products? Where is the increased demand to come from? With every source of money shrinking there is no one to sell to. Everyone that produces must cut back without a consumer.
Where does it end? If this sounds like a familiar story, that is because it is. In 1929 this happened. When it did, the government didn’t respond with bailouts. Unemployment insurance didn’t exist. They cut taxes and they cut government spending. This was going to raise ‘confidence’ in the market. For four years they tried this approach. After that time, the situation was so bad that there were tent cities springing up all over the country. Hoovervilles, they were called. Federal troops were called out to take them down and disperse the people in them.
So now, we are relearning the lessons of the thirties. It remains to be seen if the changes that must occur in government policy can be accomplished at the ballot box or whether it will take something more like the Arab Spring to get the job done. I don’t see any example in history though where something like the depression that we are in was ever successfully combatted with government actions like those we are witnessing now.