|
September 17, 2008
–
On CNN last night, an "expert" analyst was asked
which of the Presidential candidates' plans seem better for dealing
with the economic situation we are in. The analyst replied,
without missing a beat, "There is no difference between the two."
He claimed they were both calling for regulation, and that was it,
and so both are the same.
To say that was in effect to say, "I have no idea
what is happening with the economy," and, "I am incapable of hearing
what Barack Obama actually said today."
Let's start with what is actually happening with the
economy. The incorrect information that the entire
non-Moderate Independent media is putting out there is that the
problem is bad mortgages. This is incorrect. They then
assert that they know the cause of the bad mortgage situation, and
that cause is Wall Street execs run amok.
None - none - of that is accurate.
As M/I has been reporting, the mortgage situation was
just the final symptom, not the problem. It has been reported
here, for more than five years - with 100% accuracy (you can go to
M/I's archive, every article is still
posted; not one of them requires a single change) - that America was
headed toward exactly the sort of bankruptcy and collapse we are
having now, and this was before most of these subprime/ARM mortgages
were even sold. The mortgages are not the problem.
For those of you new to M/I, you should start with
this article from November 2003 - yes, a full five years ago:
This Quarter's Economic Disaster Touted As "Record Growth"
Back then, everyone in both parties was
saying there was a "recovery" from what they saw as a recession in
2001. They all talked about this "record growth."
But as M/I reported back then:
The record 7.2 percent ‘growth’ was
the result of three things: massive defense spending, one-time
tax refunds, and refinancing due to low interest rates.
In case you haven’t noticed, two of
these things – the massive defense spending and tax refunds -
involve putting money into the economy that we don’t have, which
we will have to pay back, plus interest, down the road. And the
third thing does not actually involve any growth but simply
people taking advantage of a temporary opportunity to refinance
– the boom of which has now passed.
In other words, America wasn't growing, it was taking
money it didn't have and handing it to corporations.
So why would the entire media report this as good
news? Well, for the same reason John McCain said two days ago
that the "fundamentals of the American economy are strong." He
didn't misspeak. He said something George Bush has said all
throughout this crisis.
You see, according to the conservative philosophy
that entirely dominates the national conversation, the economy's
strength is measured by, to put it simply, how well corporate
profits are doing. If "growth" is strong - and by growth, they
mean growth of business profits - then everything is good. The
"fundamentals" that John McCain was referring to, and George Bush
talks about, and the media uses, are growth, inflation, and
unemployment. If growth is high, inflation is low, and
unemployment is low, then the "fundamentals of the economy are
strong."
So, John McCain was correct in standing there and
saying, "The fundamentals of the economy are strong." That is, he
was correct IF... and this is the big if that is taken for
granted... if you subscribe to an extremist conservative philosophy.
And that is the scariest part in all of this - that by the
measurements the entire economic center of America subscribes to,
which is the one the media subscribes to, which is the one John
McCain subscribes to, there is nothing wrong. Everything is
quite good actually.
The only problem is that, well, pesky reality is
showing that nothing is ok and everything is collapsing.
To get at what really is the issue, look at what John
McCain said in supposedly backing off from his claim that "economy
is fundamentally strong" and supposedly clarifying what he meant.
He thought he was backtracking by saying, yes, he knows there is a
"crisis," but "American workers are "the most productive and the
most innovative -- they are the fundamentals of our economy and the
strength of it and the reason why we will rebound."
(See
CNN article.)
But while John McCain thought he had found a nice
backpedal, he really just stated the same disastrously incorrect
philosophy another way. By conservative measures, the economy
is measured by "worker productivity" and corporate profits ie
"growth." McCain had first said things are currently "sound"
because growth is still strong. Later, noting that, actually,
there is an obvious crisis, he then went on to say things are
fundamentally strong because "worker productivity" is strong.
Now notice what is not included in any part of any of
the measurements we have talked about so far: how the American
worker is doing.
You see, strong "worker productivity" - while touted
by conservatives as a "strong fundamental" - really can be a sign of
coming disaster. How so? Well, if you take a worker, and
make him do the work of two men, he is being much more productive.
According to McCain's measure, that would be a great sign that the
economy is still strong - strong "worker productivity." Even
better, if you take that same worker and cut his pay in half, so
that now he is doing twice the work for half the pay, then this is
the best of all: worker productivity would be incredibly high,
AND economic "growth" would be incredibly strong, since corporate
profits would increase nicely.
So. We have been trucking along. The
American worker John McCain referred to has been worked harder and
harder, for more and more hours, being asked to do the work of more
and more men, while the real take home pay of that worker has
declined and declined. The entire media has reported this -
according to the conservative principles they universally subscribe
to - as an economy doing well. But the reality has been that
this poor worker, ie the American people, have been dying.
They haven't been able to make ends meet. Yes, they have kept
spending, but only because credit cards and borrowing allowed them
to.
