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Sunday, Nov 8, 2009
America's economy has become a stripped down motorbike, every time the Republicans have gotten in they have taken out the safety features in order to try and make it run faster, until finally you have reached a point where the economy has no breaks, the steering is wonky, and America, which is supposed to be riding this thing, isn't wearing a helmet.
It is going to end in a mangled and horrible mess that may mean America as a whole either coming out crippled, or dead.
The Great Depression was bad, but America's government had a certain amount of money with which it could deal with it. That money has been spent, and America is currently reaching a level of debt where it won't be able to pay it back.
For what happens when countries go bankrupt, look at revolutionary France and the fall of the Soviet Union. Countries simply cease to exist in their current state when they go broke.
Whoever wins these elections will either go down as one of the worst presidents America has ever had, or one of the very best.
It will either be Hoover, or FDR in November.
In August of '06 I guessed we would have a recession due to the housing bust starting in '07; I figured it would start about the middle of the year rather in Nov. or Dec., as it probably did. In any case, the situation has grown much worse since then. The banking system is in great trouble, the Federal government is more than $9 trillion in debt, many state governments are deep in debt, and many households are on the verge of bankruptcy.
Bernanke and the Fed have done what they can to help the banks and get credit flowing again, but nothing can really be done about the insolvency problem facing so many.
There are many households facing the pain of an adjustable rate mortgage with the interest rate about to adjust up; they simply don't have the income to make the increased payment. They probably don't have enough equity in their home to remove, even if they wanted. Regardless if they made an unwise purchase or were tricked into an ARM, many of
these homes will end in foreclosure. Other types of mortgages are also in increasing trouble, such as Alt-a, and many who took out home equity lines of credit may not be able to repay them. With so many homes in foreclosure, there won't be much of a need to build new homes, thus many jobs in the real estate and construction areas will be lost. As well, with home prices declining, many people will have their home value reappraised down, and this will result in much lost revenue for local governments.
Unfortunately, this is not the only debt problem many people have. They also have
high credit card balances, student loans, and car loans. Paying these off might have been
very difficult in the best of circumstances, but in a recession with stagnant or falling wages
and many thousands of jobs being lost, many people will not be able to, and in fact may
end up declaring bankruptcy. Adding to their woes is the problem of the falling dollar and
increased prices for certain goods.
Normally the Federal government would be expected to "ride to the rescue", but being
$9+ trillion in debt and digging a deeper hole every month, they may be increasingly limited
in what they can do. Foreign governments are increasingly wary about holding dollar-denominated assets, and if the Federal government spends too much on bailout programs,
foreigners may dump much of our debt, causing interest rates to skyrocket. This would
leave us in a near-impossible situation.
Since we are facing such a bad situation, our government may only have 2 real choices;
let the situation play out and face a massive and long lasting depression; or flood the economy with dollars and pay off our debts with a vastly devalued currency, risking hyperinflation.
1% of the population with 20% of the wealth?!
Sounds like a job for Taxation Man!
Or does it?
The problem with those numbers is that while they make good headlines, they're almost irrelevant in the larger debate.
Imagine if you effectively taxed that richest one percent, and took away half their money. So far so good! You've freed up 10% of the nation's wealth. Then, when you try to redistribute that wealth, you discover than an extra 10% really doesn't keep very many of the other 99% out of trouble.
For someone earning $5.00 an hour, $5.50 is not a "get out of wage-slave jail free" card. $9.00 might be, but you don't get there by confiscating 50% (or even 100%) of the income of the nation's richest. The maths just doesn't add up. But let me just make it clear that I'm not advocating voodoo economics, either.
The "real killas" in economy terms, and certainly in income redistribution terms, are the middle classes. Policies that enable them to rack up huge household debt (which Andrew mentions), to believe that their long-term financial interests are served by highly leveraged purchase of 2nd and 3rd properties, to easily lose health insurance and thus slam straight to the bottom of the asset tree --- those are the problems.
Not the richest 1%. That's just the go-nowhere politics of envy.
Convincing the middle classes to invest wisely and vote for safety nets, though, is really, really tough. Getting them to vote in their own interests is tough enough -- getting them to act in their own interests may well be the very definition of a Sisyphean task.
Actually, you don't just "Redistribute the money."
That only results in staving off the current problem.
You take that 10% of the money you have freed up, and then spend it on boosting your infrastructure and paying off your debt, with improves employment and helps business by removing certain barriers to them getting goods to market.
You also improve funding towards the sciences, which helps business by upping the technological level of America, and helps boost employment by creating new products that the rest of the world hopefully wants.
Taxes are not there to "Play Robin Hood" they are there to pay the bills and improve what your country has.
Much of the initial coverage about Fort Hood turned out to be wrong. Is there anything wrong with that?
The accountability imposed by another country for the CIA's kidnapping and torture reveals much about our own.
Fox News' morning show plays to type, talking about whether Muslims in the Army should face "special debriefings"
The survivor and author is upset about comparisons some on the right are making to genocide
Once seen as a lunatic fringe, reactionary anti-women groups are courting respectability
Salon headlines in your mailbox
