Bailouts Don't Solve Underlying Problem 11 comments
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There should be a wider debate on economic principles and what the role of government is. We’ve become confused about the role of government in the economy - and the role of individuals and corporations. This is a big debate that isn’t taking place at the forefront of the media. Instead, the media is too busy talking about what the government can do to fix these economic problems - but they usually focus on “fixing” the symptoms, instead of focusing on the real problem; An economy financed on debt is unsustainable and only masks the true problems of competitiveness and sustainability. We should not be relying on consumers’ spending of debt dollars in order to be economically prosperous!
No amount of government bailouts, stimulus packages, or increased taxation to allow more government “spread the wealth” programs, will ultimately deal with the underlying economic issues. They only mask the issues and lead to greater problems in the long haul by delaying the economy from answering them. We need to become competitive again through innovation, invention, progressing technology forward, increasing efficiencies, etc, etc, if we are to solve our economic problems.
Debt can now be added to a long list of our economic problems. This process will not be short neither will it be painless, but it is necessary. In the fight of ‘Government vs. Economics’ - I pick Economics as the ultimate winner. Yes, the government may appear, at times, to be winning - But it can’t fight the Economics forever, in the battle of attrition, we know who will win. Fundamental economics has a greater endurance (forever, infinite) than a political agenda (set by politicians and governments of the day).
Should we bail-out the big three automakers? (There are 300+ comments to this piece already)!
My Take: Tesla Motors has created the Tesla Roadster - 100% electric, 244 miles per charge, 0 to 60 in 3.9 seconds, costs only pennies per mile, all for $100,000 (and that could come down if they were mass producing - they only build 1,000 a year!). Why can’t the big three compete? Innovate!!!
I hope we have seen the last of the stimulus and bail-outs, but I have my doubts due what people believe (government, please save us! hahahahahaha). Yuck!
My Take: We don’t need government stimulus. Things will turn around, they always do. The problem is we, as consumers, are too leveraged and have too much debt at the moment. We’ve spent money we have not yet earned - and now we are beginning to realize we’ve taken on too much debt, and we are going to spend less until we have paid for what we already spent! Debt hid our problems during the “good” times (where we were taking on more of it!) and will make the bad times look worse (while we pay down some of it). Ultimately, things will turn around, but it will take time (perhaps a decade - as that is about how long it took us to get into this mess) and it won’t be painless.
This debt burden that we now have at one time helped mask the true problem: America is no longer economically competitive. The taking on more and more debt was unsustainable. America is no longer competitive nor was this debt accumulation sustainable. Now we have to face reality and get back to competing and using our brains instead of other people’s money. How is burdening the Federal Government (and every citizen) with more debt going to help the sustainability and competitiveness of this economy??
What do U.S. Policy Makers Know?
My Take: The “policy makers” are the problem. Of course they make it up as they go. People now cry to the government when they lose their job, they want the government to do something, so the government does something - not that it works or makes any economic sense.
Perhaps debt and interest rates shouldn’t be a core objective - an economy financed on debt will ultimately fail. It is unsustainable. So anything to do with interest rates is just a futile effort to get people to take on extra debt to mask the true problem with the economy, competitiveness.
Tony D’Altorio on Great Expectations of Obama, but not the Economy.
My Take: Society has went toward one that begs government to solve its problems as if government has all the answers. So government politicians are pressured to “do something.” With Obama entering the White House, it’s no wonder corporations are lining up for cash… they can smell some free money - and if enough of them cry loud enough - they might just get some. I hope it doesn’t happen - but Obama was in favour of the bail-out, so why wouldn’t he be in favour of more? That’s the answer government has - bailouts - so we just need more bailouts if they are correct, pepper in some stimulus packages and some tax increases to give the government more money to spread around to solve all these pesty economy problems. It’s so wrong! Bailouts don’t solve the underlying problems.
Bail-outs, stimulus packages, reduced interest rates, etc, etc - all of these proposals only deal with masking the symptom, that spending in the economy is declining, but fail to address the underlying problem that has created the symptom. The economy isn’t competitive and is unsustainable. We’ve taken on too much debt! We hid our problems for decades by taking on debt and spending it, as if it was already earned, but consumers have realized they need to pay some of these debts off.
