I don’t happen to think the economy is in such bad shape. I believe it’s largely a rich person’s crisis, which they, as good, wholesome, greed-driven Americans, are trying to spread around. And they will probably succeed. Money protects itself.
But if there is a crisis, we’re still just starting to walk down the path of it. There’s plenty of time to turn around before we get to real bad stuff like a crippled GDP and massive unemployment. We need to take this talk about “This is no time to think about the deficit, we’ve got to SPEND” and throw it out the window. This is not a repeat of the Great Depression. In that era, there was no cushion. The industrial revolution was recent. It still took a lot of manhours to bring the food from the fields to the table. Now, it takes almost none. Poor is relative. We are not going to starve.
Yes, the worst we are looking at now is a proportional drop in the wealth of the average US citizen. No more plasma TV’s. Absolute worst case, we might come out looking more like a continental European economy. That is a far cry from people waiting in food lines.
So, getting back to the deficit. In my opinion, we are at the very early stages of a potential financial problem of meaningful proportions. However, our policy makers are acting as if we are in the late stages of a problem of catastrophic proportions. They are saying, forget the Deficit, now is not the time to worry about math and interest rates, but to do what it takes to survive today; and maybe tomorrow, we can get our head up.
Wrong. This is emotionalism, combined with their desire to avoid the only true catastrophe from their point of view: loss of their own position. They are protecting themselves, rather than educating the public about the root problems.
In reality, we should view ourselves as a household that suddenly realizes it is spending more than it is saving. The response is not to declare bankruptcy. The response is to stick our wallets in our pockets, get out our calculators, and start managing our finances.
On a national level, a lot of that is out of our direct control. But there is one thing we everyday Americans can do to help, and that is…work harder at our jobs.
We are the economic engine of our country. Yes, us. Not some new policy by the President. Not a tax stimulus package. We, going to work everyday, are our country’s economic health.
Remember how people talk about a “trade imbalance”?
Does your company have a product that sells overseas? Help to sell more of it, and you are reducing the trade imbalance.
Does your company work in technology? Work hard to develop the new inventions at your company, so that America can sell them to the rest of the world or use them to make our businesses more competitive.
Does your company sell health insurance? Spend that extra hour finding lower rates, so you can sell policies to more Americans to make us the healthiest, longest-living, and hardest-working nation in the world.
The side benefit of this approach is, you don’t need anyone else to cooperate, for it to work. If everyone else in the country ignores the WORK HARDER policy, but you implement it, you will be in line for that promotion over your peers. You will get the big raise and the bonus. You will build a career and a professional reputation that will have people coming to you. You will increase your chances of economic survival dramatically, even if others should founder.
If you don’t have a job, get one. Take the first thing that brings some cash in, and shop your resume in the evening. Can’t work full time? Work part time. Can’t work? Volunteer. Go to school. All of this stuff matters. You keeping busy is healthier for you and the economy than you sitting around drinking beer.
Watch your finances. There’s no shortage of lessons from the financial events we’ve seen, but one is: when you skimp your mortgage payment to put a down payment on a boat, no one wins; not the boat builder whose payment schedule you’re going to miss; not the bank which is going to have to reclaim your home at a loss; and not you, when you get past your breaking point with debt.
So, is a politician going to say this? “Work hard at your jobs, Americans. Tighten your belts.” Probably not. They’ll frame the problem as something only they can solve, with ingenious new schemes for shuffling money around in space and time. And I speak of Republicans and Democrats both. The only difference is, which way do they shuffle.
It is, in some ways, a dangerous time we live in. The world is so complicated, it’s easy to for a relatively small number of people to throw the perceptions of an entire country in the wrong direction, so that we invade a nation that posed no threat to us…or sell off billions of dollars of our grandchildren’s wealth to fix a crisis that never existed.
If you think comparing a typical family budget to the complex decades long cycles of our economy is a reasonable or rational comparison then please stick to engineering. As an Economist I can tell you that you have only demonstrated that you know little of the facts.
