Posted by: distributorcap | January 23, 2008

It is that bad

Bush has destroyed an entire country, has destroyed a major American city, has destroyed the moral fiber of America by making torture part of our foreign policy, and has destroyed the Constitution by turning it into a roll of Charmin.

But give the man some credit, he may be saving his bestest destruction for last — the $9 trillion American economy. As horrible as the above acts are, this is THE one that will affect every single person in this nation.

Voodoo Economics

Back in 1993, Clinton raised the income tax rates of the wealthy, and pretty soon you saw economic growth and productivity increases. In 2001, when Bush and his Republicans lemmings slashed the income tax rates, the immediate result was economic disruptions, followed by a very weak recovery. The very low interest rates instigated by Alan Greenspan fueled a boom in housing (and housing prices) and economic activity began to pick up. No one ever looked back. Or ahead

Fast forward to 2007. All those people who bought expensive houses with cheap credit and fancy mortgages soon realized they couldn’t afford them anymore, as banks began to charge for the real cost of money – not the cheap intro rates. Banks, in the never-ending quest to make more money – first began to issue mortgages like it was food-tasting hour at Costco. Housing prices got so ridiculous, as more money chased tightening inventory (especially in ‘boom’ markets like Las Vegas and Southern Florida). But while housing went up, wages did not. With wages stagnant, even all that cheap credit couldn’t support the prices that were being asked for homes. Secondly – banks began selling those mortgages to firms like Merrill Lynch. The teetering begins.

In the meantime people who used their houses as a giant cash register had to start paying those loans back. Whatever money MIDDLE CLASS people had, needed to be poured back into their homes – so spending on consumer goods began to dry up. When consumer spending (upwards of 70% of the economy) drops – economic contraction or the ‘r’ word – recession looms. Now, if you want to pull the economy out of a recession, then it is absolutely necessary that you increase the amount of money that is being SPENT in that economy. What you have is contradicting forces going on.

Oh, banks, realizing they were on the verge of becoming landlords to the masses – stop lending money even to people who could afford those houses. They didn’t want any more risk. Or bad bond ratings. And Merrill Lynch and Bear Stearns – well they soon realized they were holding these mortgage bonds that were – in a nutshell – worthless.

Enter the decider — who decides that the way out of the economic house of cards is that stimulus. So here we go – the Bush “package” (not that tiny package) – tax cut and tax rebates. Pulling the rabbit out of this hat (or in Huckabee’s case the squirrel out of the popcorn popper) can only be effective if those cuts and rebates lead directly to an increase in total spending in the economy. As the first rebate trail in 2001 showed, more tax cuts or rebates did not increase in total spending. Will this one? Probably not.

For a tax cut/rebate to have any chance of working, people have to have a reason to spend it. Saving it or paying down personal debt doesn’t pump money into the economy – it pours it back into banks – who allegedly will lend it out, creating more debt instead of producing goods. The cycle keeps going.

Next up — the US government can’t spend money it is giving back, so for any tax cut it adopts, it has to spend less by the same amount. And there is nothing like government spending to get an economy going (typical Keynesian theory). Well in 2001, the Bush tax cuts (which were concentrated in the wrong economic group – the one that doesn’t need to spend) were matched with a massive increase in government spending – not to increase economic output, but to pay for his ill-conceived War on Terror©. So how did Bush get this money – ask us to sacrifice? – NOPE — he tossed out the US Government Visa Card.

When the US government began to borrow money, it theoretically was borrowing a lot of the money it gave back in the 2001 tax cuts. The economy perked up – and we had the illusion of a strong economy – at least that is what Bush and his band of merry men wanted us to think. It took all of that borrowing and historically low interest rates to keep the economy from collapsing as a direct result of the Republican tax cut, the one for the rich of course.

Time to pay the piper

When housing price got so high that it became unaffordable – the house of cards began to collapse. People no longer could use their house as the cash register or sell them in 5 minutes for a quick mega-profit. Or worse – afford the mortgages. Banks pulled back credit and saw massive defaults looming. Banks want a lot of things – they don’t want to be landlords. Enter the Fed to “stimulate” the economy with the only tool it has – interest rates.