No politician that promotes bailouts or picking and choosing winners with unearned money, will solve the problem. The economy is not sustainable nor is it competitive. Unless these issues are addressed (and I don’t expect them to be), I really can’t see what it is people hope can be accomplished by “spreading the wealth” through more stimulus packages and increased taxes. Those only further mask the true problems. But I have no fear, in the fight of Government vs. Economics, Economics will win in the end. We will, eventually (it might take decades), realize that we need to be more competitive (and innovative/inventive) and less reliant on consumers spending debt dollars if we want to be sustainable.
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This article has 11 comments:
You believe the stories that the media has published about unemployment being in the 6 % range.
I believe it is closer to 20% and getting worse.
Also things will not turn around this time like they have in the past because we are doing two things different then we had in the past.
1. We are allowing our companies to put the American consumer out of work by offshoring their jobs because we believe the lies about they are finding similar or better paying jobs. If you believe this, you need to read the article titled "Your wages do matter" at www.KeepAmericaAtWork.... for one persons story. Now multiply that dramatic loss of taxable revenue to run our country on and the dramatic decrease in purchasing ability and then multiply it by 20 million people if you believe unemployment is at 10% or 40 million people if you believe as I do that unemployment is at 20% and you will see why our retailer, manufacturers and raw material producers are all fixing to go under and it all comes down to one thing.
We are putting the consumer out of work and they are barely making their mandatory payments and they have no more left to give.
As for your statement about debt. Agreed.
Virgil
www.KeepAmericaAtWork....
2. We are allowing our companies to transfer their assets offshore so that they pay less taxes.
This will mean that the american consumer will need to pay more taxes to cover our annual budgets.
Problem is, we're putting the American consumer out of work, so they can't pay more which means every community, county, state and our government are going to have to dramatically cut spending on the things that we have come to expect them to be doing.
Not saying that is a bad thing as I believe they can cut some things.
This is kind of like greenspan stated recently when he said that he never calculated on the value of houses going down because they never have.
Well the people that are letting or sending our jobs offshore are making the same mistake and I want the names of their companies and the CEO's names so that I can put them on my "Wall of Shame" at www.KeepAmericaAtWork.... so that when you as the owner of a retailer, manufacturer or raw material producer, or a consumer can say to them, "Thanks a lot for destroying my business" or my life.
If we're going to point fingers, lets point them at the real problem, not the symptoms.
Virgil
www.KeepAmericaAtWork....
Marriner S. Eccles, who served as Franklin D. Roosevelt's Chairman of the Federal Reserve from November 1934 to February 1948, detailed what he believed caused the Depression in his memoirs, Beckoning Frontiers (New York, Alfred A. Knopf, 1951)[24]:
As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery. [Emphasis in original.]
Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.
That is what happened to us in the twenties. We sustained high levels of employment in that period with the aid of an exceptional expansion of debt outside of the banking system. This debt was provided by the large growth of business savings as well as savings by individuals, particularly in the upper-income groups where taxes were relatively low. Private debt outside of the banking system increased about fifty per cent. This debt, which was at high interest rates, largely took the form of mortgage debt on housing, office, and hotel structures, consumer installment debt, brokers' loans, and foreign debt. The stimulation to spend by debt-creation of this sort was short-lived and could not be counted on to sustain high levels of employment for long periods of time. Had there been a better distribution of the current income from the national product -- in other words, had there been less savings by business and the higher-income groups and more income in the lower groups -- we should have had far greater stability in our economy. Had the six billion dollars, for instance, that were loaned by corporations and wealthy individuals for stock-market speculation been distributed to the public as lower prices or higher wages and with less profits to the corporations and the well-to-do, it would have prevented or greatly moderated the economic collapse that began at the end of 1929.
The time came when there were no more poker chips to be loaned on credit. Debtors thereupon were forced to curtail their consumption in an effort to create a margin that could be applied to the reduction of outstanding debts. This naturally reduced the demand for goods of all kinds and brought on what seemed to be overproduction, but was in reality underconsumption when judged in terms of the real world instead of the money world. This, in turn, brought about a fall in prices and employment.
