Posted by: distributorcap | December 13, 2009

Fractured Fairytales Episode #14 – The US Economy

With double digit unemployment looming over 2010 like a vulture, President Obama last week talked about using the remaining TARP money to help create jobs.

First of all, it is about time the administration recognized that someone other than the bankers are deserving of help. Economists, local politicians, civic leaders, and even some real business leaders (bankers are not real business leaders – they are just greedy you-know-whats) have been saying all along that money should be spent on fixing the country (infrastructure, manufacturing, repairing schools etc.) and generating jobs, rather than propping up a financial system that apparently is benefiting no one but the financial system itself. In addition to fixing the broken parts of USA Inc., putting people back to work through government projects would enable them to have money to spend – considering consumer spending makes up 70-75% of the US economy.

When Fearless Leader appointed Mr. Peabody (Larry Summers) and Sherman (Secretary of Treasury Tim Geithner) to clean up the financial house, those two put the country smack in the middle of some sort of fractured fairytale. As in the cartoon, the genius Mr. Peabody would use the WAYBACK time machine to take himself and “his boy” Sherman to an earlier point in history. It was back in time where they could fix the problem that was occurring in the future. Peabody and Sherman told Fearless Leader that a massive infusion of unregulated cash and guarantees to the very institutions that caused the problem over the past decade would act just like magic beans and get the US on the yellow brick road to a real recovery. By making trillions of dollars available to the stock, financial and commodity markets, the sharp rise in asset prices would allow Ye Olde Bank to resume lending to the masses in the forms of loans, credit lines and investments. It is a trickle-down economic policy that has to make St. Ronnie of Reagan beaming from his resting place in a very cold Frostbite Falls.

Problem is, all this money trickled down the pants of the bankers like warm smelly urine. None of it went to the citizens of the Usaland.

Instead of laying the groundwork for a broad recovery by helping the masses that really needed it (and who in the end really drive the economy), all the money and energy went to making “too big to fail” even bigger.

Why can’t the media see this just keeps getting worse, instead of quoting statistics which say ‘recovery’. Statistics do not put bread on the cable or shoes on children’s feet. As the “Give-Away of the Century” called Health Finance Reform is discussed (and watered teabagged down) – we are constantly being reminded that “entitlements” are breaking the bank and have to be slashed, delayed or eliminated. Of course the wars in Iraq and Afghanistan and Bush tax cuts for the rich are left alone as some sort of sacrosanct fairy dust.

The Fed, headed by Boris Badenov, keeps talking about the twin fears of rampant inflation and its cousin spiraling deflation – both pretty bad. Inflation is generally caused when there is too much money chasing too few goods. What did Badenov think is going to happen as he dumped trillions into the financial system – a well-oiled economy? Instead of unleashing all those dollars into the public, Ye Olde Banks squirreled the money away, traded investment vehicles with each other, bought more high risk assets (they after all were guaranteed) and made windfall profits for Ye Old Banks. But when it comes to giving billions (not trillions) to the peons – all of a sudden Badenov is on the inflation war path. Follow the gold-brick road Boris – it leads right to Emeraldman Sachs City.

With 300,000,000+ Americans not earning the king’s ransom as salary and barely having enough money to buy aspirin, shoes, and potatoes (forget Retin A, Prada and lattes), where does Fearless Leader think demand is going to come from? Consumers and businesses have basically stopped spending (you do that when you have no money). Many small businesses can’t get a wooden nickel from the banks to meet payroll or pay vendors. Since the Wall Street execs (who have plenty of money to spare) cannot single-handedly spend enough to get the economy moving, fiscal expansion–particularly through government jobs programs–is the best way to get money into the hands of people that will actually spend it.

Economist Marshall Auerback:

Unemployment is not going to bounce back like it did after previous recessions. In fact, unemployment is following the same flat-line trajectory as business investment. Too many high-paying jobs have been shipped overseas; too many businesses have moved offshore. Free trade has changed the economic landscape dramatically. If Obama doesn’t take decisive action now, the wealth gap will widen, double-digit unemployment will be the norm, and a permanent underclass will emerge in America. The social unrest that this will generate, will be significant. It would be wiser to avoid potential disruptions and preemptively address the minimal needs of ordinary people in distress. That means jobs, lots of jobs.