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p>Yes the current crisis has been caused and even self created by many of the super rich and the peak into Wall Street and the public unveiling of the excesses is shocking to the average individual who is now apparently on the hook for the Frauds committed. Let me be as clear as I can the house of cards is collapsing and when it is done we could see unemployment as high is not higher then the great depression 30% is not beyond the realm of possibility. For the rest the 70% left with what is left you will find accurately the top 2-3 % showing little strain in weathering the storm and the decades of no growth based on the rape of the wealth of our nation. for the remaining 67% they will move in and out of the bottom 30% with no growth with jobs always at risk and the potential for opportunity lost for Decades.
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p>I want you to think about the last 2 years and the number of new small to mid size companies and business plans that have not been able to start because of the lack of capital to get them started. Lets not go down the road suggesting that they needed to save in order to start a business these are people and groups who have capital but need credit to meet payrolls and startup coasts not associated with their need for income. The local banks are in far worse shape then the Bank of Americas and with the lack of confidence are unwilling to take risks the track record of 3 out of 10 start ups survive 5 years in this market is to risky yet historically for almost 70 years of records it is the average, mean and norm. Subsequent to this loss is the future lose of jobs lose as a result as an engineer you may have not yet worked for a small to mid size company/ Corp the 5-50 employee operation that has been the back bone of growth here in the united States. They are a critical segment of our economy and unlike the recent revelations on Wall Street they have been under siege for almost 2 years now as local capital began to dry up. The cost of this will be Decades in sorting them selves out as history suggests remember your local down towns and the every other store empty or industrial parks shut down because there are no R&D forms and small manufacturers to fill the square footage. This is far more complicated then tighten the budget it is far more reaching. I would suggest that if you really want to know what it could be like if we cannot re-stabilize the cards try taking your house hold budget cut your income to unemployment levels for 18 months if you qualify for max each employee would earn about $730.00 per week which is currently taxable by the feds 5% use that as your belt tightening budget starter and see how long you can last. Let say 36 months before we see any new growth or job creation. These are the real numbers and the real facts and I am barely scratching the surface. Good Luck Will.
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p>Best to All
Just my opinions
First of all, your point is well taken that I am straying from my knowledge base. I did acknowledge this, and if I could write the diary again, I would adjust the tone of the entire diary to match the layman’s viewpoint expressed in my opening comment. Oh well.
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p>I would like to make two more points in response.
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p>1: This crisis is a big question mark. Ed, we engineers make complicated things too, and sometimes they break or don’t work. Since they are very complicated, we need people who can communicate across disciplines to grasp how to fix things, and present a plan that people will accept. If someone can’t do that, they are either a bad communicator, or they don’t really understand the problem, or both. Either way, they need to be removed and replaced with someone more ready to lead.
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p>Likewise, no one has yet explained this crisis in crisp terms of action, consequence, and cost-benefit analysis: what is the cost of a $700B bailout, vs. what is the cost of other options. Including you, not that it’s your job to. Until I hear such an explanation, I will not support a bailout.
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p>2. Professional development is not a dumb thing to be doing at the beginning of an economic pinch. I haven’t heard anyone saying this, and I think it deserves at least as much attention as a stimulus package.
I wish the Economic model we have built here in the USA was that simple to dissect and diagnose. Unfortunately I have yet to meet an Economist who said he knows it all. The current financial melt down has a number of critical faults related to the collapse not the least of which was the creation of new investment vehicles not seen before that were used as insurance bonds on outstanding bundled bonds based on inaccurate ratings by the three major rating agencies who employ thousands of Economist who spend hours pouring over raw data and fine print to assess risk and either they were not doing their jobs or they were also part of the Fraud committed on the American Tax Payer. Sad as this last statement sounds I am sure it is not the worst that will be said in the future as we begin to unravel the ball of yarn that is our current economy.
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p>I have 4 book shelves of text books and Non Fiction works by Economists of significant note and standing that have nothing to offer in their hundreds of pages that describe predict or suggest possible solutions that could be applied to this current situation. Many suggest this is a mild form of the 1929 depression since that was the only other time we have a melt down in the financial sector of the economy. I for one am far more pessimistic about the depth of this down turn and the suggestion that the bail outs have a prayer of working.