There are some big problems with rate cuts. While they sound good – they aren’t necessarily the be-all, end-all. If no one wants to take a risk by loaning it – you can peg the rates to zero and it won’t matter. That is what happened in Japan in the late ‘80s. Their rates went to zero, but no one was loaning. Japan in the early ’90s was an economic basket case. Second, when you lower your rates, the US becomes a less desirable place to invest for overseas financiers. Remember we have been transferring at wealth at record rates to China and India (because they actually manufacture stuff we want, as opposed to pushing money around), so they have all these dollars to invest – but why invest here when the rates are so low. Hence the dollar starts to spiral down. For Americans, it’s not a pretty story when your savings are wiped out with a dead currency. People are going to start to get ornery, to put it mildly. Even the diehard religious wingnut Republicans are going to start looking cross-eyed at Bush if they cannot afford to put food on the table.

In addition, these low rates are also being implemented to resuscitate a creaking banking system. Bernanke is trying to save banking system by injecting money everywhere. You know what that means – running the paper money presses full time – creating classic inflation – too many dollars chasing too few goods. When people see eggs, milk and gas price doubling every 3 months, they going stop planning and start acting.

So – the lower interest rates start to fuel inflation, the unattractive (and tanking) dollar makes imports more expensive which also fuels inflation, and since there is no more manufacturing sector, the recession continues along its merry way.

And underlying this WHOLE mess is Bush – doing everything he can to push this problem to Wednesday November 5, 2008.

This fubar alone will make Iraq look like that ‘cake walk’ we kept hearing about. It also has the potential to get so bad – that Bush wouldn’t even consider declaring emergency law and staying on – it will be that messy. What is going on is a band-aid, so Bush doesn’t have to deal with it or take the blame for it. Even if it means making things 100x worse.

Or this extreme:

Militarily embarrassed by the losses in the Middle East, refusing to concede the error of our ways, looking to blame everyone but ourselves. Then with mismanaged economic policy – a collapse, then a blatant appeal to nationalism, more attempts at shoring up the population with misguided military adventures followed by complete defeat and collapse. Germany 1923? Or America 2008?

The real underlying problem is many Americans aren’t making enough money – the only ones making money are the ones that have enough money. Ergo it is the distribution of that money that’s the driving this problem.

Bush and his cronies, today, are screwing Democrats and any possible recovery. They are playing politics with the economy. They have sacrificed individual citizens (calling anybody who disagreed with him a traitor), sacrificed soldiers, and now are sacrificing the economy.

When political expediency is your only goal, you get Bush remedies. Doing the right thing for the American economy? Not under Bush. To get to a better place, there has to be some pain, even for Halliburton – but that is the last thing that will happen. They’re just biding time until January 20, 2009, when there will be such a procession of rats off the ship no one will be criticized for confusing them with the rush of the lemmings.

The uber rich are fine, it is the proliteriat that is fucked.


Responses

  1. Nice post, DCap – The thing about this recession/depression that has amazed me is that it has taken this long to get here. I’ve been ranting about it on MPS ever since I started the thing.Regards,Tengrain

  2. Wow.

  3. A study by two nonprofit journalism organizations found that President Bush and top administration officials issued hundreds of false statements about the national security threat from Iraq in the two years following the 2001 terrorist attacks.The study concluded that the statements “were part of an orchestrated campaign that effectively galvanized public opinion and, in the process, led the nation to war under decidedly false pretenses.”The study was posted Tuesday on the Web site of the Center for Public Integrity, which worked with the Fund for Independence in Journalism.The study counted 935 false statements in the two-year period. It found that in speeches, briefings, interviews and other venues, Bush and administration officials stated unequivocally on at least 532 occasions that Iraq had weapons of mass destruction or was trying to produce or obtain them or had links to al-Qaida or both.But, according to Speaker Botox, Bush “isn’t worth impeaching.”We’ve sunk to a new, historic low.

  4. Brilliant analysis my friend. I fear for what lies ahead.While Bush was and is a major factor in this, I feel like there are so many other elements. Like greed, which bred stupidity, ignorance and denial. It was a team sport and that idiot Yale cheerleader led the way. But many participated.About two years ago I was in my car listening to NPR and a story about interest only mortgages. The location was San Diego, I believe. I remember thinking it sounded insane.And I am no financial genius. But it was insane. At times like this, one is reminded of the old adage that if it sounds too good to be true, it probably is.Duh.The implications of this whole thing scares the living crap out of me.

  5. You’re on a fucking roll, which is better than a regular roll. I checked. People truly do need to realize that even once this clown is out of office, we’re going to be affected for a very long time. And it has nothing to do with turrists.

