All most Americans can do now is watch and wait. All we seem to hear any more is "more trouble coming everyday" but our pundits reassure us that things will turn around. It seems the best they can articulate is "Because now we know better."
I keep turning on my television and opening my newspapers and it seems that the economist are still lining up to say the Great Depression cannot repeat. Bernanke says crisis 'no comparison' to Great Depression and how many economist cling to that Depression era 25% unemployment rate as an excuse?
Well these very smart people greatly underestimated the November numbers. With 533,000 jobs lost last month and with revision 1.2 million jobs have been lost in the past three months. Lester Holt opened NBC Nightly News that night with "and no industry is immune." Wrong Lester, health care added 34,000 jobs in November and 369,000 over the last year. With 7000 new jobs in November the government is still hiring too.
And last week was the worst week in 26 years!
Setting aside the more tangible facts, that back in the 1930's this was an underpopulated and physically fit nation that was rich in unexplored natural resources. forgetting that this nation was still close to our agrarian roots and we were in the early stages of an industrial revolution. A comparison between what Americans did for a living then and now, a manufacturing and farming rich nation compared with a consumer economy, adds some further recovery stress but "We know better?"
Both the great Depression and the present state of the economy have several thing in common. Both meltdowns were caused by a massive credit crunch. They were both financial crisis caused by the capital industry. Both meltdowns were caused by laissez-faire governments, a stumble bum president and a multitude of false information that led to "irrational exuberance" from the American investor.
There was a big difference between The Great Depression and today. That miserable decade represented uncharted waters. Today the government that deregulated the banking industry, the supply side economist who mislead the public and the investment bankers building a house of cards had The Great Depression as an example. So investors have a right not to feel confident when these economist come on our televisions to say "Because we know better."
There is another big difference between the United States of the 1930's and now. To the rest of the world we were the nation that sent over the Doughboys to help end what was then known as The World War. Our former president was a key player in forming the predecessor to The United Nations and the first Geneva Convention. This nation possessed an economy the entire industrialized world was trying to imitate.
Now we have a soon to be former president and a not too much changed congress that launched a preeminent strike that must seem to most of the word as genocide. We are a nation that has literally spit on the Geneva Convention. And what about this prestigious economy? Those credit default swaps that started the whole mess were invented right here in the good old U.S.A. and spread through the world economy like a virus.
Take the trade deficit for example. According to Macrohistory Database of the National Bureau of Economic Research, that august body that that just made the recession official and admitted they would never say depression, 1936 was the only year in The Great Depression that the U.S.A. had a trade deficit. For the whole of that decade, the U.S. ran a significant trade surplus. According to one of the multitude of supply side economist,
Exports over those economically challenging ten years totaled $26.05 billion while imports totaled only $21.13 billion. In other words, the U.S. trade surplus during the entirety of the 1930s was nearly 19 percent the size of the total value of U.S. exports during that decade.
That little line came from one of those experts as proof that trade deficits don't matter. Reeducating Americans that mathematics is for fools.
What about public debt? Comparing 1931 to 2008 it is hard not to notice the fact that those long dead "don't know anything" representatives seemed far more responsible. Obviously the present government has far more experience in the borrowing without collateral department. Back in the 1930's the Great Depression followed the Roaring Twenties and government borrowing was not only kept in check. During the good years that far more responsible government had worked to pay down the enormous debt accumulated during what was then called The World War.
The present more advanced government was borrowing like madmen during the Bush Boom. Now that we know better having lived through the Reagan Revolution and Cheney's "Deficits don't matter" Americans have learned to forget our high school economics theory that governments must pay back debt during economic up swings so they have funds for the recessions.
And when we watch these experts they pretend that it is only $11 trillion. Forget all the money owed in government pensions and welfare, the commitment to medicare and social security. It all seems like smoke and mirrors to anyone with a little common sense.
Yes hindsight is always 20/20 but much blame for the current economic turmoil can be placed squarely at the door of Alan Greenspan and the Fed.
The US federal reserve's desperate attempts to keep America's economy from sinking are remarkable for at least two reasons. First, until just a few months ago, the conventional wisdom was that the US would avoid recession. Now recession looks certain. Second, the Fed's actions do not seem to be effective. Although interest rates have been slashed and the Fed has lavished liquidity on cash-strapped banks, the crisis is deepening.
To a large extent, the US crisis was actually made by the Fed, helped by the wishful thinking of the Bush administration. One main culprit was none other than Alan Greenspan, who left the current Fed chairman, Ben Bernanke, with a terrible situation. But Bernanke was a Fed governor in the Greenspan years, and he, too, failed to diagnose correctly the growing problems with its policies.