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p>Yet to take no action would have allowed the collapse to continue and to deepen as all faith in our American economy completely eroded. The best estimates suggest such an event would be far worse then 1929 and last far longer then the 15 years it actually took to dig out of that event. I strongly disagree with Hank Paulson and Ben Bernanke as the caretakers I think it is little more then putting the foxes in charge of the hen house. Hank Paulson thus far has only taken actions that have stabilized his friends and colleagues at the top firms in the US and done little to get to the root of the problem and that is Value and liquidity. My fear is this experiment of throwing 700 billion into the void and hope that the riff closes on its own is a caulk board experiment with little reality.
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p>I have several recommendations my self as to what needs to happen and I am working with several groups to raise our voices to the ears that are in control. God only knows if we will be taken seriously or even heard the jury is still out.
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p>What we are seeing is a financial 9-11 where an event occurred that damaged our financial structure to the point that it collapsed currently the work is still in the shock phase and a recovery attempt diagnosing the reasons and the solutions are months maybe years away as we unravel the waste.
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p>I am sure this does little to reassure you that your opinions on the validity of the attempts thus far are sound; your skeptism is justified to a certain extent. But like 9-11 and the world trade towers the events do not have a text book answer nor do they suggest a method of forensic examination to determine the cause and then a solution, sorry. Economics is still a pure theoretical science with no hard and fast rules or properties it is so fluid that no two set of occurrences can be traced to a single cause.
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p>I have worked 22 years in the business of helping small to mid size companies develop business plans restructure debt and secure financing for new product development and expansion, I also have done extensive marketing research for several firms. I have seen the local scale of the problem first hand I have been yelling for 2 years that liquidity on the street was drying up fast and it was heading into a real problem. I was not the only one I can assure you yet even as people were beginning to hear us and look the failures were coming to fast and growing in such complexity that it was truthfully impossible to anticipate what would happen next and how to solve one with out effecting another.
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p>I believe we will see several books in the near future that try to offer explanations and solutions for this crisis. How well they are received and the conclusions they reach will have to stand and be tested we may then have a better grasp on the issues.
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p>I would offer you a few truths I hold myself
1. The mortgages, Sub Prime and others were not the key to the collapse merely a component.
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p>2. That the lack of good moral and ethical practices was not applied to prevent the runaway greed for profits at all costs.
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p>3. That until liquidity returns to Main Street and loans are made available again nothing will be solved
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p>4. That we have not seen the bottom we still have two additional collapses to endure the retail sector post Jan 09 and the credit card industry which is bleeding red ink far faster and far worse then the mortgage industry.
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p>5. That even with the Crash of 1929 and the unemployment that was reported as 22% some now say 28% still left 72-78% of Americans employed.
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p>6 Lastly that post 1929 took the new deal and repeated government stimulus for a decade coupled with government spending to fund a major World War that required a rapid rebuild of the very failed industries to provide war materials. It also took over 8 million people out of the work population of the world. This allowed for a concentration and redistribution of wealth worldwide. Also please remember that post 1945 we saw the top Federal tax rates climb into the lofty 70% range on income over 1 million dollars which was also the top 1 % of wage earners at that time. We also saw the lowest tax rates for the lower end wage earners drop to 15% and implementation of individual spouse and child deduction which reduced taxable incomes even further this was the most progressive tax structure in the history of our economy and all of this played a role in pulling us out of 1929 fincial collapse.
May I suggest that you also Google the “Treaty of Detroit” that is credited with playing a key role in the success of so many of the Greatest Generation in the 50’s-60’s and the creation of a true middle class. Look at also the scale of the bail out that the GI bill offered this country and how many post WWII vets went to our leading colleges and universities and how dramatic rise in the education level of our country. This rise, in just the decade of 1945-1955, so far surpassed any previous decade even two decades of growth in the educational level of our population, this provided a key to the success of the economy in the post WWII time period and set a high standard which we have enjoyed since and all at a cost to the tax payer.
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p>I suppose I could go on and on but I am sure I would exceed BMG capacity to tolerate my rants and raves about the Economy.
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p>As Usual Just my Opinions
Best to All