At the end of each episode, Peabody and Sherman would talk to each other about what had just happened, with Peabody always having the last word. That hasn’t changed, as Goldman Sachs has the final word today as well.

For more on this same topic – Brilliant at Breakfast is another great read.

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Responses

  1. Hi Cap;The article is a good one and I am inclined to agree with you and have written posts supporting this view.Yet there is a ton of money out there being spent. All my children have done well through this recession and as for me, it could have been better, but I made an income.Personally, I do not know of any of my friends losing a home or are suffering. The few who have no jobs, seem to be managing, although their lifestyles have been curtailed significantly as mine.Basically, you have to wonder if those statistics and economics gurus they throw at us have any clue. One week we are falling off a cliff, the next everything is rosy.How much is fact and how much fiction?I for one have quit buying into all of this, it is like a made for TV unreality show.

  2. I opposed NAFTA when Jean Chrétien signed it. It made me leave the Liberal Party of Canada for the NDP. So called "free trade" is destroying the middle class of North America and turned the U.S. in the world's largest debtor nation beholden to the Chinese. Yet "business interests" call it success.I nearly threw a brick through my TV when some corporate shrew got on and said that we need to start spending money to keep the economy going. Between losing well paying blue and white collar jobs and ringing up debt, whole sections of our society are turning into debt slaves. What happens when all these people retire?I don't see how any of this can be sustained and the collapse is going to be painful – revolution or famine. Take your pick.

  3. there would be a lot more jobs available now if those billions were given to local credit unions and the too-big-to-fail guys were told to go screw themselves.

  4. Ichabod – I don't know where you live but everywhere else in the country has been hit with foreclosures and job losses. Maybe you need to take a stroll through a Detroit or Cleveland neighborhood.Dcap I have a special Christmas play in your honor at my site. Only wish I did photoshop.

  5. Hi Demeur;I live in Manitoba and my three children live in California.Granted, I have not been in Detroit or Cleveland, so my view may be warped.I am of the opinion that this is far from over, yet, we thought that way in previous recessions.When you read the news, it is up and down on a daily basis and optimists and pessimists both have valid views.

  6. In my opinion, the USA is ultimately going to have to relinquish the idea that we are somehow entitled to a grander lifestyle than any other country in the world. We lost manufacturing jobs because unions drove the cost of labor up too high, so companies relocated overseas. It's not a matter of good and evil. It's being practical. Businesses want to make a profit. They make a profit by lowering their costs. Bankers make a profit by charging more interest on the loans they make than the interest they pay to depositors. Borrowers should understand what they're getting into before they sign the dotted line. I have very little sympathy for the dummies who took out huge mortgages on overinflated properties, knowing they could not possibly make the mortgage payments! I could go on and on, but I'll have mercy on you.

  7. Little Timmy Geithner as Sherman? In a word–brilliant.

  8. So, the national debt now stands at a staggering $12.1 trillion dollars?I'm not going to play the pile on Obama game many of his critics like Liz Cheney, Dick Cheney, and others are playing. Living beyond our means and borrowing to keep the country going began decades before Obama was elected. What I will say is this: the only reason our economic house of cards hasn't yet collapsed is China has been willing to buy our debt in the form of U.S. Treasury notes.The day the Central Bank of China tells the U.S., "Sorry, you foolish Americans, but our bank is now closed to you," only then we will find ourselves at a cross roads and the days of American imperialism and military adventurism may finally be over.Then we can begin the long, arduous task of repaying the massive debt created by Reagan, Bush I, Bush II and Obama. Monies that should be spent here at home but instead, will flow to Beijing and a lesser extent, to Japan.

  9. oops. i asked for the wrong post. this is the one i'd like for awop. sorry bout that.

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