  6. Here’s the worst part.Rather than trying to figure a way out of this economic quagmire they’ve put us in, you have to know the GOP Think Tank is working hard trying to figure out a way to blame this on Bill Clinton’s presidency.BushCo has elevated blame and denial to whatever is higher than an artform.And people are so fucking gullible, they still believe it.

  7. Right. On!

  8. Very complete post. Sooner or later the greedy eat their seed corn, and the house of cards falls. I wonder why anyone would want to be the next president.

  9. “Germany 1923?” very possible. It’s a terrifying prospect, but as you say–someone needs to turn this whole thing around (despite the pain), and soon.

  10. Thank you very much for posting this! It helped me better understand what’s going on. What do you recommend people do at this point, in terms of weathering the coming storm?

  11. I was talking to my mother-in-law who is in her 90’s and she said this reminds her of what it was like right before the depression. The rich were living high on the hog, there were no jobs for the “regular” guy, and food was so expensive that they couldn’t feed their families. We used to laugh about the way she always saves every little thing, even plastic bread bags and paper plates…she’s still living like the depression even though she has money in the bank. In fact, when she sold her condo to move into a senior apartment building, she wanted to get the money in cash and keep it hidden in her apartment! Hell…if this keeps up, it will be our grandkids laughing about how we act as if we’re still living in the depression. Sheesh.

  12. I’ve read this twice now. You have put this together beautifully.All I can think of when I think of Bush is Alfred E. Newman. “What? Me worry?”What a tool.

  13. Popped by as recommended by DCup. Brilliant post. I’m forwarding to everyone I can.

  14. Dcup sent me too. Great post.

  15. What needs to occur then is a means to revive our economy and adapt it to changing times. The old ways are no longer valid and since we have transitioned from an industrial economy to a service/information economy, new solutions must be raised to compensate for the discrepancy.

  16. On the face of it, it would seem to someone who’d never graduated from the second grade that Bush’s stimulus package would make sense since those of us who make less $100,000 a year have to pour virtually every cent of our paychecks back into the economy. Those of us who don’t have a disposable, discretionary income are raging economic engines. Surely, the tax breaks we’re getting from the stimulus package would help, right?Well, what we’re getting back is our money, to begin with. Then one has to ask themself, who’s going to pay for this new round of tax cuts? Your kid gets nervous when the Chinese begin to eye their piggy bank.And how is getting 4 or 5 hundred bucks going to save our houses after we realized that the mortgage literally doubled in the year and a half since we gullible types had been suckered in with this lure of easy credit?And who’s going to benefit from us pouring this massive windfall back into the economy?Bush’s buddies in the oil and gas biz, since gas is still over three dollars a gallon despite OPEC cutting the price to just over $85 a barrel and heating oil is up to almost $3.50 per gallon (And that’s if you belong to an oil co-op.).When Bush pretends to do something for the common man, I suppose it’s just a coincidence that his buddies in the private corporate sector massively benefit.

  17. great details and complete breakdown. The market went apeshit crazy today partially because of the rumor that the govt is going to bail out the bond insurers.

  18. Hey dcap—just to let you know, we’re not heading for a recession! Bush just said so on TV! Condi Rice said the same thing in Switzerland today. She said we continue to believe in the strength of our economy…it’s robust!Man, I feel bad about all the time you took to write this post. Do you believe these guys? They think if they say there is no recession, than it doesn’t exist. They say we there isn’t a problem with the job market and Voila! Everybody’s working!!!

  19. This is a sincere and thoughtful post, Dcap. I agree with much of what you say, but not all. The American public is partly to blame, especially for the mortgage mess. Too many people are just plain ignorant about financial matters. If you sign up for an adjustable rate mortgage, which gives you a nice, low rate for three years, DO NOT ACT SURPRISED AND DECEIVED WHEN THE RATES INCREASE! USE YOUR GODDAMNED HEADS, PEOPLE! AND DO NOT THINK YOU SHOULD BUY AN OVERPRICED HOUSE AND BELIEVE THAT YOU WILL ALWAYS BE ABLE TO SELL IT FOR AN EVEN HIGHER PRICE LATER! ALL BUBBLES BURST, EVENTUALLY! IF YOU PLAY WITH FIRE, YOU WILL GET BURNED!Sure, the government has been horribly reckless, sinking us into an immoral, unending, unnecessary, horribly destructive and expensive war and BORROWING the money to pay for it. And the Senate, Congress, and the American people went along with it! USE YOUR GODDAMNED HEADS PEOPLE!But I believe it is simplistic and disingenuous to cast the situation in terms of the EVIL RICH vs. the DOWNTRODDEN, INNOCENT POOR. For one thing, the 1991 tax cuts (which I opposed, BTW, because of the certainty of increasing the national debt) benefited the lower income earners as well. OF COURSE, not as much as the higher bracket taxpayers, because our INCOMES ARE MUCH LOWER! The evil rich provide most of the tax revenues!Okay, I’m getting off message here. My main point is that we should all try to be more responsible for our own actions and not always try to blame the government, big business, and oil prices for all our misfortunes.