Unemployment further decreased the consumption of goods, which further increased unemployment, thus closing the circle in a continuing decline of prices. Earnings began to disappear, requiring economies of all kinds in the wages, salaries, and time of those employed. And thus again the vicious circle of deflation was closed until one third of the entire working population was unemployed, with our national income reduced by fifty per cent, and with the aggregate debt burden greater than ever before, not in dollars, but measured by current values and income that represented the ability to pay. Fixed charges, such as taxes, railroad and other utility rates, insurance and interest charges, clung close to the 1929 level and required such a portion of the national income to meet them that the amount left for consumption of goods was not sufficient to support the population.
This then, was my reading of what brought on the depression.
The contrasts between then and now are stark.Money supply has expanded and trade between nations is continuing. The policy responses today will serve to limit the recession to a much more recognizable economic event.
which is being floated! He's made campaign promises. I voted for him but he needs to be reminded the end to Iraq was supposed to pay for his deficit spending, right?
I say break up the auto makers and sell the parts off to those Toyota, etc who opened
plants in Tennessee and elsewhere in the US. Try to find jobs them with those viable
foreign car makers. Face the music, there is not a rathole large enough to bail out
the "big" three until they retool. Besides, they will time it wrong if oil goes to $50
and this deflationary spiral takes hold, we won't need 100 mpg autos.
This is why people are lazy and transform this into greed. To get out of life's pain. It's a downhill run from the start. God learned how to make energy seek a 'higher' level for a split second and the universe was born.
After that, everything is in a constant state of decay. In time, you will rot and your diamonds will turn to dust. No get out that physics book and solve this problem!!
His "memoirs" objectives are quite simple: it is justify his and FDR's administration failure to address and solve the Depression. Their approach was based on
- Government intervention
- Wealth redistribution
In other word, FDR tried socialism to get America out of the Depression of 1930s.
It is well known their approach did not worked. They have failed to rejuvenate US and world economies. So, the WW2, they helped to initiated, was the saver.
This is the history. Everyone can argue about the causes and workable cures for the 1930s Depression.
----------------------...
Let us understand few simple things:
- not all recessions are the same (different causes and potential cures)
- not all depressions are the same
- not all human diseases are the same regardless of their causes and their symptoms
The world of 2008 is very much different from the world of 1929-1937. Then in 1929-1937
- The USA was the world most developed & advanced industrial country
- Only some European countries were its trading partners
- Most of Asia and Latin America countries were under colonial rules and were unable to buy much
- Finally, huge and advanced American industrial capacities and capabilities were the major driving force responsible for developing the USA into the world economic and military superpower.
Now things are very different from 1929-1937:
- Clinton and Bush administration "post-industrial" and "consumer society" mentality substantially dis-industrialized America industrial might and capabilities. America is in a highly disadvantage industrial situation in comparison with Japan, Germany, China.
- American products are not competitive any more. Just look at GM and Ford vs. Honda and Toyota as well as German and Korean car-makers. Even in the airline business, Boeing surrendered its dominant role to European Airbus.
- US involvement in Iraq and Afghanistan substantially undermined American military might and capabilities
Bottom Line
1. The US Depressions of 1929-1937 and 2009-201X are not the same. Consequently, the experiences gained from the 1929-1937 Great Depression are not very helpful for the present situation.
2. Robert Nabloid is correct stating that America MUST restore its highly competitive industrial might and capabilities. There is no way around it. Doing so will require
- Political will
- A lot of pain and efforts
- It will not happen over night (in just few months of even a few years). It will be a long process.
3. The sooner America starts this journey to a recovery the sooner it will be there. Bailouts and "consumer stimulus" packages will just delay the recovery process and increase the pain and suffering.
Actually I have talked A LOT about off-shoring and how it is hurting the middle class. We can't issue free trade agreements with countries that don't reciprocate - and we can't issue free trade agreements to countries that have unfair advantages due to currency arbitration, low (or no) minimum wages, social programs to ensure basic human rights, etc... We are forcing our companies to off-shore. That is one of the core causes. I've written about it plenty on my site. www.nabloid.com/the-co.../
and
www.nabloid.com/nabloi.../