Just when that ability to borrow had run out and the
economy was about to correct, the Fed, in the early 2000's, cut and
cut interest rates to record lows. And so, people took loans
off of their house equity, allowing this unmanageable situation to
sustain a little longer.
It is extremely important to notice that
NOTHING mentioned so far has anything to do with subprime or ARM
mortgages. So far, they didn't even exist.
By the time we got to 2003, when the M/I article
mentioned above was written, the situation was already dire and the
American economy on the verge of collapse. No one noticed it
(nor would they in 2004, 2005, 2006...) To put it simply,
Henry Ford's golden rule had been broken: workers were no
longer able to afford the cars they made. But the illusion
that they could was sustained because they were being allowed to
borrow to buy it.
And so corporate profits were high, growth was
strong, worker productivity was high. The corporations that
now are bankrupt were celebrating by handing their execs massive,
multi-million dollar bonuses.
The reality is, those bonuses were pay that never got
to workers. And, to put it simply, as M/I did back in 2003:
Signs of an actual economic
turnaround would be tangible and catch nobody by surprise. And
they would not come from out of nowhere, from minimal growth one
quarter to ‘record growth’ the next.
Things that would be actual signs of
economic recovery would be new job creation, new areas of
business development or development of new products, preferably
exportable ones. For example, if we had developed a useable
hydrogen fuel cell that we were ready to put into production,
that would lead to job growth and a chance for the economy to
grow.
But none of that existed in this
‘incredible’ third quarter of 2003.
What we saw this quarter was the
outflowing of cash from our nation’s coffers. You see, when
President Bush decided to create the biggest deficits in our
nation’s history, the money was going to go somewhere.
So, there it went. No, not to sound
investment. No, not to anything that will lead to long term
growth.
Quite simply, the rush of growth we
saw in the third quarter of 2003 was exactly like the rush of
water you see when you flush a toilet. Wow, all sorts of water
comes rushing into the tank, but in reality it is only a sign
that the water tank has been emptied and soon all the water –
both that which had been in the tank and what little water sat
in the bowl - will be gone in a blurring whoosh.
But I guess the sight of all that
water rushing around dizzied some people into thinking there was
a water glut. Even more, some went on to conclude that this was
the first sign that a massive flood is on the way.
Well, I hope they didn’t call their
plumbers, as it would be unfortunate to waste all that money on
an emergency call when really there is no massive flood of water
– or in this case - cash to come.
No, it was just an illusion, and
what will be left once that one exciting report is past is just
an empty tank – the empty national coffers.
However, don’t send that plumber
away too soon. There is a massive stoppage that needs to be
fixed on the part of certain people... that some people are
trying to perpetrate on us by acting oblivious to the fact that
this third quarter report was just the flashpoint of really,
really bad economic news. They had a very nice strategy,
that if you stuff the bowl with a massive amount of BS, the
water will seem to be so plentiful that the bowl runneth over.
This is the lynchpin of the
conservative economics that are the cause of the current disaster
- yes, mortgages are not the problem. In this voodoo shell
scheme that only cares about growth and keeping inflation low (ie
worker pay low) and productivity high, Bush-brand tax cuts make
those numbers swell, and so they can claim all is well, even as
disaster looms.
What is never measured - and what
would have told the true story of the economy - are things like
average American household savings to debt ratio; average American
earnings to expenses ratio. If either of these things -
which are central to our economy, 2/3 of which is supported by
consumer spending - were focused on, it would have been obvious
that we were headed for disaster.
Instead, what happened was that the
McCain/Bush/media/conservatism-based nonsense about a "recovery"
and strong growth were reported. The massively lowered
interest rates - lowered to a record low - started an upclimb in
the price of houses, as with such low rates, people could afford
to pay more principal. Yes, the lowered interest rates set
up the mortgage mess that was to come.
Housing prices began to rise rapidly -
but it was without cause. Home values hadn't increased.
Worker pay hadn't increased allowing them to buy more house.
It was only the lower interest rates that allowed more house for
the same payment that caused the climb.
As interest rates came back up a bit,
people couldn't afford the prices houses had jumped to.
Enter the schemes. Brokers stepped in and said, "Well, you
see how much housing prices have jumped recently. If you are
a smart investor, you will take advantage of these climbing prices
- take this loan, it is more than you can afford, but we will give
you super low payments for the first five years - with prices
climbing like this, you know you will sell before then and make a
ton of profit."
So you can begin to see what really
happened. It wasn't just that suddenly every American went
crazy and took out a stupid loan for the heck of it. What
really happened was that, thanks to the price spike caused by the
massive interest rate cuts, on top of the debt they already had
from just trying to get by, on top of not earning enough to make
ends meet, people simply could not afford to buy housing.
