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.