Sunday, September 5, 2010
It Feels Like a Depression to Me
By Alan Caruba
Between the time that George Washington took the first oath of office as president and when Barack Obama did—-1789 to 2009, the United States had borrowed nine trillion dollars. Since Obama took office, it has borrowed or imposed nearly three trillion more debt. Tell me he is not deliberately seeking to bankrupt the nation.
In an August 28 Wall Street Journal editorial it noted that “To no one’s surprise except Vice President Joe Biden’s, second quarter economic growth was revised down yesterday to 1.6% from the prior estimate of growth of 2.4% which was down from first quarter growth of 3.7%, which was down from the 2009 fourth quarter’s 5%. Economic recoveries are supposed to go in the other direction.”
I was born during the Great Depression of the 1930s and have lived long enough now to find myself in a new one. There are similarities between the two, but the first one led to the creation of a variety of government regulatory entities and programs that should have avoided or at least were expected put the brakes on the current one.
At the heart of the current Depression is the government’s intrusion into the nation’s housing market via Fannie Mae and Freddie Mac, government “entities” that functioned to purchase the mortgages provided by banks and lending companies that, by law, were required to make “sub-prime” bad loans. They have since been seized and billions remain at risk until such time as they are removed from distorting the housing market.
The mortgages were then bundled and resold to banking and investment firms. When the housing “bubble” failed, it threatened the financial structure of the nation. It was a classic asset bubble as people used their homes as piggy banks, taking second mortgages to pay for lifestyles that often did not include saving money for a rainy day. If this sounds like infantile behavior, it is.
Despite the multi-billion dollar bank bailouts initiated in 2008 at the end of the second Bush term and “stimulus” bailouts continued by the Obama administration, the recession has grown longer and there is talk of a “second recession.” This is like saying the family drunk or druggie has a “consumption problem.”
Despite zero interest rates for banks borrowing from the Federal Reserve justifiable fears have slowed lending. Consumers have held off spending. Home sales reached a 15-year low in June.
If the Obama administration and Congress allow the Bush tax cuts to expire, it will deepen the current crisis. In 1932 President Hoover persuaded Congress to raise taxes and we know this led to a decade of a severe economic Depression.
Poor monetary policy drove the Great Depression and is being repeated in this one. Government does not create jobs. Its highest priority is to protect the U.S. dollar so that investment and growth can be maintained.
E. Ralph Hostetter, publisher of American Farm Publications, recently noted that “The federal government has been in control of the U.S. dollar since 1913 when the Federal Reserve Banking System was established.”
“The 130 years prior to 1913, going back to 1783, was the longest period of currency stability in U.S. history. Since the dollar came under control of the Federal Reserve Bank in 1913, it has lost 90 percent of its original value. Eighty percent of that loss has occurred since President Richard Nixon took the United States off the gold standard in 1971.”
As Gerald P. O’Driscall Jr. recently wrote in a Wall Street Journal essay, “The solution lies in restoring balance sheets. For financial firms that means raising capital. For consumers and businesses alike, that means saving more of their reduced incomes.” He warned that “Low interest rates slow the process…by keeping asset prices artificially inflated.” The current Federal Reserve interest rate is zero.
The entire governmental and economic system depends on trust and the Obama administration has squandered that by constantly telling Americans that things were getting better when it was obvious to everyone they were not.
Claims that “shovel ready” projects would turn around the economy were false. Only 3.3% of the $814 billion stimulus was allocated to the Federal Highway Administration for highway and bridge projects. The bulk of the funds expended were directed at retaining civil service jobs of teachers and funds for police and firefighters. Union contracts, fat with pension and health benefits, have bankrupted many States.
In early August first-time claims for unemployment hit a nine-month high. Since the stimulus passed, 2.6 million Americans have lost their jobs and 1.2 million have given up trying to find a new one. Despite the 9.6% figure the government cites, the actual levels of unemployment are far closer to 20%.
During the Great Depression, unemployment was 25% and wages fell 42%.
The nation has reached a point where well-respected economists are now openly using the “Depression” word. David Rosenberg, writing in his daily briefing to investors, warned against interpreting the occasional blips of Gross Domestic Product and stock market gains as signs of recovery. Other economists from major investment and banking institutions are reducing their GDP predictions for 2010 to an anemic range of 1.5% to 2%.
The United States is not in “a summer of recovery” and is not likely to see any recovery if taxes increase. Massive “reform” of Medicare will drive up insurance and healthcare costs. Massive infusions of taxpayer money to keep states afloat to pay for Medicaid and other mandated costs are temporary at best.
Social Security, insolvent because successive Congresses have raped its so-called trust fund, will require a major overhaul to protect those who have paid into it and free new generations from its requirements.
Tax “holidays” are needed to allow businesses and consumers to keep their money instead of handing it over to a profligate federal government and to States that have failed to exercise fiscal sanity.
Get used to the word “Depression.” That’s what we’re in and the first step to get out of it will be to send people to Congress who will address these problems.
© Alan Caruba, 2010
Posted by Alan Caruba at 7:56 AM
Labels: Democrats, Great Depression, President Obama, US economy
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There could be numerous jobs as of now. The federal government, state governments and local governments have made the rules for reporting income and employment data and zoning regulations so onerous and expensive that it has become next to impossible for a person without a lot of money or financial backing to open and operate a small business legally.
The US is most certainly in either a great depression or "long depression, and it will once again be a long time getting out of the situation we are in. Neither "Big Business" nor governments can do anything to help other than eliminate those onerous requirements and get out of the way.
The only answer is to allow American citizens to easily and inexpensively open and operate small businesses and put Americans back to work.
If the federal government hadn't squandered trillions of future taxpayer dollars begining with TARP I, there could have been much easier ways. But that future taxpayer money is long gone.
We are in agreement. As Reagan famously said, "The government is not the solutiokn. The government is the problem."
Once again you hit the nail on the head of a complex issue with an economy of words!
Yes, another (Second) Great Depression is about send to third world poverty large numbers of Americans for the same reason it happened the first time around - Government intervention in the economy.
The critics say the definition of insanity is doing the same thing over and over again expecting a different result.
Therefore, it is the height of insanity for the American People to allow the government anywhere near the economy based on two significant historical economic disasters less than 100 years apart.
I hope when this latest economic hurricane blows itself out, people will listen to the sage words of Ayn Rand and separate the economy from the government by Constitutional Amendment.
Concise and to the point. Must reading for anyone with an open mind to what the realities of this situation we are now faced with I am re-posting this in my blog (joetote's blog) as it is written for all to understand. Brilliant! I will be following your blog ( I just stumbled across it today) from now on and will encourage others to do so also.
Joe, my thanks and by all means do share anything you find here with visitors to your blog.
I think most of us had already got used to the word depression. We can make a difference and resolve the issue and the first step we need to do is to elect those individuals who truly aim to serve people.
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