Just as they hadn't been able to afford the other things they had
been buying. They didn't have savings to put as down
payments - they were in massive debt already. So there was
little option for the average American but to say, what the heck,
either we take one of these ARM loans or we can't afford a house
at all. The taking of these disastrous mortgages was the
last attempt to stay afloat by an American public that had, in
reality, long since lost its ability to make ends meet.
This is the most important point to
grasp in all of this: it was not that the American public
was doing well, getting by, saving nicely, avoiding debt, and then
suddenly they took these mortgages. If that was the case,
what you are hearing in the rest of the media now would be just
fine, and John McCain could say things are strong and we'll just
duck and get through this mess, since the mortgages are the
problem.
If the mortgages were the problem, it
would not have been possible for M/I to have run the article we
did way back in 2003 - before these mortgages existed - telling of
the coming collapse.
Every year since the late 1990's there
has been a new record set for the number of personal bankruptcies.
Credit cards basically didn't exist until the 1970's. In the
1990's, for the first time ever, they became universal and widely
used. This allowed people to accept situations where they
didn't actually make ends meet. For a decade plus, the
conservative economic scheme which has gotten more and more from
the American worker while giving them less and less in return was
sustained by the new existence of these borrowing devices.
In the early 2000's, unpaid for tax cuts and record lowered
interest rates allowed the scheme to continue a little while
longer. From about 2003 until 2008, subprime and ARM
mortgages provided that last little bridge, allowing the
unsustainable, dysfunctional scheme known as conservative
economics to appear sustainable for a brief while longer.
What we are seeing now is not
something that needs to be regulated. Yes, more regulation
is needed, but the excesses on Wall Street are not the problem.
The problem is the non-functional, non-reality based scheme known
as conservative economics.
Which is what Obama has been pointing
out. He has said yes, we need more regulation. But he
has added that the real problem, which John McCain would never
even consider addressing, is the very fundamentals of conservative
economic dogma. 'Trickle down' never does. An
economy that is 2/3 consumer spending must have consumers who have
actual money to spend - not just credit card lines and loans.
The tax-cuts-to-the-rich scheme has bled the nation dry. A
handful of people have it all, and, with no one else with cash on
hand to spend and everyone having run up massive debt just getting
by, that 2/3 of the economy is in collapse.
Add to this the fact that we have a
massive trade deficit, and so are still sending most of what we
spend overseas. And add to that, thanks to the Bush tax cuts
and Iraq War, that our government is in debt like it has never
been, and so has no capacity to provide any stimulus or relief -
to the contrary, it is still being bled dry by the War in Iraq and
the tax cuts on a daily basis.
As M/I wrote in a different article
about 4 years back (see:
WE
BEGGED ANYONE TO PAY ATTENTION TO RUSSIA. NO ONE DID. NOW IT IS
OFFICIAL, RUSSIA WILL SHORTLY BE MORE POWERFUL THAN THE US
:
"Remember the battle in which we
secured our Cold War victory?
"Right, there never was one. We
only were considered the victors because we were the ones left
standing at the end with the strong economy, the world behind
us, and our military strength dominant and in tact.
"Flash forward to the George W.
Bush/Putin era.
"America is running record
deficits beyond anything the nation has experienced, while
Russia has developed its massive oil reserves to become the
next to largest oil exporter on the planet, second only to
Saudi Arabia...
"One of the things that drove the
Soviet Union over the edge of bankruptcy was a disastrous
decade-long venture into Afghanistan – you remember, the one
in which we paid and trained Osama bin Laden to fight for us
to defeat the USSR? Now, Putin sits by and watches the
American president he endorsed for re-election dawdle around
in the desert, spending one billion dollars a week.
Yes, while McCain and the media stand
by saying it is just some greedy execs who need to be regulated
who are responsible for our economic crisis, the reality is that
it is a combination of conservative economics and foreign policy
that is causing this disaster. Mortgages? Just a
symptom.
If America is to survive, it must, as
Obama says, completely change from Republican, top-down economics.
But in addition, it must also wean itself off of conservative
foreign policy.
And as a final note, notice the name
Osama bin Laden above. When he attacked us on 9/11, remember
what he attacked? Yes, the World Trade Center. His
symbolic and stated goal was clear: he didn't have troops to
take out America, so his goal instead was to destroy America
financially.
So tell me, under conservative,
Republican leadership, who is winning the War on Terror?
Take a look at the headlines, and tell me who is smiling, George
W. Bush or Osama bin Laden?
America isn't suffering from a
mortgage problem. And it isn't suffering from a few bad
execs problem.
Both of these are correct symptoms,
but the problem is much simpler and clear: America is
suffering from conservatism.
And as the only news source that has
been right all along - about both the economy and the re-emergence
of Russia - you can take this analysis to the bank.
M/I has not yet endorsed a candidate.
But let's just say that a vote for McCain is a vote to complete
the victory bin Laden sought on September 11, 2001. It is a
vote to finish off America financially - if it isn't already too
late.
|
