bequeathed the American people is the long-term economic and financial calamity that may now only be in its incipient stages.
Our present, economic calamity is the Great Legacy a la the Great Depression that Presidents Ronald Reagan, George H. Bush, William J. Clinton and George W. Bush and their enablers/supporters have will to the United States of America.
The economic recovery effort, as James K. Galbraith wrote in his Washington Monthly article, "No Return to Normal: Why the economic crisis, and its solution, are bigger than you think," , may be larger than currently foreseen by government analysts. Galbraith’s comments are paraphrased below.
Because of the severe damage inflicted on our financial and economic systems, this economic crisis is larger than the Obama Administration and Congress have acknowledged. A clear window on the causes and answers to the present economic crisis is beyond the view of the government analysts – a kind of analytic myopia.
For a new and different view on this enormous, economic/financial crisis please continue below the fold.
Kevin Phillips, writing at Talking Points Memo, begins his comments on the size of the current economic/financial problem as follows:
In August, 2007, the housing-linked crisis of the credit markets predicted the arriving disaster-stage, the Crash of September-November 2008 confirmed the debacle, and now an angry, fearful citizenry awaits a further unfolding. There is probably no need to fear a second coming of nineteen-thirties Depression economics. This is not the same thing; the day-to-day pain shouldn't be as severe. Kevin Phillips
Before you get all elated, Phillips clarifies his point in the following passage:
Today's disaster stage of American financialization - the bursting of the huge 25-year, almost $50 trillion debt bubble that helped underwrite the hijacking of the U.S. economy by a rabid financial sector -- won't be nearly so kind. It is already ushering in the reverse: a global realignment in which the United States loses the global economic leadership won in World War Two. The ignominy deserved by Wall Street after 1929-1933 is peanuts compared with the opprobrium the U.S. financial sector and its political and regulatory allies deserve this time. Kevin Phillips
And Phillips adds more:
This [economic crisis] is a much grander-scale disaster than anything that happened in 1929-33. Worse, it dwarfs the abuses of debt, finance and financialization that brought down previous leading world economic powers like Britain and Holland (back when New York was New Amsterdam). Kevin Phillips
The failing, American automobile industry combined with the economic rise of China and East Asia seem to be portentous indicators of Kevin Phillips’ notion that the current economic crisis "dwarfs" those crises that brought down previous leading economic powers.
Now and before ending this diary on the enormous size of this worse-than-Great Depression, economic calamity; let’s examine a few more, comments from James K. Galbraith’s article, "No Return to Normal."
Delay is not innocuous. When a bank’s insolvency is ignored, the incentives for normal prudent banking collapse. Management has nothing to lose. It may take big new risks, in volatile markets like commodities, in the hope of salvation before the regulators close in. Or it may loot the institution—nomenklatura privatization, as the Russians would say—through unjustified bonuses, dividends, and options. It will never fully disclose the extent of insolvency on its own. James K. Galbraith
And on the oddness of Geithner’s plan to save the banks and the U.S. financial system, Galbraith offers the following:
The oddest thing about the Geithner program is its failure to act as though the financial crisis is a true crisis—an integrated, long-term economic threat—rather than merely a couple of related but temporary problems, one in banking and the other in jobs. In banking, the dominant metaphor is of plumbing: there is a blockage to be cleared. Take a plunger to the toxic assets, it is said, and credit conditions will return to normal. This, then, will make the recession essentially normal, validating the stimulus package. Solve these two problems, and the crisis will end. That’s the thinking.
But the plumbing metaphor is misleading. Credit is not a flow. It is not something that can be forced downstream by clearing a pipe. Credit is a contract. It requires a borrower as well as a lender, a customer as well as a bank. And the borrower must meet two conditions. One is creditworthiness, meaning a secure income and, usually, a house with equity in it. Asset prices therefore matter. With a chronic oversupply of houses, prices fall, collateral disappears, and even if borrowers are willing they can’t qualify for loans. The other requirement is a willingness to borrow, motivated by what Keynes called the "animal spirits" of entrepreneurial enthusiasm. In a slump, such optimism is scarce. Even if people have collateral, they want the security of cash. And it is precisely because they want cash that they will not deplete their reserves by plunking down a payment on a new car.
The credit flow metaphor implies that people came flocking to the new-car showrooms last November and were turned away because there were no loans to be had. This is not true—what happened was that people stopped coming in. And they stopped coming in because, suddenly, they felt poor. James K. Galbraith
In ending this diary, I wish to leave you with Kevin Phillips’ discussion on culprits and equivocation.
Culprits:
The principal inventors, hustlers , borrowers and culprits were the nation's 15-20 largest and best known financial institutions - including the ones that keep making headlines by demanding more bail-out money from Washington and giving huge bonuses. These same institutions got much of the early bail-out money and as of December 2008 they accounted for over half of the bad assets written off. The reason these needed so much money is that they government had let them merge, speculate, expand and experiment on dimensions beyond all logic. That is why the complicit politicians and regulators have to talk about $100 billion here and $1 trillion there even while they pretend that it's all under control and that the run-amok financial sector remains sound. Kevin Phillips
Equivocation:
But for the moment, let me underscore: the average American knows little of the dimensions of the financial sector aggrandizement and misbehavior involved. Until this is remedied, there probably will not be enough informed, focused indignation to achieve far-reaching reform in the teeth of financial sector money and influence. Equivocation will triumph. This will not displease politicians and regulators leery of offending their contributors and backers. Kevin Phillips
It appears that we have much work to do.