Today's financial crisis has its immediate roots in 2001, amid the end of the Internet boom and the shock of the September 11 terrorist attacks. It was at that point that the Fed turned on the monetary spigots to try to combat an economic slowdown. The Fed pumped money into the US economy and slashed its main interest rate - the Federal Funds rate - from 3.5% in August 2001 to a mere 1% by mid-2003. The Fed held this rate too low for too long.
Do you recall when everyone of those experts got on line to write and talk about what a genius Allen Greenspan was?
Back in September Bill Clinton went on The Daily Show to explain the Bush Economy;
This all started because you had too much money, and the only place it could make money was in housing. If you remember, in my second term, we had lots of jobs in part because all these high-tech industries were booming. Like every boom, it led to a downturn.
When the downturn occurred, the Federal Reserve left a lot of money in America, but the only thing then making money was housing. 2001 — the fundamental — this is why this Presidential election is important, folks — not to find evil-doers, but growth. In 2001, all this money was out there, and it all went into housing and construction, so we had to keep findin' funny ways to have more houses, like the sub-prime mortgages or the derivatives.
What if we'd put a lot of this money into solar energy, into wind energy, into a hybrid electric vehicle, into all these things that — making all of our cities as energy-efficient as possible — we would've created millions of jobs, raised incomes, had the revenues to provide health care to everybody, and there would've been competition for investment. So —
So where were the economist warning Americans about the upcoming disaster? Sitting at tables on our televisions saying "you may think that housing prices are overvalued but what you're missing is that Americans have been just buying real estate at big discounts."
I'm just a layman. Maybe there is something I'm missing about this upcoming recovery. One thing I do know is that after years of watching PBS, during the 1990's listening to the experts sit across from Jim Lehrer and saying things like "no this is not a technology bubble, this is the new paradigm" and in 2000 they were still saying that Corning was a bargain at 109.00 a share. So what makes these people experts? Now I'm confused and past practices leaves me wondering if any of them ever made any sense.
I've been reading one economist who has been making sense to me lately. Last month Paul B. Farrell compiled a thirty point list of reasons we are heading downhill fast. All of those points offer a nation that is very far from "we know better" but that last point,
At a recent Reuters Global Finance Summit former Goldman Sachs chairman John Whitehead was interviewed. He was also Ronald Reagan's Deputy Secretary of State and a former chairman of the N.Y. Fed. He says America's problems will take years and will burn trillions.
He sees "nothing but large increases in the deficit ... I think it would be worse than the depression. ... Before I go to sleep at night, I wonder if tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds." It'll get worse because "the public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs, all very costly and all done by the government."
Reuters concludes: "Whitehead said he is speaking out on this topic because he is concerned no lawmakers are against these new spending programs and none will stand up and call for higher taxes. 'I just want to get people thinking about this, and to realize this is a road to disaster,' said Whitehead. 'I've always been a positive person and optimistic, but I don't see a solution here.'"
This nation still has no interest in taxing the rich. There is still no sign of paying our own way in this world. The richest nation in the world will not feed our own poor. We will not heal our own sick, at least not the fifty million least fortunate. As this nation falls apart the leadership doesn't have the stomach to repair our infrastructure. As many talk of a bright future ahead the education of our young is a low priority. Where can anyone find confidence?
Because what this is all about and will be about for many years is a crisis of confidence. When we watched this Democratic congress falling all over themselves, very much against the will of the people, to bail out those totally irresponsible banks that was one thing. When they did it without addressing or regulating those credit default swaps, just leaving a $47 trillion time bomb to keep ticking over our heads, how can we trust this leadership?
For a recovery there will need to be retail investors and most of us now know that we can't trust anyone. As an retail investor how can we? How do we go about getting information about a company when Standard & Poor's rated Lehman Brothers bonds at Triple A? We can't trust the government after failing to block Rupert Murdoch from buying The Wall Street Journal. They weren't misleading enough?
It seems to me the way news and information functions in the U.S.A. there is no way of knowing anything. It seems to me that the confident talk about Barack Obama, the comparisons to FDR and Abraham Lincoln may be decent comparisons but with the congress, media and far from Supreme Court he will need to deal with, he won't see much help.
It just doesn't look good. I cannot point to a single articulation that offers any sort of confidence. I may not be an economist but I'm watching this unfold and "because now we know better" is just plain stupid.