  20. eggzellent post dcAp,i wish they would put you on tv to explain it to the sheeple.

  21. ten – where bush has succeeded is in marketing and delaying the inevitable — he will do anything to push the problem forwarddick — yes wow, although i am sure stan oneal sleeps well at nightchristopher — are you telling me BUsh lied????? no wayFIA – you said it, i dont think we will see the worst until 09randal — thanks! so true – this is not a short term problemkaren — ANYONE who still thinks bush is a good man and a man of god and for the people deserves all the hardships they getearth — thankspy — right on pal, that is my next post (sort of)dg — the parallels are too scary…i cannot believe people are still falling for it — it is like Kim Il Jongcandace — thanks — -i recommend winning Lotto and moving to Iceland. this is gonna be tough — i would have lots of cash investmentsME my grandmother ALWAYS talked about the depression — and how it was. as a kid i laughed, as an adult i sobbeth – thanks you are always welcomecdp — that is a dittock – again dead on — we have old ways of doing new things — with morons setting policyjp — yep bush and his buddies WILL ALWAYS benefitpop — can the govt bail out EVERYONE — they might be in that positionME — if condi says it, it must be the gospel.MZ — you are also so right — the american public holds a ton of responsibility also — there is something to be said for self responsibility ==== but the bush adminsitratrion on all their policies is far more deviousthe americans just wanted homes they couldnt affordnonnie — i was on tv — singing Rudolph

  22. DCap as I began reading this excellent post I was reminded of something Mario Cuomo once said during the Reagan years — how we didn’t need to fear the Communists nearly as much as we needed to fear the Japanese calling in the loan. We are back in that situation today, with so much foreign money propping up our banking system.BAC

  23. Great post, DCap. But I must add, I don’t think W et al. give a shit about what happens in 2009. They’ve made their masters happy, the rich have gotten richer and the treasury is completely raped and pillaged. Mission accomplished.

  24. DCap – this post is so simply and precisely written, I thought I was reading something from the horror genre.I agree with you on many points in this post, but one part stuck out with me more than the others. You asked is this Germany 1923 or America 2008? May I add is this the United States 1929? I fear that we are headed into a depression, not unlike 1929 and several other forgotten ones from the 19th Century. But only this time, there just may not be a progressive thinking FDR to lead us out of this mess.I would also like to echo what Madam Z said about this country taking personal responsibility. While George Bush took this country in the shitter and flushed it, there were too many among us absorbed with anxiety over who would win the Amazing Race. Too many among us would rather mourn the loss of Heath Ledger rather than decry the loss of individual liberties. This is America 2008.

  25. Maybe we need a depression to have a revolution.

  26. To say what Marjorie says will not make anyone popular but I feel I must agree. If we want to live sustainably we have to change the way we do things. There is a tiny voluntary simplicity movement out there, but the only way to get everyone on board is for the old fucked up system to collapse. It won’t be pretty. I’m guessing as a whole we are wealthier and have more stuff than ever before in history. That’s going to be an awful long fall for a lot of us.

  27. Do you mind if I link to this post on my blog?

  28. D-CAPny:It really is quite remarkable, isn’t it? One cannot point to ONE SINGLE THING this adminsitration has done that has benefitted the nation. NOT ONE. I write this without any rancor at all: George W Bush has been the worst president in American history. And no one else is even CLOSE.He truly has been the Manchurian Candidate. Had he set out programmed on a course by an evil, oedipally-oriented, mother to betray his country to the Chinese, he couldn’t have…hey WAIT A SECOND!!!!

  29. Great post, as always!You know how they say that it’s funny how much smarter your parents get as you get older? My father pointed something out about taxing the rich higher; if forces them to invest their filthy lucre in order to avoid taxes. It has the double duty of increasing the tax collections while also increasing investment.


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