FEELS LIKE A DEPRESSION TO ME
By Alan Caruba
In an August 28, 2010, editorial, Wall Street Journal noted:
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, 2010.
If the Obama administration and Congress allow the Bush tax cuts to expire, it will deepen the current crisis. In 1932, President Herbert 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.”
As Gerald P. O’Driscall, Jr., recently wrote in a Wall Street Journal essay,
O'Driscall 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 of the American federal union.
In early August, 2010, 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 socalled 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.
Fiscal Policy: Taxation & Government Spending
Alan Caruba writes a daily post at http://factsnotfantasy.blogspot.com. An author, commentator and business and science writer,
he is the Founder of the National Anxiety Center, a clearinghouse for information about "scare campaigns" designed to influence
public opinion and public policy.
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