Economic Developments
Posted: Mon May 19, 2008 7:50 am
Analysis by a friend of mine.
http://finalswordproductions.com/politicalblog/
05/18/08
12:38:53 pm, Categories: 2008, 551 words English (US)
the half trillion dollar misunderstanding
http://www.bloomberg.com/apps/news?pid= ... refer=home
Forget the happy pabulum the daily media feed us. Welcome to reality. Our financial sector has pulled in half a trillion between the Feds and outside capital. No one can find a bottom. At the same time they are refusing to lend to each other or to consumers/small business. They are readjusting their balance sheets. This is all necessary. It is also quite painful and shows no sign of ending. The ripples from the credit crunch are working their way through the economy with no end in sight. To them must be added the inflationary pressures from the commodity explosion. Now none of this is per se inflationary. To build an inflationary cycle the higher prices must lead to higher wages as more money is used to maintain consumption. We are not doing that beyond some silly symbolic USG checks. So what will happen is obvious. If people must spend more for gas, heating oil and the groceries they will spend less for everything else. That everything else will include debt. Faced with feeding the family or letting the credit card default and the answer is obvious. They will also walk away from homes with negative equity. These are the ripples to fear, not inflation. We will go through a period of reduced expenditure, massive debt default/mortgage default and a nasty populace that will figure out that a small segment of the population in the big cities creamed up all the gains on the upside of the last two bubbles and then handed off the debts to be nationalized on the downside. The deregulation/lower taxes/markets uber alles orthodoxy as about run its course. By refusing in the name of ideological purity and naked greed to discipline the financial industry they will trigger a new round of statist populism. Now the normal response to this would be to argue for good Republican administrators who at least can run a welfare state prudently. After W selling governance as a Republican virtue is a joke. What does this mean?
1. The next four years will be worse than Carter's four regardless of who wins in November
2. They will be worse in different ways depending on whether McCain or Obama wins. If McCain the stalemate will be over the blame. If Obama wins [the more probable outcome] expect an explosion when fiscal and financial realities show that the unmet spending wishes of the traditional liberals collide with the economic mess W leaves behind. The economic mess is worse than Iraq. We can run away from Iraq. There are huge costs in doing so but we can. We cannot run away from the US. The trigger to all this is going to be health care. Obama and the national Dems are mostly running an empty slogan campaign of just saying they will change everything W did. Should work. However one of the few firm markers they have put down is on healthcare. The fantasy is that they can cover the cost by a mix of repealing the Bush tax cuts and ending the Iraq war. When that money proves to be needed just to stem the collapsing Federal deficit the war within the Democratic caucus should be nuclear.
==
Edited the link to make it clickable. My apologies. Simon
http://finalswordproductions.com/politicalblog/
05/18/08
12:38:53 pm, Categories: 2008, 551 words English (US)
the half trillion dollar misunderstanding
http://www.bloomberg.com/apps/news?pid= ... refer=home
Forget the happy pabulum the daily media feed us. Welcome to reality. Our financial sector has pulled in half a trillion between the Feds and outside capital. No one can find a bottom. At the same time they are refusing to lend to each other or to consumers/small business. They are readjusting their balance sheets. This is all necessary. It is also quite painful and shows no sign of ending. The ripples from the credit crunch are working their way through the economy with no end in sight. To them must be added the inflationary pressures from the commodity explosion. Now none of this is per se inflationary. To build an inflationary cycle the higher prices must lead to higher wages as more money is used to maintain consumption. We are not doing that beyond some silly symbolic USG checks. So what will happen is obvious. If people must spend more for gas, heating oil and the groceries they will spend less for everything else. That everything else will include debt. Faced with feeding the family or letting the credit card default and the answer is obvious. They will also walk away from homes with negative equity. These are the ripples to fear, not inflation. We will go through a period of reduced expenditure, massive debt default/mortgage default and a nasty populace that will figure out that a small segment of the population in the big cities creamed up all the gains on the upside of the last two bubbles and then handed off the debts to be nationalized on the downside. The deregulation/lower taxes/markets uber alles orthodoxy as about run its course. By refusing in the name of ideological purity and naked greed to discipline the financial industry they will trigger a new round of statist populism. Now the normal response to this would be to argue for good Republican administrators who at least can run a welfare state prudently. After W selling governance as a Republican virtue is a joke. What does this mean?
1. The next four years will be worse than Carter's four regardless of who wins in November
2. They will be worse in different ways depending on whether McCain or Obama wins. If McCain the stalemate will be over the blame. If Obama wins [the more probable outcome] expect an explosion when fiscal and financial realities show that the unmet spending wishes of the traditional liberals collide with the economic mess W leaves behind. The economic mess is worse than Iraq. We can run away from Iraq. There are huge costs in doing so but we can. We cannot run away from the US. The trigger to all this is going to be health care. Obama and the national Dems are mostly running an empty slogan campaign of just saying they will change everything W did. Should work. However one of the few firm markers they have put down is on healthcare. The fantasy is that they can cover the cost by a mix of repealing the Bush tax cuts and ending the Iraq war. When that money proves to be needed just to stem the collapsing Federal deficit the war within the Democratic caucus should be nuclear.
==
Edited the link to make it clickable. My apologies. Simon